SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, DC  20549

                           FORM 10-K/A
                   AMENDMENT NO. 1 TO FORM 10-K
 (Mark One)
     [x]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
           THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                For the fiscal year ended: September 30, 1997

                                 OR

     [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
           THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                For the transition period from _______ to ________.           
                      Commission file number  0-19960

                       DATAWATCH CORPORATION
     (Exact name of registrant as specified in its charter)

         Delaware                                      02-0405716
(State of other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                           Identification no.)

234 Ballardvale St., Wilmington, Massachusetts    01887
(Address of principal executive office)         (Zip Code)

Registrant's telephone number, including area code: (978) 988-9700

Securities registered pursuant to Section 12 (b) of the Act:
                              None
Securities registered pursuant to Section 12 (g) of the Act:
              Common Stock, $.01 par value per share
                         (Title of class)

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act  of 1934 during the preceding 12 months (or for such shorter period
that  the  Registrant was required to file such reports), and  (2)  has
been subject to such filing requirements for the past 90 days:

                    Yes X               No

Indicate  by check mark if disclosure of delinquent filers pursuant  to
Item  405  of  Regulation  S-K is not contained herein, and will not be 
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [X]

Aggregate market value of voting stock held by non-affiliates:
$20,743,977 (computed by reference to the last sales price of such
common stock on December 19, 1997 as reported in the National Association
of Security Dealers consolidated trading index).

Number of shares of common stock outstanding at December 19, 1997 : 9,111,227

              Documents Incorporated By Reference

Registrant intends to file a definitive Proxy Statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended
September 30, 1997.  Portions of such Proxy Statement are incorporated
by reference in Part III of this report.

     This Amendment No. 1 on Form 10-K/A to the registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997 (the "Report") is being 
filed to correct the filing of those documents and exhibits identified in Items 
14(a) and 14(c) of the Report which were inadvertently formatted as
"correspondence" on the Securities and Exchange Commission's Electronic Data 
Gathering, Analysis and Retrieval System when the Report was filed with the
Securities and Exchange Commission on December 29, 1997.

                            PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     The following documents are filed as part of this report:

(a)  1.   Consolidated Financial Statements

     Independent Auditors' Report

     Consolidated Balance Sheets as of September 30, 1997 and 1996

     Consolidated  Statements  of  Operations  for  the   Years   Ended
     September 30, 1997, 1996 and 1995.

     Consolidated  Statements  of Changes in Shareholders'  Equity  for
     the Years Ended September 30, 1997, 1996 and 1995.

     Consolidated  Statements  of  Cash  Flows  for  the  Years   Ended
     September 30, 1997, 1996 and 1995.

     Notes to Consolidated Financial Statements

  2. Consolidated Financial Statement Schedule

     Schedule VIII Valuation and Qualifying Accounts

     All  other  schedules are omitted as the required  information  is
     not  applicable  or  is  included in the financial  statements  or
     related notes.

     The  Independent  Auditors' Report included with the  Consolidated
     Financial   Statements  under  Item  14(a)1  above  contains   the
     Independent   Auditors'  Report  on  the  Consolidated   Financial
     Statement Schedule.

  3.  Exhibits

     The  exhibits  listed  in the Exhibit Index immediately  preceding
     the Exhibits are filed as a part of this Annual Report on Form 10-K.

(b)   Reports on Form 8-K

     No  current  report  on  Form 8-K was filed during  the  quarterly
     period ended September 30, 1997.

(c)                         EXHIBIT INDEX

(6) 2.1  Asset   Purchase  Agreement,  dated  October  9,  1997,  among
         DATAWATCH  CORPORATION, Pole Position  Software  GmbH  and  Dr
         Solomon's Software, Inc. (Exhibit 2.1)
(6) 2.2  Escrow Agreement, dated October 9, 1997, among DATAWATCH
         CORPORATION,  Dr  Solomon's Software, Inc.  and  State  Street
         Bank and Trust Company. (Exhibit 2.2)
(1) 3.1  Restated Certificate of Incorporation of the  Registrant
         (Exhibit 3.2)
(1) 3.2  By-Laws, as amended, of the Registrant (Exhibit 3.3)
(1) 4.1  Specimen certificate representing  the  Common  Stock
         (Exhibit 4.4)
(1)10.1  Lease by and between the Registrant and CBOB Fund Corp.,
         as  Trustee  of  Ballardvale Building D Nominee  Trust,  dated
         February 17, 1992 (Exhibit 10.2)
(1)10.2  1987 Stock Plan (Exhibit 10.7)
(1)10.3  Form  of  Incentive  Stock  Option  Agreement  of   the
         Registrant (Exhibit 10.8)
(1)10.4  Form  of  Nonqualified Stock  Option  Agreement  of  the
         Registrant (Exhibit 10.9)
(1)10.5  Software  Development  and Marketing  Agreement  by  and
         between PERSONICS CORPORATION and Raymond Huger, dated January
         19, 1989 (Exhibit 10.12)
(2)10.6  Asset  Purchase Agreement by and between the  Registrant
         and  Secure  Systems Group, dated as of May 14, 1993  (Exhibit
         2.1)
(2)10.7  Promissory Note of Secure Systems Group to the Registrant
         in  the  original principal amount of $968,782, dated May  14,
         1993 (Exhibit 10.1)
(2)10.8  Promissory Note of Secure Systems Group to the Registrant
         in  the original principal amount of $1,821,018, dated May 14,
         1993 (Exhibit 10.2)
(2)10.9  Security  Agreement dated as of  May  14,  1993  between
         Secure  Systems Group as debtor and the Registrant as  secured
         party (Exhibit 10.3)
(2)10.10 Sublease  dated  as of May  14,  1993  between  the
         Registrant  as  sublandlord  and  Secure  Systems   Group   as
         subtenant (Exhibit 10.4)
(3)10.11 Marketing  Agreement  dated  May  1,  1994  between
         WorkGroup  Systems  Ltd.  and DATAWATCH  CORPORATION  (Exhibit
         10.1)
(4)10.12 Commercial  Security  Agreement  between  DATAWATCH
         CORPORATION and Silicon Valley Bank doing business as  Silicon
         Valley East dated November 1, 1994 (Exhibit 10.23)
(4)10.13 Commercial  Security Agreement between PERSONICS CORPORATION
         and  Silicon Valley Bank doing business as Silicon Valley East
         dated November 1, 1994 (Exhibit 10.24)
(5)10.14 Executive Agreement between the Company  and  Andrew
         W. Mathews dated April   11, 1996 (Exhibit 10.1)
(5)10.15 Executive Agreement between the Company and Marco  D.
         Peterson dated April 11, 1996 (Exhibit 10.2)
(5)10.16 Executive Agreement between the Company and  Bruce  R.
         Gardner dated April 11, 1996 (Exhibit 10.3)
(5)10.17 Executive Agreement between the Company  and  Thomas
         R. Foley dated April 11, 1996 (Exhibit 10.4)
(7)10.18 Loan Modification Agreement dated October 31, 1996 between
         DATAWATCH   CORPORATION,  Personics  Corporation  and   Silicon
         Valley Bank (Exhibit 10.29)
(7)10.19 1996 Non-Employee Director Stock Option Plan, as amended  on
         December 10, 1996 (Exhibit 10.30)
(7)10.20 1996  International Employee Non-Qualified  Stock  Option
         Plan (Exhibit 10.31)
(8)10.21 Amended  and Restated Letter Agreement, dated  February  12,
         1997,   by   and   between  DATAWATCH  CORPORATION,   Personics
         Corporation and Silicon Valley Bank (Exhibit 10.1)
(8)10.22 Promissory  Note, dated February 12, 1997,  by  and  between
         DATAWATCH   CORPORATION,  Personics  Corporation  and   Silicon
         Valley Bank (Exhibit 10.21).
   
   10.23 Loan Modification Agreement, dated October 30, 1997, by  and
         between   DATAWATCH  CORPORATION,  Personics  Corporation   and
         Silicon Valley Bank (filed herewith)
    
(9)10.24 1996 Stock Plan (Appendix A)
   11.1  Statement  re:  computation of per  share  earnings (filed herewith)
   21.1  Subsidiaries of the Registrant (filed herewith)
   23.1  Consent of Independent Auditors (filed herewith)
   27    Financial Data Schedule (filed herewith)
------------------------------
(1)  Previously filed as exhibits to Registration Statement 33-46290 on
     Form S-1 and incorporated herein by reference (the number given in
     parenthesis indicates the corresponding exhibit in such Form S-1).

(2)  Previously  filed  as exhibits to Registrant's Current  Report  on
     Form  8-K  dated May 14, 1993, filed May 28, 1993 and incorporated
     herein by reference (the number given in parenthesis indicates the
     corresponding exhibit in such Form 8-K).

(3)  Previously filed as an exhibit to Registrant's Quarterly Report on
     Form  10-Q  for  the quarter ended June 30, 1994 and  incorporated
     herein by reference (the number given in parenthesis indicates the
     corresponding exhibit in such Form 10-Q).

(4)  Previously  filed as an exhibit to Registrant's Annual  Report  on
     Form  10-K  for  the  Fiscal Year ended  September  30,  1994  and
     incorporated herein by reference (the number given in  parenthesis
     indicates the corresponding exhibit in such Form 10-K).

(5)  Previously filed as an exhibit to Registrant's Quarterly Report on
     Form  10-Q  for  the quarter ended June 30, 1996 and  incorporated
     herein by reference (the number given in parenthesis indicates the
     corresponding exhibit in such Form 10-Q).

(6)  Previously  filed  as exhibits to Registrant's Current  Report  on
     Form 8-K dated October 9, 1997 and incorporated herein by reference
     (the number given in parenthesis indicates the corresponding exhibit in
     such Form 8-K).

(7)  Previously  filed as an exhibit to Registrant's Annual  Report  on
     Form 10-K for the Fiscal Year ended September 30, 1996 and incorporated
     herein by reference (the number given in parenthesis indicates the
     corresponding exhibit in such for 10-K).

(8)  Previously filed as exhibits to Registrant's Quarterly  Report  on
     Form 10-Q for the quarter ended March 31, 1997 and incorporated herein
     by reference (the number in parenthesis indicates the corresponding
     exhibit in such Form 10-Q).

(9)  Previously  filed as appendix A to the Company's definitive  Proxy
     Statement for the Annual Meeting of Shareholders held on March 19, 1997
     and incorporated herein by reference (the number given in parenthesis
     indicates  the  corresponding appendix in  such  definitive  Proxy
     Statement).

(d)  Financial Statement Schedules

      The Company hereby files as financial statement schedules to this
Form 10-K the Consolidated Financial Statement Schedules listed in Item
14(a)2 above which are attached hereto.


                           SIGNATURES

      Pursuant  to  the  requirements of Section 13  or  15(d)  of  the
Securities  Exchange Act of 1934, the registrant has duly  caused  this
Amendment No. 1  to the Annual Report on Form 10-K to be signed on  its
behalf by the undersigned, thereunto duly authorized, this 5th day of
January, 1998.

                         DATAWATCH CORPORATION


                                   By:  /s/ Bruce R. Gardner
                                        -----------------------------------
                                        Bruce R. Gardner
                                        President,  Chief Executive Officer 
                                        and Director


      Pursuant  to the requirements of the Securities Exchange  Act  of
1934,  this  report has been signed below by the following  persons  on
behalf  of  the  Registrant  and in the capacities  and  on  the  dates
indicated.


Signature                          Title                         Date

/s/ Bruce R. Gardner          President, Chief Executive    January 5, 1998
---------------------         Officer and Director
Bruce R. Gardner              (Principal Executive Officer)


/s/ Betsy J. Hartwell         Vice President Finance,       January 5, 1998
---------------------         Chief Financial Officer
Betsy J. Hartwell             and Treasurer
                              (Principal Financial            
                              and Accounting Officer)


/s/ Jerome Jacobson            Director                     January 5, 1998
--------------------
Jerome Jacobson


/s/ David Riddiford            Director                     January 5, 1998
--------------------
David Riddiford



                                                    
 Datawatch Corporation and Subsidiaries            
 
 Consolidated Balance Sheets as of
 September 30, 1997 and 1996 and Consolidated
 Statements of Operations, Changes in
 Shareholders' Equity, and Cash Flows for the
 Years Ended September 30, 1997, 1996 and 1995
 and Independent Auditors' Report


DATAWATCH CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS
-----------------------------------------------------------------------------

                                                               Page
                                                                   
INDEPENDENT AUDITORS' REPORT                                    1

CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1997 AND 1996
 AND FOR THE THREE YEARS IN THE PERIOD ENDED SEPTEMBER 30, 1997:

 Consolidated Balance Sheets                                    2

 Consolidated Statements of Operations                          3

 Consolidated Statements of Changes in Shareholders' Equity     4

 Consolidated Statements of Cash Flows                          5

 Notes to Consolidated Financial Statements                    6-18









 
 

INDEPENDENT AUDITORS' REPORT
 
 
Board of Directors and Shareholders
Datawatch Corporation
Wilmington, Massachusetts

We have audited the accompanying consolidated balance sheets of Datawatch
Corporation and subsidiaries as of September 30, 1997 and 1996, and the 
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the three years in the period ended September 30, 
1997.  Our audits also included the consolidated financial statement schedule 
listed in Item 14(a)2.  These financial statements and the financial statement 
schedule are the responsibility of the Company's management.  Our 
responsibility is to express an opinion on these financial statements and the 
financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements.  An audit 
also includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial 
statement presentation. We believe that our audits provide a reasonable basis 
for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Datawatch Corporation and
subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period 
ended September 30, 1997, in conformity with generally accepted accounting 
principles. Also, in our opinion, such consolidated financial statement 
schedule, when considered in relation to the basic consolidated financial 
statements taken as a whole, presents fairly, in all material respects, the 
information set forth therein.

/s/ Deloitte & Touche LLP

November 21, 1997

<TABLE>


DATAWATCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
-----------------------------------------------------------------------------
ASSETS                                       1997            1996
<S>                                        <C>           <C>
CURRENT ASSETS:
 Cash and equivalents                      $ 1,586,875   $ 1,696,349
 Short-term investments                           -          792,665
 Accounts receivable, less allowance
  for doubtful accounts of $228,000 in
  1997 and $73,000 in 1996                   7,810,169     7,767,748
 Inventories                                   876,767       480,758
 Prepaid advertising and other expenses      2,000,717     1,264,798
                                           -----------   -----------
         Total current assets               12,274,528    12,002,318
                                           -----------   -----------
PROPERTY AND EQUIPMENT:
 Office furniture and equipment              3,748,022     3,174,964
 Manufacturing and engineering equipment       450,063       359,795
                                           -----------   -----------         
                                             4,198,085     3,534,759
 Less accumulated depreciation
  and amortization                          (2,304,705)   (1,737,733)
                                           -----------   -----------
   Net property and equipment                1,893,380     1,797,026
                                           -----------   -----------
OTHER ASSETS                                   551,639       400,062
                                           -----------   -----------
EXCESS OF COST OVER NET ASSETS OF
 ACQUIRED COMPANIES - Less accumulated
  amortization of $2,424,263 in 1997 and
  $1,877,461 in 1996                         1,427,098     1,041,165
                                           -----------   -----------
                                           $16,146,645   $15,240,571
                                           ===========   ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable                           $3,834,038    $2,914,952
 Accrued expenses                            1,340,995     1,063,129
 Deferred revenue                            2,143,203     1,946,473
 Borrowings under credit lines                   3,338       636,806
 Current portion of long-term obligations      501,133       230,501
                                           -----------    ----------
   Total current liabilities                 7,822,707     6,791,861
                                           -----------    ----------
LONG-TERM OBLIGATIONS                        1,399,089       209,824
                                           -----------    ----------
COMMITMENTS (NOTE 6)

SHAREHOLDERS' EQUITY:
 Common stock, par value $.01 - authorized,
  20,000,000 shares; issued, 9,116,113 and
  8,965,988 shares; outstanding,
  9,084,061 and 8,965,988 shares in 1997 and
  1996, respectively                            91,160       89,659
 Additional paid-in capital                 19,737,963   18,665,402
 Accumulated deficit                       (12,533,550) (10,538,117)
 Cumulative translation adjustment            (230,336)      21,942
                                           -----------   -----------        
                                             7,065,237    8,238,886

Less - treasury stock, at cost
 - 32,052 shares                              (140,388)        -
                                           -----------    ----------
   Total shareholders' equity                6,924,849    8,238,886
                                           -----------    ----------
                                           $16,146,645  $15,240,571
                                           ===========   ===========           
</TABLE>

See notes to consolidated financial statements.


<TABLE>

DATAWATCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
-------------------------------------------------------------------------
                                      1997        1996          1995
<S>                              <C>          <C>           <C>
NET SALES:
 IBM PC-based products            $25,995,197  $24,216,794   $18,839,265
 Macintosh-based products           6,052,298    5,805,328     4,520,716
                                  -----------   ----------    ----------
   Net sales                       32,047,495   30,022,122    23,359,981

COSTS AND EXPENSES:
 Cost of sales                      5,899,849    4,516,456     3,808,995
 Engineering and product 
  development                       2,804,434    2,338,724     2,219,930
 Selling, general and 
  administrative                   25,225,177   22,039,420    17,650,010
                                   ----------   ----------    ----------
INCOME (LOSS) FROM OPERATIONS      (1,881,965)   1,127,522      (318,954)

INTEREST EXPENSE                     (167,871)     (96,184)      (75,449)

OTHER INCOME - Primarily interest      54,503       49,162        67,688

FOREIGN CURRENCY TRANSACTION
 GAINS (LOSSES)                          (100)      11,860        23,292

BENEFIT (PROVISION) FOR INCOME 
 TAXES                                    -         33,000       (28,000)
                                   ----------    ---------     ----------
NET INCOME (LOSS)                 $(1,995,433) $ 1,125,360    $ (331,423)
                                   ==========   ==========    ===========
NET INCOME (LOSS) PER SHARE       $      (.22) $       .13    $     (.04)
                                   ==========   ==========    ===========
WEIGHTED AVERAGE NUMBER OF
 COMMON AND COMMON EQUIVALENT
 SHARES OUTSTANDING                 9,060,612    8,943,862     8,204,502
                                   ==========   ==========    ==========
</TABLE>

See notes to consolidated financial statements.



<TABLE>

DATAWATCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
----------------------------------------------------------------------------------------------------------------------
                                   Common        Additional     Treasury                        Cumulative
                                    Stock         Paid-in         Stock           Accumulated   Translation  Total
                               Shares   Amount    Capital     Shares   Amount       Deficit     Adjustments
----------------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>     <C>          <C>     <C>        <C>            <C>       <C>
BALANCE, OCTOBER 1, 1994      7,378,756  $73,787 $16,478,411   -      $   -     $(11,332,054)   $46,444   $5,266,588

Common stock options exercised   97,039      970     71,123    -          -             -          -          72,093

Warrants exercised, net of 
 offering costs               1,153,340   11,534  1,064,826    -          -             -          -       1,076,360

Translation adjustment             -        -          -       -          -             -       (21,448)     (21,448)

Net loss                           -        -          -       -          -         (331,423)      -        (331,423)
----------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1995   8,629,135   86,291 17,614,360    -          -      (11,663,477)    24,996    6,062,170

Common stock options exercised  217,411    2,174    203,264    -          -             -          -         205,438

Warrants exercised, net of 
 offering costs                 119,442    1,194    847,778    -          -             -          -         848,972

Translation adjustment             -        -          -       -          -             -        (3,054)      (3,054)

Net income                         -        -          -       -          -        1,125,360       -       1,125,360
----------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1996   8,965,988   89,659 18,665,402    -          -      (10,538,117)    21,942    8,238,886

Common stock issued pursuant
 to acquisition of Guildsoft    125,000    1,250    905,000    -          -             -          -         906,250

Common stock options
 exercised                       25,125     251      27,173    -          -             -          -          27,424

Escrowed share returned to 
 treasury                          -       -        140,388 (32,052)  (140,388)         -          -            -

Translation adjustment             -       -           -       -          -             -      (252,278)    (252,278)

Net loss                           -       -           -       -          -       (1,995,433)      -      (1,995,433)
----------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997   9,116,113 $91,160 $19,737,963 (32,052) $(140,388) $(12,533,550) $(230,336)  $6,924,849
======================================================================================================================
See notes to consolidated financial statements,

</TABLE>

<TABLE>

DATAWATCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
------------------------------------------------------------------------------
                                            1997          1996           1995
<S>                                     <C>           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)                      $(1,995,433)  $ 1,125,360  $ (331,423)
 Adjustments to reconcile net income
  (loss) to net cash used in operating
  activities:
   Adjustment to change fiscal 
    year of WorkGroup                          -             -        158,921
   Depreciation and amortization          1,522,877     1,223,162     975,254
   Changes in current assets and
    liabilities, net of acquisitions:
     Inventories                           (175,144)     (218,230)    (20,900)
     Prepaid advertising and
      other expenses                       (672,054)      243,381    (641,303)
     Accounts receivable                    353,381    (2,537,062) (1,819,261)
     Accounts payable and accrued
      expenses                              132,358      (567,112)    914,894
     Deferred revenue                       196,730       631,818     581,524
                                          ---------    ----------   ---------
      Net cash used in operating 
       activities                          (637,285)     (98,683)    (182,294)
                                          ---------    ----------   ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of equipment and fixtures        (647,888)    (564,129)    (381,298)
 Proceeds from sale of equipment - net       91,233         -            -
 Proceeds from sale of short-term 
  investments                             2,069,065    2,312,478      676,733
 Purchase of short-term investments      (1,276,400)  (2,219,484)  (1,562,392)
 Acquisition of Guildsoft Holdings, Ltd.,
  net of working capital acquired            19,833         -            -
 Other assets                              (314,608)      25,571     (393,006)
                                          ---------    ---------    ---------
      Net cash used in investing 
       activities                           (58,765)    (445,564)  (1,659,963)
                                          ---------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net proceeds from issuance of 
  common stock                               27,424    1,054,410    1,148,453
 Principal payments on long-term 
  obligations                              (307,380)    (245,575)    (136,833)
 Principal (payments) borrowings under
  credit lines - net                       (633,468)     554,959       81,847
 Proceeds from bank term loan             1,500,000           -            -
                                          ---------    ---------    ----------
      Net cash provided by financing 
       activities                           586,576    1,363,794    1,093,467
                                          ---------    ---------    ----------
NET INCREASE (DECREASE) IN CASH
 AND EQUIVALENTS                           (109,474)     819,547     (748,790)
                  
CASH AND EQUIVALENTS, BEGINNING 
 OF YEAR                                  1,696,349      876,802    1,625,592
                                          ---------    ---------    ----------
CASH AND EQUIVALENTS, END OF YEAR        $1,586,875   $1,696,349   $  876,802
                                          =========    =========    ==========
SUPPLEMENTAL INFORMATION:
 Interest paid                           $  159,954   $   96,184   $   75,449
                                          =========    =========    ==========
 Income taxes paid                       $  167,490   $   78,922   $     -
                                          =========    =========    ==========

NONCASH INVESTING AND FINANCING ACTIVITIES:
 Equipment acquired under capital
  lease agreements                       $  267,277   $  320,684   $  259,713
                                          =========    =========    ========= 
 Escrowed shares returned to treasury    $  140,388   $     -      $     -
                                          =========    =========    =========
</TABLE>

See notes to consolidated financial statements.






DATAWATCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995


1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
   POLICIES
   
   Nature of Business - Datawatch Corporation and its wholly owned
   subsidiaries, Personics Corporation ("Personics"), Pole Position
   Software GmbH ("Pole Position") WorkGroup Systems Limited
   ("WorkGroup") and Guildsoft Holdings Limited ("Guildsoft")
   (collectively, the "Company") develop, market and distribute
   personal computer software products.  The Company also provides
   a wide range of consulting services surrounding the
   implementation and support of its software products.
   
   Principles of Consolidation - The financial statements are
   consolidated to include the accounts of Datawatch Corporation
   and its wholly owned subsidiaries.   All significant
   intercompany balances and transactions have been eliminated in
   consolidation.  The term "Datawatch," as used herein, refers to
   Datawatch Corporation and its wholly owned subsidiaries prior to
   the pooling-of-interests of  WorkGroup.   WorkGroup's fiscal
   year end had historically ended on December 31, while
   Datawatch's fiscal year had ended on September 30.  Effective
   January 1, 1995, WorkGroup changed its fiscal year end from
   December 31 to September 30.
   
   Revenue Recognition - Software - Revenue from sales of software
   products are recognized at the time of shipment when no
   significant obligations remain and collectibility is probable.
   The Company's software products are sold under warranty against
   certain defects in material and workmanship for a period of 30
   to 60 days from the date of purchase.  Software products sold
   directly to end-users include a guarantee under which such
   customers may return products within 30 to 60 days for a full
   refund.  During each of the three years in the period ended
   September 30, 1997, returns under these warranty and guarantee
   arrangements were not material.
   
   Revenue Recognition - Services and Other - Revenue from the
   sale of annual subscription agreements to provide upgrades for
   minor product improvements and new virus protection are deferred
   at the time of sale.  Revenue from the sale of separate
   consulting agreements to provide field service support are also
   deferred at the time of sale.  The Company recognizes its
   revenue on these agreements ratably over a twelve-month period.
   
   Revenue from consulting services performed in connection with
   the sale of bundled products and services (principally at the
   Company's WorkGroup subsidiary) are recognized at the time of
   the shipment of software if the consulting services are expected
   to be provided within a short period of time after the shipment
   of the related product (i.e., within a few weeks) and the cost
   of such services are estimable.  If consulting services are not
   expected to be provided within a short period of time after the
   shipment of the related product, such revenue are deferred and
   recognized as revenue as the services are provided.
   
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
   POLICIES (CONTINUED)
   
   Cash and Equivalents - Cash and equivalents includes cash on
   hand, cash deposited with banks and highly liquid debt
   securities with remaining maturities of 90 days or less when
   purchased.
   
   Short-Term Investments - Short-term investments consist of
   United States Treasury Bills with relatively short-term
   maturities for which the carrying value approximates market.
   
   Other Assets - Pursuant to Statement of Financial Accounting
   Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
   Software to be Sold, Leased, or Otherwise Marketed," issued by
   the Financial Accounting Standards Board ("FASB"), the Company is
   required to capitalize certain software development and
   production costs once technological feasibility has been
   achieved.  The cost of purchased software is capitalized when
   related to a product which has achieved technological
   feasibility or that has an alternative future use.  For the
   years ended September 30, 1997, 1996 and 1995, the Company did
   not capitalize any internal software development costs.  During
   fiscal 1997, the Company purchased and capitalized software
   amounting to $315,000.  For the years ended September 30, 1996
   and 1995, the Company did not capitalize any purchased software.
   Software development costs incurred prior to achieving
   technological feasibility as well as certain licensing costs are
   charged to research and development expense as incurred.
   
   Capitalized software development and purchased software costs
   are reported at the lower of unamortized cost or net realizable
   value.  Commencing upon initial product release, these costs are
   amortized based on the straight-line method over the estimated
   life, generally twelve to thirty-six months for purchased
   software.  Amortization was approximately $22,000 in 1997 and
   $60,000 in both 1996 and 1995.
   
   Advertising and Promotional Materials - Advertising costs are
   expensed as incurred and amounted to approximately $721,000,
   $917,000, and $640,000 in 1997, 1996 and 1995, respectively.
   Direct mail/direct response costs are expensed as the associated
   revenue is recognized.  The amortization period is based on
   historical results of previous mailers (generally 3 to 4 months
   from the date of the mailing).  Direct mail expense was
   approximately $3,152,000, $3,970,000 and $4,000,000 in 1997,
   1996 and 1995, respectively.  At September 30, 1997 and 1996,
   deferred direct mail/direct response costs were approximately
   $1,291,000 and $863,000, respectively.
   
   Concentration of Credit Risks and Major Customers - The Company
   sells its products and services to U.S. and non-U.S. dealers and
   other software distributors, as well as to end-users under
   normal credit terms.  One customer individually accounted for
   14% of net sales in 1997, 13% of net sales in 1996, and 10% of 
   net sales in 1995.  This same customer accounted for 26% and 23% of
   outstanding trade receivables as of September 30, 1997 and 1996,
   respectively.  No base of customers in one geographic area
   constitutes a significant portion of sales.  The Company
   performs ongoing credit evaluations of its customers and
   generally does not require collateral.  Allowances are provided
   for anticipated doubtful accounts and sales returns.
   
   Inventories - Inventories consist of software components -
   primarily software manuals, diskettes and retail packaging
   materials.  Inventories are valued at the lower of cost or
   market.  Cost is determined using the first-in, first-out
   method.
   
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
   POLICIES (CONTINUED)
   
   Property and Equipment - Purchased equipment and fixtures are
   recorded at cost.  Leased equipment accounted for as capital
   leases is recorded at the present value of the minimum lease
   payments required during the lease term.  Depreciation and
   amortization are provided using the straight-line method over
   the estimated useful lives of the related assets and over the
   terms, if shorter, of the related leases.  Useful lives and
   lease terms range from 3 to 7 years.  The cost and the related
   accumulated amortization of equipment leased under capital lease
   agreements was approximately $1,043,000 and $577,000 at
   September 30, 1997, respectively, and $958,000 and $448,000 at
   September 30, 1996, respectively.  Amortization expense was
   $296,000, $224,000 and $142,000 for the years ended September
   30, 1997, 1996 and 1995, respectively.
   
   Income Taxes - The Company accounts for income taxes in
   accordance with SFAS No. 109, "Accounting for Income Taxes."
   This statement requires an asset and liability approach to
   accounting for income taxes based upon the future expected
   values of the related assets and liabilities.  Deferred income
   taxes are provided for items which are recognized in different
   years for tax and financial reporting purposes.
   
   Excess of Cost Over Net Assets of Acquired Companies - The
   excess of cost over net assets of acquired companies is being
   amortized on a straight-line basis over seven years.  In
   addition, the net carrying amount of the excess of cost over net
   assets of acquired companies is reduced if it is probable that
   the estimated undiscounted operating income (defined as
   operating cash flow less depreciation and amortization) from
   related operations will be less than the carrying amount of the
   excess of cost over net assets of acquired companies.
   
   The Company also evaluates other long-lived assets using the
   same methodology in accordance with SFAS No. 121.
   
   Accounting Estimates - The preparation of the Company's
   consolidated financial statements in conformity with generally
   accepted accounting principles necessarily requires management
   to make estimates and assumptions that affect the reported
   amounts of assets and liabilities and disclosure of contingent
   assets and liabilities at the date of the financial statements
   and the reported amounts of revenue and expenses during the
   reporting period.  Actual results could differ from those
   estimates.
   
   Fair Value of Financial Instruments - The carrying amounts of
   cash and equivalents, short-term investments, accounts
   receivable, accounts payable, accrued expenses and deferred
   revenue approximate fair value because of their short-term
   nature.  The carrying amount of the Company's current and long-
   term obligations approximate fair value.
   
   Net Income Per Common Share - Net income per common share is
   computed upon the weighted average number of common and common
   equivalent shares outstanding during each period presented.
   Common stock equivalents consist of dilutive stock options and
   common stock warrants.
   
   In February 1997, the FASB issued SFAS No. 128, "Earnings Per
   Share", which will become effective during the first quarter of
   fiscal 1998.  SFAS No. 128 replaces the presentation of primary
   earnings per share with basic earnings per share, which excludes
   dilution, and requires the dual presentation of basic and
   diluted earnings per share.  Had the Company used SFAS No. 128,
   the Company's basic earnings per share and diluted earnings per
   share would have been the same as the earnings per share
   presented in the consolidated statements of operations for
   fiscal 1997, 1996 and 1995.
   
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
   POLICIES (CONTINUED)
   
   Foreign Currency Translations and Transactions - The financial
   statements of foreign subsidiaries are translated into U.S.
   dollars in accordance with SFAS No. 52.  The related translation
   adjustments are reported as a separate component of
   shareholders' equity.  Gains and losses resulting from
   transactions and related accounts that are denominated in
   currencies other than the U.S. dollar are included in the net
   operating results of the Company in accordance with SFAS No. 52.
   
   Reclassifications - Certain prior year amounts have been
   reclassified to conform with the current financial statement
   presentation.
   
   Stock-Based Compensation - During 1997, the Company adopted the
   disclosure provisions of SFAS No. 123, "Accounting for Stock-
   Based Compensation."  SFAS No. 123 encourages, but does not
   require, the recognition of compensation expense for the fair
   value of stock options and other equity instruments issued to
   employees and nonemployee directors.  The Company continues to
   account for stock-based compensation using the intrinsic value
   method in accordance with Accounting Principles Board Opinion
   ("APB") No. 25.  The difference between accounting for stock-
   based compensation under APB No. 25 and SFAS No. 123 is
   disclosed in Note 9.
   
   New Accounting Pronouncements - In June 1997, the FASB issued
   SFAS No. 130, "Reporting Comprehensive Income," and SFAS
   No. 131, "Disclosures About Segments of an Enterprise and
   Related Information."  SFAS No. 130 establishes standards for
   reporting and display of comprehensive income and its components
   (revenues, expenses, gains and losses) in a full set of general
   purpose financial statements.  SFAS No. 131 establishes
   standards for the way that public business enterprises report
   information about operating segments in annual financial
   statements and requires that those enterprises report selected
   information about operating segments in interim financial
   reports.  It also establishes standards for related disclosures
   about products and services, geographic areas and major
   customers.  Both standards will be adopted by the Company during
   the first quarter of fiscal 1999 and are not expected to have a
   material effect on its consolidated financial position, results
   of operations or financial statement disclosures.
   
2. POOLING-OF-INTERESTS
   
   On March 12, 1996, the Company acquired all of the outstanding
   shares of capital stock of WorkGroup in exchange for an
   aggregate of 1,437,000 shares of the Company's common stock,
   with 143,698 of such issued shares held in escrow for contingent
   liabilities.  The acquisition has been accounted for as a
   pooling-of-interests.  Costs related to the pooling-of-interests
   of $450,000 were expensed during fiscal 1996.  On November 21,
   1996, the Company recovered 32,052 shares of the 143,698
   escrowed shares in connection with the settlement of certain
   WorkGroup contingent liabilities.  These liabilities had been
   previously recorded in the 1996 financial statements.
   
   As of September 30, 1995, the Company acquired Pole Position, a
   German software developer, in exchange for 300,000 shares of the
   Company's common stock.  The acquisition has been accounted for
   as a pooling-of-interests.  Costs related to the pooling-of-
   interests of $70,208 were expensed during fiscal 1995.
   
3. PURCHASE ACQUISITION
   
   On November 7, 1996, the Company acquired all of the outstanding
   capital stock of Guildsoft Holdings Limited ("Guildsoft"), a
   U.K.-based software distributor, in exchange for an aggregate of
   125,000 shares of the Company's common stock, with 12,500 of
   such issued shares held in escrow for contingent liabilities.
   The acquisition has been accounted for as a purchase.
   Accordingly, all operating activity of Guildsoft from November
   7, 1996 through September 30, 1997 has been included in the
   Company's fiscal 1997 consolidated statement of operations.  On
   an unaudited pro forma basis, if the acquisition had taken place 
   on October 1, 1995, net sales for fiscal 1996 would have been 
   approximately $31,900,000 and net income for fiscal 1996 would not
   have been materially different from the amount previously reported.
   
   The total purchase price of $906,250 was allocated to the assets
   acquired based upon their respective fair values as follows:
   
     Accounts receivable                       $ 395,802
     Inventories                                 220,865
     Prepaid and other assets                     63,865
     Property and equipment                       84,669
     Goodwill                                    933,532
     Accounts payable                           (682,931)
     Accrued expenses                           (129,385)
     Cash and equivalents                         19,833
                                                ---------
                                               $ 906,250
                                                =========

    
4. INVENTORIES
   
   Inventories consisted of the following at September 30:
   
                                         1997          1996

     Raw materials                    $ 338,560     $ 218,615
     Work in process                      1,825         2,458
     Finished goods                     536,382       259,685
                                       --------      --------
     Total                            $ 876,767     $ 480,758
                                       ========      ========
    
5. ACCRUED EXPENSES
   
   Accrued expenses consisted of the following at September 30:
   
                                             1997          1996
 
    Accrued salaries and benefits       $  567,745    $  222,921
    Accrued royalties and commissions      406,536       491,960
    Accrued legal and accounting            19,802       142,758
    Accrued rent and property taxes         54,364        80,487
    Other                                  292,548       125,003
                                         ---------     ---------
    Total                               $1,340,995    $1,063,129
                                         =========     =========  
 
6. COMMITMENTS
   
   Leases - The Company leases various facilities in the U.S. and
   overseas under noncancelable operating leases which expire
   through 2017.  The lease agreements provide for the payment of
   minimum annual rentals and a pro-rata share of real estate taxes
   and maintenance expenses.  The Company has an option to renew
   the lease for its U.S. facilities for an additional five years
   commencing in 1999.  Rental expense for all operating leases was
   approximately $803,000, $851,000 and $714,000 for the years
   ended September 30, 1997, 1996 and 1995, respectively.
   
   As of September 30, 1997, minimum rental commitments under
   noncancelable operating leases are as follows:
     
     Year Ending
     September 30

     1998                           $  623,625
     1999                              382,770
     2000                              107,479
     2001                               77,115
     2002                               77,115
     Thereafter                      1,135,382
                                    ----------
     Total minimum lease payments   $2,403,486
                                    ==========

   Royalties - The Company is also committed to pay royalties
   relating to the sales of software products.  Royalty expense was
   approximately $1,867,000, $1,533,000 and $1,395,000 for the
   years ended September 30, 1997, 1996 and 1995, respectively.
   
7. FINANCING ARRANGEMENTS
   
   Line of Credit - The Company maintains a line of credit which
   will expire on January 30, 1998.  The line of credit provides
   for maximum borrowings up to the lesser of $1,500,000 or 50%-75%
   of defined eligible accounts receivable.  Borrowings under the
   line are collateralized by substantially all assets of the
   Company.  Outstanding borrowings bear interest at the bank's
   prime rate plus 1.0%.  As of September 30, 1997 and 1996, there
   were no outstanding borrowings under the line of credit.
   
   Term Loan - On February 12, 1997, the Company obtained an
   equipment line of credit with a bank.  The line of credit
   provides for maximum borrowings up to $1,500,000.  Borrowings
   under the line are collateralized by substantially all assets of
   the Company.  The borrowings bear interest at the bank's prime
   rate plus 1.5% (10% at September 30, 1997).  Payments of
   interest only are required from March 12, 1997 through February
   12, 1998, at which time the equipment line will convert to a
   term loan payable in thirty-six even monthly payments of
   principal plus interest, beginning March 12, 1998 with final
   payment due February 12, 2001.  The agreement requires
   compliance with certain financial and other covenants which
   specify, among other things, dividend restrictions, a minimum
   tangible capital base, and minimum leverage and liquidity
   levels.  The Company was in violation (and subsequently obtained
   a waiver) of one of these covenants at September 30, 1997.  As
   of September 30, 1997, $1,500,000 of borrowings were outstanding
   under the equipment line of credit.
   
   Demand Note - At September 30, 1997, Pole Position had a demand
   note payable to a bank.  The interest rate applicable to this
   note is a variable rate based upon the General Interest Rate of
   Germany (10% at September 30, 1997).  Subsequent to year end
   this note was repaid in full.
   
   Capital Lease Obligations - The Company leases certain office
   and computer equipment under capital leases with lease terms
   ranging from 1 to 3 years.
   
   Future principal maturities of the Company's debt obligations at
   September 30,1997 are as follows:

<TABLE>     
                                 Capital      Demand      Term 
                                 Leases        Note       Loan         Total
        <S>                    <C>          <C>       <C>          <C>
        1998                   $ 215,927    $ 26,712  $  258,494   $  501,133
        1999                     121,476        -        500,000      621,476
        2000                      36,107        -        500,000      536,107
        2001 and thereafter         -           -        241,506      241,506
                               ---------    --------   ---------    ---------
        Total debt obligation  $ 373,510    $ 26,712  $1,500,000   $1,900,222
                               =========    =========  =========    =========
</TABLE>


8. INCOME TAXES
   
   At September 30, 1997, the Company has available approximately
   $4,600,000 and $7,365,000 of regular tax loss carryforwards for
   federal and state purposes, respectively, which commence expiring
   in 2007.  An alternative minimum tax credit of $144,000 is
   available for offset against future regular federal taxes.  
   Research and development credits of $205,000 expire in 2005.
   In addition, tax loss carryforwards in certain foreign
   jurisdictions total approximately $2,000,000.
   
8. INCOME TAXES (CONTINUED)
   
   Deferred income taxes reflect the net tax effects of temporary
   differences between the carrying amounts of assets and
   liabilities for financial reporting purposes and the amounts
   used for income tax purposes and operating loss carryforwards
   and credits.  The tax effects of significant items comprising
   the Company's net deferred tax position as of September 30 were
   as follows:

<TABLE>
                                                    1997           1996
     <S>                                       <C>            <C>
     Deferred tax liabilities:
      Depreciation and amortization            $ (91,675)      $ (28,174)
      Other                                         -            (20,041)
                                               ---------       ---------
                                                 (91,675)        (48,215)
     Deferred tax assets:
      Inventory related items                    196,870          69,947    
      Accounts and notes receivable reserves     269,043         184,063
      Net operating loss carryforwards         3,166,171       2,430,356
      Research and development credits           204,711         195,817
      Alternative minimum tax credits            143,711         119,000   
                                               ---------       ---------
                                               3,888,831       2,950,968  
    
     Valuation allowance                      (3,888,831)     (2,950,968)
                                               ---------       ---------
     Deferred taxes, net                      $    -          $     -
                                              ==========      ===========

</TABLE>


   The Company has experienced significant losses either
   domestically or internationally over the past several years.
   Accordingly, management does not believe the tax assets satisfy
   the realization criteria set forth in SFAS No. 109 and has thus
   recorded a valuation allowance for the entire net tax asset.
   The valuation allowance increased by approximately $938,000 in
   1997 because of significant unrecognized foreign net operating
   losses.
   
   As described in Note 12, in October 1997 the Company sold two
   of its software product lines.  Net operating losses previously
   reserved totaling approximately $3,000,000 will be recognized in
   connection with this transaction.
   
   The following table reconciles the Company's effective tax rate
   to the federal statutory rate of 34% for the years ended
   September 30, 1997, 1996 and 1995:
   

<TABLE>
                                                        1997        1996       1995
  <S>                                              <C>          <C>        <C>
  Taxes (benefit) at federal statutory rate         $ (678,000)  $ 372,000  $(103,000)
  Utilization of net operating loss carryforwards     (371,000)   (507,000)  (287,000)
  Net operating loss carryforwards not recognized    1,049,000     133,000    365,000
  Other                                                   -        (31,000)    53,000
                                                     ---------    ---------  --------
  Provision (benefit) for income taxes              $     -      $ (33,000)  $ 28,000
                                                     =========    =========  ========
</TABLE>

9. SHAREHOLDERS' EQUITY
   
   Stock Option Plans - The Company's four stock option plans
   described below provide for granting of options and other stock
   rights to purchase common stock of the Company to employees,
   officers, consultants and directors who are not otherwise
   employees.  The options granted are exercisable as specified at
   the date of grant and generally expire five to ten years from
   the date of grant.  Generally, options and other stock rights
   are granted at exercise prices not less than fair market value
   at the date of the grant.
   
   The Company's 1987 Stock Option Plan provides for the issuance
   of nonqualified or incentive stock options to employees, officers,
   consultants, and directors to purchase an aggregate of 790,791
   shares of common stock.  As of February 25, 1997, the Company
   may no longer issue stock options under the 1987 Stock Option
   Plan pursuant to terms of the plan.
   
   On June 1, 1996, the Company established the 1996 Non-employee
   Director Stock Option Plan, (the "1996 Director Plan") which was
   amended December 10, 1996.  The 1996 Director Plan, as amended,
   provides for an initial grant of 12,000 options to each
   non-employee director elected as a member of the Board of
   Directors and for the subsequent automatic annual grant of 4,000
   options (at the then current fair market value) to each member
   so long as that member remains on the Board of Directors.
   Options granted pursuant to this plan vest 8.33% during each
   three-month period subsequent to date of grant, so as to be
   fully vested three years from date of grant. Options may be
   granted under this plan through June 1, 2006.
   
   On October 4, 1996, the Company established the 1996
   International Employee Non-Qualified Stock Option Plan (the
   "1996 International Plan").  Pursuant to this plan, nonqualified
   options may be granted to any employee or consultant of any of
   the Company's foreign subsidiaries through October 4, 2006.
   
   On December 10, 1996, the Company established the Datawatch
   Corporation 1996 Stock Plan (the "1996 Stock Plan") which
   provides for the granting of both incentive stock options and
   nonqualified options, the award of Company common stock, and
   opportunities to make direct purchases of Company common stock
   (collectively, "Stock Rights"), as determined by a committee
   appointed by the Board of Directors.  Options pursuant to this
   plan may be granted through December 10, 2006, and shall vest as
   specified by the Committee.
   
   Selected information regarding the above stock option plans as
   of and for the year ended September 30, 1997 is as follows:
   
                                          Authorized       Available for
                                          for Grant        Future Grant

     1987 Stock Option Plan                 790,791              -
     1996 Director Plan                      72,000            36,000
     1996 International Plan                200,000            13,000
     1996 Stock Plan                      1,000,000           645,000
                                         ----------        ----------
                                          2,062,791           694,000
                                         ==========        ==========

    
9. SHAREHOLDERS' EQUITY (CONTINUED)
   
   The following table is a summary of activity for all of the
   Company's stock option plans:
   
                                        Shares Under      Weighted Average    
                                           Option         Exercise Price
                                                             Per Share

     Outstanding, October 1, 1994         449,490           $ 0.95
       
       Granted                              9,000             2.90
       Canceled                           (41,832)            1.56
       Exercised                          (97,039)            0.74
                                         --------           -------
     Outstanding, September 30, 1995      319,619             0.99
 
       Granted                            181,000             5.01
       Canceled                            (7,667)            4.46
       Exercised                         (217,411)            0.95
                                         --------           -------
     Outstanding, September 30, 1996      275,541             3.56

       Granted                            719,820             1.98
       Canceled                          (198,527)            4.53
       Exercised                          (25,125)            1.09
                                         --------            -----
     Outstanding, September 30, 1997      771,709           $ 1.92
                                         ========            =====
               
         

9. SHAREHOLDERS' EQUITY (CONTINUED)
   
   The following table sets forth information regarding options
   outstanding at September 30, 1997:


                  Options Outstanding                     Options Exercised
----------------------------------------------------    --------------------
                        Weighted Average    Weighted              Weighted  
                          Remaining         Average               Average
  Exercise                Contractual       Exercise              Exercise
   Prices     Shares      Life (Years)       Price       Shares    Price
               
   $ 1.00     74,875         2               $ 1.00      74,875   $ 1.00 
     1.69    352,167         8                 1.69      46,661     1.69
     1.75    285,000         10                1.75      23,335     1.75
     1.88      8,000         5                 1.88        -        1.88
     1.94      3,000         5                 1.94        -        1.94
     2.47        667         2                 2.47         333     2.47
     4.31     12,000         9                 4.31        -        4.31
     4.87     12,000         4                 4.87       5,000     4.87
     7.06     12,000         9                 7.06       4,000     7.06
     7.75     12,000         9                 7.75       4,000     7.75
            --------       ----              ------     -------     ----
             771,709         8               $ 1.92     158,204   $ 1.76
            ========       ====              ======     =======     ====

    
   
     
   As described in Note 1, the Company uses the intrinsic value method
   in accordance with APB No. 25 to measure compensation expense
   associated with grants of stock options to employees.  Had the
   Company used the fair value method to measure compensation, the
   Company's net income (loss) and net income (loss) per share for the
   years ended September 30, 1997 and 1996 would have been
   $(2,263,219) or $(.25) per share in 1997 and $1,062,506 or $.12 per
   share in 1996.
   
   The fair value of each stock option is estimated on the date of
   grant using the Black-Scholes option pricing model with the
   following weighted-average assumptions in 1997 and 1996:  an
   expected life of 5 years, expected weighted-average volatility of
   87.2% in 1997 and 52.1% in 1996, a dividend yield of 0%, and a
   weighted-average risk-free interest rate of 6.7% in 1997 and 6.1%
   in 1996.  The weighted-average fair value of options granted in
   1997 and 1996 was $1.26 and $3.41, respectively.
   
   The option pricing model was designed to value readily tradeable
   stock options with relatively short lives.  The options granted to
   employees are not tradeable and have contractual lives of five to
   ten years.  However, management believes that the assumptions used
   and the model applied to value the awards yields a reasonable
   estimate of the fair value of the grants made under the
   circumstances.
   
   Preferred Stock - The Company is authorized to issue 1,000,000
   shares of preferred stock with a par value of $.01 per share.
   There were no shares of preferred stock outstanding at September
   30, 1997 and 1996.
   
10.RETIREMENT SAVINGS PLAN
   
   The Company has a 401(k) retirement savings plan covering
   substantially all of the Company's full-time domestic employees.
   Under the provisions of the plan, employees may contribute a
   portion of their compensation within certain limitations.  The
   Company, at the discretion of the Board of Directors, may make
   contributions on behalf of its employees under this plan.  Such
   contributions, if any, become fully vested after five years of
   continuous service.  The Company has not made any contributions
   during 1997, 1996 or 1995.
   
11.SEGMENT INFORMATION
   
   Summarized information about the Company's operations by geographic
   area is as follows:

<TABLE>
                                           Europe
                                         (Principally
                                          U.K. and
                             Domestic     Germany)      Eliminations  Total  
           
Year Ended September 30, 1997
<S>                         <C>          <C>          <C>         <C>   
Net sales                   $20,502,363  $12,398,815  $ (853,683) $32,047,495
Income (loss) from 
 operations                     986,866   (2,800,009)    (68,822)  (1,881,965)
Identifiable assets          16,782,249    5,089,501  (5,725,105)  16,146,645
 
Year Ended September 30, 1996
     
Net sales                   $19,980,505  $10,418,080  $ (376,463) $30,022,122
Income (loss) from 
 operations                   1,802,456     (666,201)     (8,733)   1,127,522
Identifiable assets          12,329,945    4,658,682  (1,748,056)  15,240,571  

Year Ended September 30, 1995

Net sales                   $16,425,189  $ 7,242,738  $ (307,946) $23,359,981
Income (loss) from 
 operations                     945,860   (1,190,528)    (74,286)    (318,954)
Identifiable assets           9,918,844    2,551,838    (112,550)  12,358,132

</TABLE>
    
   Export sales aggregated approximately $3,484,000, $4,015,000 and
   $3,496,000 in 1997, 1996 and 1995, respectively.
   

12.SUBSEQUENT EVENT
   
   On October 9, 1997, the Company sold two of its software product
   lines for $16,750,000 in cash, resulting in a gain, net of tax, of
   approximately $11,865,000.  The assets sold consist primarily of
   inventory, property and equipment, trademarks, and the
   technological rights related to these product lines.
   
   On an unaudited pro forma basis, if the sale of these product lines
   had taken place on October 1, 1996, net sales, net loss, and net
   loss per share for fiscal 1997 would have been approximately
   $25,915,000, $1,659,000, and $0.18, respectively.
   
                              * * * * * *



<TABLE>
                                  Schedule VIII
                      DATAWATCH CORPORATION & SUBSIDIARIES
                        VALUATION AND QUALIFIED ACCOUNTS

------------------------------------------------------------------------------
COLUMN A            COLUMN B        COLUMN C            COLUMN D      COLUMN E
------------------------------------------------------------------------------
Description        Balance at      Additions           Deductions   Balance at
                   Beginning       Charged To          from         End of
                   Period     -----------------------  Reserves     Period
                             Costs & Expenses(a) Other
-----------------------------------------------------------------------------
<S)               <C>        <C>       <C>             <C>           <C>
Year Ended September 30, 1997
-----------------------------
Allowance-doubtful
 accounts and
 sales returns     $73,145   $177,334  $54,138 (d),(e) ($76,704)(b)   $227,913
                   -----------------------------------------------------------
TOTAL              $73,145   $177,334  $54,138         ($76,704)      $227,913
                   ===========================================================

Year Ended September 30, 1996
-----------------------------
Allowance-doubtful
 accounts and 
 sales returns     $83,064    $42,349                 ($52,268)(b)(c)  $73,145
                   -----------------------------------------------------------
TOTAL              $83,064    $42,349                 ($52,268)        $73,145
                   ===========================================================

Year Ended September 30, 1995
-----------------------------
Allowance-doubtful 
 accounts and 
 sales returns     $68,590    $74,550                 ($60,076)(b)(c)  $83,064
                   -----------------------------------------------------------
TOTAL              $68,590    $74,550                 ($60,076)        $83,064
                   ===========================================================


(a)  Current year provision
(b)  Doubtful accounts written off
(c)  Product returns
(d)  Allowance acquired through purchase of Guildsoft Holdings Ltd.
(e)  Bad debt recoveries

</TABLE>


                                  EXHIBIT 10.23
                                        
                           LOAN MODIFICATION AGREEMENT

      This Loan Modification Agreement is entered into as of October 30, 1997, 
by and between  Datawatch Corporation and Personics Corporation (jointly and 
severally,  the "Borrower"  and sometimes referred to as "Company") whose 
address is 234  Ballardvale Street,  Wilmington,  MA  01887 and Silicon Valley 
Bank, a California-chartered  bank ("Lender"),  with its principal place of
business at 3003 Tasman Drive, Santa  Clara, CA   95054  and  with a loan 
production office located at Wellesley Office  Park,  40 William  Street, 
Suite  350, Wellesley, MA  02181, doing  business  under  the  name "Silicon
Valley East".

1.    DESCRIPTION OF EXISTING INDEBTEDNESS:  Among other indebtedness  which  
may  be owing  by Borrower to Lender, Borrower is indebted to Lender pursuant 
to, among other documents,  a  Promissory  Note, dated November 1, 1994, in  
the original  principal amount  of  One Million Five hundred Thousand and
00/100 Dollars ($1,500,000.00),  as may have been modified from time to time
(the "Note").  The Note, together with other promissory  notes  from  Borrower
to Lender, is governed by the  terms  of  a  Letter Agreement, dated November 1,
1994, between Borrower and Lender, as such agreement may be  amended  from 
time to time (the "Loan Agreement").  Defined terms  used  but  not otherwise
defined herein shall have the same meaning as in the Loan Agreement.

Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness".

2.   DESCRIPTION  OF  COLLATERAL:  Repayment of the Indebtedness is  secured
     by  two (2)  Commercial  Security Agreements, each dated November  1,
     1994 (each,  the "Security  Agreement"), and two (2) Collateral 
     Assignment, Patent  Mortgage  and Security Agreements, each dated November
     1, 1994 (each, the "Patent Agreement").

Hereinafter,  the  above-described  security  documents,  together  with  all  
other documents  securing payment of the Indebtedness shall be referred to as 
the "Security Documents".   Hereinafter, the Security Documents, together with
all other  documents evidencing  or  securing the Indebtedness shall be referred
to as the "Existing  Loan Documents."

3.   DESCRIPTION OF CHANGE IN TERMS:

     A.         Modification(s) to Note.

          1.   Payable  in one payment of all outstanding principal plus all  
               accrued unpaid  interest on January 30, 1998.  In addition, 
               Borrower will  pay two  monthly payments of all accrued unpaid 
               interest due  as  of  each payment date on November 30, 1997 and 
               December 30, 1997.
               
     B.        Waiver of Covenant Default.

          1.   Lender hereby waives Borrower's existing default under the Loan 
               Agreement by virtue of Borrower's failure to comply with the 
               Tangible Net Worth and Total Liabilities to Tangible Net Worth 
               covenants as of the months ended June 30, 1997, July 31, 1997,
               August 31, 1997 and September 30, 1997.  Lender's waiver of
               Borrower's compliance of these covenants shall apply only to the
               foregoing periods.  Accordingly, for the month ending October 
               31, 1997, Borrower shall be in compliance with these covenants.

               Lender's agreement to waive the above-described default (1) in 
               any way shall  be  deemed  an  agreement by the  Lender  to  
               waive  Borrower's compliance  with the above-described covenants
               as of all  other  dates and (2) shall not limit or impair the 
               Lender's right to demand strict performance of these covenants
               as of all other dates and (3) shall not limit or impair the 
               Lender's right to demand strict performance of all other 
               covenants as of any date.
               
4.    PAYMENT  OF LOAN FEE.   Borrower shall pay Lender a fee in the amount  of
Five Hundred  and  00/100  Dollars ($500.00) plus all out-of-pocket  expenses 
(the  "Loan Fee").

5.    CONSISTENT  CHANGES.   The Existing Loan Documents are hereby amended  
wherever necessary to reflect the changes described above.

6.    NO  DEFENSES  OF BORROWER.  Borrower agrees that, as of this date,  it 
has no defenses against the obligations to pay any amounts under the 
Indebtedness.

7.    CONTINUING  VALIDITY.  Borrower understands and agrees that  in  modifying
the existing Indebtedness, Lender is relying upon Borrower's representations, 
warranties, and  agreements,  as set forth in the Existing Loan Documents.  
Except  as  expressly modified pursuant to this Loan Modification Agreement, 
the terms of the Existing Loan Documents  remain  unchanged  and in full force 
and effect.   Lender's  agreement  to modifications  to  the  existing  
Indebtedness pursuant  to  this  Loan  Modification Agreement  in  no way 
shall obligate Lender to make any future modifications  to  the Indebtedness.  
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness.  It is the intention of Lender and Borrower to retain as 
liable parties all makers  and endorsers of Existing Loan Documents, unless the
party is expressly released by Lender in writing.  No maker, endorser, or 
guarantor will be released  by virtue  of  this Loan Modification Agreement. 
The terms of this Paragraph apply  not only   to  this  Loan  Modification  
Agreement,  but  also to  all  subsequent  loan modification agreements.

8.    JURISDICTION/VENUE.   Borrower accepts for itself and in connection with
its properties, unconditionally, the non-exclusive jurisdiction of any state
or federal court of competent jurisdiction in the Commonwealth of Massachusetts
in any  action, suit,  or proceeding of any kind against it which arises out of
or by reason of this Loan  Modification Agreement; provided, however, that if
for any reason Lender cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.

9.    COUNTERSIGNATURE.  This Loan Modification Agreement shall become effective
only when  it  shall have been executed by Borrower and Lender (provided,
however,  in  no event  shall  this Loan Modification Agreement become effective
until  signed  by  an officer of Lender in California).

10.    CONDITIONS.   The  effectiveness  of  this Loan Modification Agreement
is conditioned upon payment of the Loan Fee.

     This Loan Modification Agreement is executed as of the date first written 
above.


BORROWER:

DATAWATCH CORPORATION

By:  /s/ Betsy J. Hartwell
Name:  Betsy J. Hartwell
Title:  V.P. Finance/CFO

PERSONICS CORPORATION

By:  /s/ Betsy J. Hartwell
Name:  Betsy J. Hartwell
Title:  Treasurer

LENDOR:
SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST

By:  /s/ J.C. Maynard
Name:  J.C. Maynard
Title:  S.V.P.

SILICON VALLEY BANK

By:  /s/ Michael E. Jordan
Name:  Michael E. Jordan
Title:  Loan Docs Officer
(Signed at Santa Clara County, CA)





                               Exhibit 11.1
                                     
                  DATAWATCH  CORPORATION AND SUBSIDIARIES
                COMPUTATION OF NET INCOME PER COMMON SHARE

Computation  of  weighted  average number of  shares  outstanding  used  in
determining income (loss) per share was as follows:

<TABLE>
                                                    1997           1996      1995

COMMON STOCK AND COMMON STOCK EQUIVALENTS:
<S>                                             <C>          <C>         <C>
Weighted shares outstanding of common stock      9,089,415    8,705,172   8,204,502
Shares held in treasury                            (28,803)
Common stock equivalent shares resulting
 from assumed exercise of stock options                 (a)     238,690         (a)
                                                ----------    ---------   ---------
Weighted average of common and common
 equivalent shares-primary                       9,060,612    8,943,862   8,204,502

Assumed exercise of stock options based on
 higher of average or closing market price              (a)       4,340         (a)
                                                 ---------    ---------   --------
Weighted average of common and common
  equivalent shares-fully diluted                9,060,612    8,949,202   8,204,502
                                                 =========    =========   =========

NET INCOME (LOSS)                              $(1,995,433)  $1,125,360  $ (331,423)
                                                ==========    =========   =========
NET INCOME (LOSS) PER COMMON SHARE:
   Primary                                     $      (.22)  $      .13  $     (.04)
                                                ==========    =========   =========
   Fully-diluted                               $      (.22)  $      .13  $     (.04)
                                                ==========    =========   =========

(a)   Common stock equivalent shares were excluded from the calculation for
      the years ended September  30, 1997 and 1995 due to the antidulitive
      effect the inclusion of such would have had on loss per share.

</TABLE>


<TABLE>
                                EXHIBIT 21.1
                      Subsidiaries of the Registrant
                                     
                                     
Subsidiary                       Place of Incorporation   D/B/A Name
<S>                            <C>                       <C>
Personics Corporation            Delaware, USA            Personics Corporation

DATAWATCH GmbH                   Germany                  DATAWATCH GmbH

Pole Position Software GmbH*     Germany                  Pole Position Software GmbH

WorkGroup Systems Limited        England and Wales        WorkGroup Systems Limited

WorkGroup Systems GmbH**         Germany                  WorkGroup Systems GmbH

WorkGroup Systems SARL**         France                   WorkGroup Systems SARL

WorkGroup Systems Pty Ltd.**     Australia                WorkGroup Systems Pty Ltd.

Guildsoft Holdings Limited       England and Wales        Guildsoft Holdings Limited

Guildsoft Limited ***            England and Wales        Guildsoft Limited

*    All of the shares of capital stock of Pole Position Software GmbH are owned
     by DATAWATCH GmbH.

**   All of the shares of capital stock of WorkGroup Systems GmbH, WorkGroup
     Systems SARL, and WorkGroup Systems Pty Ltd. are owned by WorkGroup Systems
     Limited

***  All of the shares of capital stock of Guildsoft Limited are owned by
     Guildsoft Holdings Limited.

</TABLE>

                                 EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No.
333-39627 and No. 33-65786 of Datawatch Corporation on Form S-8 of our
report dated November 21, 1997 appearing in the Annual Report on Form 10-K
of Datawatch Corporation for the year ended September 30, 1997.



/s/ Deloitte & Touche LLP

Boston, Massachusetts
December 29, 1997


                               EXHIBIT 27
                        Financial Data Schedule

[ARTICLE] 5
<TABLE>
<S>                             <C>
[PERIOD-TYPE]                   YEAR
[FISCAL-YEAR-END]                          SEP-30-1997
[PERIOD-END]                               SEP-30-1997
[CASH]                                       1,586,875
[SECURITIES]                                         0
[RECEIVABLES]                                7,810,169
[ALLOWANCES]                                 (228,000)
[INVENTORY]                                    876,767
[CURRENT-ASSETS]                            12,274,528
[PP&E]                                       4,198,085
[DEPRECIATION]                               2,304,705
[TOTAL-ASSETS]                              16,146,645
[CURRENT-LIABILITIES]                        7,822,707
[BONDS]                                              0
[PREFERRED-MANDATORY]                                0
[PREFERRED]                                          0
[COMMON]                                        91,160
[OTHER-SE]                                   6,833,689
[TOTAL-LIABILITY-AND-EQUITY]                16,146,645
[SALES]                                     32,047,495
[TOTAL-REVENUES]                            32,047,495
[CGS]                                        5,899,849
[TOTAL-COSTS]                               33,929,460
[OTHER-EXPENSES]                                     0
[LOSS-PROVISION]                                     0
[INTEREST-EXPENSE]                             167,871
[INCOME-PRETAX]                            (1,995,433)
[INCOME-TAX]                                         0
[INCOME-CONTINUING]                        (1,995,433)
[DISCONTINUED]                                       0
[EXTRAORDINARY]                                      0
[CHANGES]                                            0
[NET-INCOME]                               (1,995,433)
[EPS-PRIMARY]                                    (.22)
[EPS-DILUTED]                                    (.22)
</TABLE>