UNITED STATES
               SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, DC  20549

                           FORM 10-K
       [x]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 1997

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
                                                                 number)

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:

          Title of Class:     Common Stock $.01 par value

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 (Sec.229.405 of  this  chapter)  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.

                             PART I
Item 1.   BUSINESS

GENERAL

     DATAWATCH CORPORATION (the "Company" or "Datawatch") is a provider
of  innovative,  knowledge-based software solutions  for  the  business
enterprise.

      The Company was founded in 1985 to design, manufacture, test  and
market  computer  workstations and peripherals which conformed  to  the
U.S. government's TEMPEST security standard.  A precipitous decline  in
the   market  for  TEMPEST  products  led  the  Company  to  completely
transition  its business based on a strategy of acquiring  and  growing
personal computer software companies and the subsequent divestiture  of
its hardware operation.

     DATAWATCH's two principal products are:

     Monarch(TM), a leader in an emerging software category called Report
     Mining Systems and a powerful Windows-based report mining tool
     that lets users easily access, extract, and manipulate live data
     from virtually any existing computer-generated report.
     
     Q-Support(TM) (in the United States)/Quetzal (internationally), a
     widely-used, leading edge Help Desk product, is a comprehensive
     Windows-based help desk and asset management software package
     which features an easy-to-use graphical user interface designed
     specifically for the busy support center.

     During fiscal 1997, DATAWATCH decided that its future direction
should be based on and limited to these two principal products.  In
order to provide the financial resources and management focus on this
strategic direction, the Company  divested itself of its software
products for the Macintosh operating system, VIREX(R) and netOctopus(TM)
which generated approximately 19% of fiscal 1997 revenues.
Accordingly, the Company sold these products to Dr Solomon's Software
for $16,750,000 on October 9, 1997.  DATAWATCH acquired VIREX in fiscal
1993 for approximately $1,500,000 and netOctopus in fiscal 1996 for
approximately $1,400,000.

     The Company is a Delaware corporation, with its executive offices
located at 234 Ballardvale Street, Wilmington, Massachusetts 01887 and
the Company's telephone number is (978) 988-9700.


PRINCIPAL PRODUCTS

REPORT MINING PRODUCTS
----------------------

Monarch/ES

      Introduced  in  the summer of 1997, Monarch/ES(TM)  is  a  scaleable
report  storage  and  delivery solution that leverages  investments  in
existing  applications and reporting systems to provide  online  report
viewing,  distributed  printing,  and  advanced  analytical  processing
throughout the business enterprise.

      At every level in the business enterprise, people rely on reports
to  get  information.  Monarch/ES lets users store, manage, and deliver
those  reports electronically via a network or intranet, saving  paper,
reducing storage costs, and empowering users with information needed to
do   their   jobs.    Monarch/ES  combines  state-of-the-art   document
management  technology with powerful analytical processing  technology.
The  result  is  a  hybrid solution that turns report archives  into  a
business  intelligence  system.  Report data is accessible  for  online
queries and analyses.  Users can look things up, boil things down,  and
create  their  own  custom  reports with data extracted  from  existing
reports.     Client/server   architecture   makes   Monarch/ES   highly
scaleable.  It can be configured for a small department, or rolled  out
across  an entire enterprise.  Reports produced in any host environment
can be brought into Monarch/ES which automatically identifies, indexes,
compresses and stores them, in a report warehouse subsystem.  Users can
access  the  reports from any Windows 95 desktop running the Monarch/ES
client.   Monarch/ES works with industry-standard SQL  databases  which
are  compliant  with the Open Database Connectivity (ODBC-2)  standard.
Database  servers  can be chosen based on report  volume  and  existing
network  architecture.   The initial release of Monarch/ES  includes  a
Sybase SQL Anywhere database.

     Monarch/ES provides comprehensive, configurable security to define
privileges  for individual users and groups of users.  A  user  ID  and
password are required to begin a Monarch/ES session.  Access to reports
and  report  segments,  as  well as to certain  program  functions,  is
available only with the proper authorization.  Once a report  has  been
stored  in  the  system, it is available for online viewing.   Softcopy
reports  (those  delivered  electronically)  look  just  like  hardcopy
reports, but they respond to electronic commands such as zoom,  scroll,
page and jump.

      Consulting  services  from  experienced  DATAWATCH  professionals
complement the Monarch/ES package by providing valuable assistance  for
all phases of implementation.

Monarch

      Introduced  in  1991,  Monarch is one  of  DATAWATCH's  principal
products  and represented approximately 40% of the Company's net  sales
in  fiscal  1997, 41% of net sales for fiscal 1996 and 46%  for  fiscal
1995.   Monarch is a PC-compatible business intelligence software  tool
which  allows  users to access, manipulate and translate data  held  in
report files.   Monarch is a multi-function data access tool that  uses
computer-generated  legacy  reports as  a  source  for  data.   Monarch
accepts  a  report file as input, extracts the data, and  delivers  the
data  to  users  in a variety of formats.  Monarch is marketed  as  "an
electronic alternative to hard copy printouts."

     Corporate and government MIS departments have invested substantial
resources  in designing reports and delivering them into the  hands  of
managers and their staffs.  With Monarch, users can gain instant access
to the reports used in their workplace.  When the chosen report appears
on  screen, Monarch offers the user a variety of tools for rapid lookup
and navigation.  Users can view a full report, or apply filters to view
only  information that is relevant to their needs.  With Monarch, users
can  create  custom  reports and summaries, produce  local  hard  copy,
create graphs and export data to popular PC applications such as  Lotus
1-2-3  or  Excel.   With  the September 1996  introduction  of  Monarch
Version  3.0,  users  can create a Portable Report Format  (PRF)  which
enables  electronic  distribution of  reports  via  the  intranet  thus
reducing hardcopy print and delivery costs.


Redwing

      Introduced in December 1997, Redwing(TM) is the new Adobe(R)
Acrobat(R) plug-in from DATAWATCH, which is designed to precisely extract
text and tables  from  even the most complex, compound Portable Document
Format (PDF) documents.   Adobe(R) Acrobat(R) is becoming the standard for
publishing, distributing and archiving electronic documents. The number
of  documents created in Adobe's PDF is growing exponentially.  Redwing
extracts  data  with  high degrees of character and feature  accuracy,
which  is  especially  important for companies where  any  mistake  can
become  very  costly.   Tables  can be  edited  before  export  with  a
customized  table  editor.   Cells can be  edited,  merged,  split  and
deleted.   All  text  exported by Redwing is fully editable.   Text  is
converted according to the user's specified rules such as line  length,
word spacing, case conversion, font maps, paragraph detection, etc.   A
user  can simply use the text-optimized default settings.  Redwing  has
the  capability  to automatically export data from  PDF  files  into  a
format  that  Monarch  can  read - making possible  sophisticated  data
analysis and validation over data held in PDF files.


HELP DESK PRODUCTS

Q-Support (U.S.)/Quetzal (Internationally)

      Q-Support, marketed internationally under the name Quetzal, is  a
Windows-based, comprehensive help desk automation and asset  management
software   package.    Q-Support/Quetzal  ("Q-Support")   is   one   of
DATAWATCH's principal products and represented approximately 34% of the
Company's  net sales in fiscal 1997, 39% for fiscal 1996  and  33%  for
fiscal 1995.  The program provides IS support centers with a wide-range
set   of   PC  software  tools  for  use  in  a  multi-user,  networked
environment.

     Featuring an easy-to-use graphical user interface, Q-Support logs,
routes  and tracks calls from initiation through resolution.   With  Q-
Support,  users  have  IS  inventory control, the  ability  to  monitor
performance  levels, access to third-party knowledge providers,  e-mail
and extensive management reporting options.  Flexibility is built in  -
system  administrators can customize the program to suit organizational
needs.

           Q-Support  automates five key functions  for  the  corporate
support center:

          *     Asset  Management - addresses the increasing  needs  by
          corporations for microcomputer asset management by  providing
          an  accurate  record of every item of equipment  or  service,
          tracing   of   equipment  movement  and  change,   and   full
          maintenance and warranty information.

          *     Help  Call  Management - automates  the  receiving  and
          resolving  of problem calls from the end-user by providing  a
          fast  logging  process, allocation to groups or  individuals,
          and  monitoring  screens  to  track  progress,  priority  and
          status.

     *    User  Access  via the Internet - provides support  staff  and
          enduser  interaction via the Internet providing remote  users
          easier access.

          *     Support Facilities - provides the database of resources
          and  reference sources that are required to find the solution
          to end-user problems.

          *     Management Analysis - satisfies the Information  Center
          manager's need to provide accurate management reports on  the
          status of either the inventory of equipment or the amount  of
          support activity taking place.

      Consulting  services  from  experienced  DATAWATCH  professionals
complement  the Q-Support package by providing valuable assistance  for
all  phases of implementation. Q-Support offers a complete set of tools
to   satisfy   end-users,  lower  support  costs  and  optimize   asset
utilization.



PRICING

      The Company's products are sold as individual units or under  LAN
or  site  licenses  for multiple users.  Monarch/ES typically has  a 
minimum  10 concurrent  user license for $20,000.  Monarch licenses list
for  $499 for  an  individual unit with LAN licenses listing  for  a  
minimum  of $1,100.  Redwing licenses list for $695 for an individual unit
with LAN licenses listing for a minimum of $1,995.  A minimum three user 
license for Q-Support is $7,995.

MARKETING AND DISTRIBUTION

      DATAWATCH  markets its products through a variety of channels  in
order to gain broad market exposure and to satisfy the needs of its end-
user  customers,  no  matter  what their  buying  behavior.   DATAWATCH
believes  that  some  customers  prefer to  purchase  products  through
service-oriented  resellers, while others buy on the  basis  of  price,
purchase convenience, and/or immediate delivery.

      The Company is engaged in active direct sales of its products  to
end-user  customers,  including repeat and  add-on  sales  to  existing
customers and sales to new customers.  DATAWATCH utilizes direct  mail,
telemarketing and direct personal selling to generate its sales.

      A  variety of marketing programs are used by DATAWATCH to  create
demand   for   its  products.   These  programs  include   advertising,
cooperative advertising with reseller partners, direct mail,  exhibitor
participation  in  industry  shows, executive  participation  in  press
briefings and on-going communication with the trade press.

      The  Company offers its resellers the ability to return  obsolete
versions  of  its products and slow-moving products for credit  against
purchases  of  other  DATAWATCH products on a dollar-for-dollar  basis.
Defective products may also be returned for credit or exchange.   Based
on its historical experience, the Company believes that its exposure to
such returns is minimal.

       DATAWATCH   warrants  the  physical  disk  media   and   printed
documentation  for its products to be free of defects in  material  and
workmanship  for  a  period  of 90 days  from  the  date  of  purchase.
DATAWATCH  also offers a 30-60 day money-back guarantee on  certain  of
its   products  sold  directly  to  end-users.   Under  the  guarantee,
customers may return purchased products within the 60 days for  a  full
refund if they are not completely satisfied.  To date, the Company  has
not  experienced any significant product returns under  its  money-back
guarantee.

      During fiscal 1997, one distributor represented approximately 14%
of  DATAWATCH's net sales.  No other customer accounted for  more  than
10%  of  DATAWATCH's net sales in 1997.  DATAWATCH sells  its  products
outside  of  the  U.S.  directly through WorkGroup's  sales  force  and
through  international resellers.  Such international sales represented
approximately  47%,  47% and 45% of DATAWATCH'S net  sales  for  fiscal
1997,  1996  and  1995,  respectively.  See  Note  11  to  Consolidated
Financial Statements which appears elsewhere in this Report on Form 10-
K.

RESEARCH AND DEVELOPMENT

     The Company's product strategy necessitates the timely development
of new products.  DATAWATCH's product development efforts are conducted
through   in-house  software  development  engineers  or  by   external
developers,  who are compensated either through royalty payments  based
on  product sales levels achieved or under contracts based on  services
provided.

     DATAWATCH's product managers work closely with developers, whether
independent or in-house, to define product specifications. The  initial
concept  for  a product originates from this cooperative  effort.   The
developer is generally responsible for coding the development  project.
The  product  managers  and  their staff  work  in  parallel  with  the
developers  to  produce  printed  documentation,  on-line  help  files,
tutorials  and  installation software.  In some  cases,  DATAWATCH  may
choose  to  subcontract a portion of this work on a  project  basis  to
third-party  suppliers  under  contracts.   DATAWATCH  personnel   also
perform  extensive  quality  assurance testing  for  all  products  and
coordinate external beta test programs.


       DATAWATCH   has  contractual  agreements  with  the  independent
developers of Monarch and Monarch/ES which require that source codes be
placed into escrow.  The principal developers for the products are also
bound   by  contractual  commitments  which  require  their  continuing
involvement  in  product  maintenance  and  enhancement.    Under   the
agreements,  the Company has been granted manufacturing, marketing  and
sales  rights  under  license  agreements  which  provide  for  royalty
payments  based  on  net revenues. The Company has  also  been  granted
exclusive  worldwide rights to Monarch with a stated term  expiring  in
the  year  2009, and to Monarch/ES with a stated term expiring  in  the
year  2001.  The Monarch/ES license automatically renews for successive
annual  periods unless termination by either party prior to the regular
termination date.

BACKLOG

     The Company's software products are generally shipped within seven
days of receipt of an order.  Accordingly, the Company does not believe
that  backlog  for  its products is a meaningful  indicator  of  future
business.

COMPETITION

      The  software industry is highly competitive and is characterized
by   rapidly  changing  technology  and  evolving  industry  standards.
DATAWATCH  competes  with a number of companies including  IBM,  McAfee
Associates,  Inc.,  Remedy,  Astea,  Applix  and  others   which   have
substantially greater research and development, marketing and financial
resources  than DATAWATCH.  Competition in the industry  is  likely  to
intensify as current competitors expand their product lines and as  new
competitors enter the market.

PRODUCT PROTECTION

      Although DATAWATCH does not generally own patents on its software
technologies, it relies on a combination of trade secret, copyright and
trademark  laws,  nondisclosure and other  contractual  agreements  and
technical  measures  to  protect its rights in its  products.   Despite
these precautions, unauthorized parties may attempt to copy aspects  of
DATAWATCH's  products or to obtain and use information  that  DATAWATCH
regards as proprietary.  Patent protection is not considered crucial to
DATAWATCH's  success.  DATAWATCH believes that, because  of  the  rapid
pace  of  technological  change  in the software  industry,  the  legal
protections  for its products are less significant than the  knowledge,
ability  and experience of its employees and developers, the  frequency
of  product enhancements and the timeliness and quality of its  support
services. DATAWATCH believes that none of its products, trademarks  and
other  proprietary rights infringe on the proprietary rights  of  third
parties,  but  there can be no assurance that third  parties  will  not
assert infringement claims against it or its developers in the future.

PRODUCTION

      Production  of  DATAWATCH's products involves the duplication  of
master  disks  and  the printing of user manuals, packaging  and  other
related  materials.  Disk duplication is performed in-house with  high-
capacity  disk duplication equipment, and is occasionally  supplemented
with  duplication services performed by non-affiliated  subcontractors.
Printing  work is also performed by non-affiliated subcontractors.   To
date, DATAWATCH has not experienced any material difficulties or delays
in  production of its software and related documentation  and  believes
that, if necessary, alternative production sources could be secured  at
commercially reasonable cost.

EMPLOYEES

      As  of September 30, 1997, DATAWATCH had 261 full-time employees,
including 79 engaged in marketing and sales,  48 engaged  in  product
management, development and quality assurance,  76 engaged in providing
administrative, accounting and production functions and 58 in technical
support services.  Subsequent to the sale of Virex and netOctopus to Dr
Solomon's Software at October 9,  1997, DATAWATCH had 222 full-time
employees, including 65 engaged in marketing and sales, 29 engaged in 
product management, development and quality assurance, 75 engaged in
providing administrative, accounting and production functions and 53 in
technical support services.

      The  Company believes that its future success may depend  on  its
ability  to  continue  to attract and retain highly-skilled  technical,
marketing  and  management personnel, who are  in  great  demand.   The
Company  currently has written agreements with each  of  its  employees
prohibiting disclosure of confidential information to anyone outside of
the   Company,  both  during  and  subsequent  to  employment.    These
agreements also require disclosure to the Company of ideas, discoveries
or inventions relating to or resulting from the employee's work for the
Company,  and  assignment to the Company of all proprietary  rights  to
such matters.

Item 2.  PROPERTIES

      The  Company is currently headquartered in a 51,650  square  foot
leased facility in Wilmington, Massachusetts.  The lease expires in May
1999,  with  an  option  to renew for an additional  five  years.   The
Company  uses approximately 65% of this facility and the other  35%  is
subleased to Secure Systems Group.

     The Company also leases approximately 6,200 square feet in Potters
Bar,   Hertsfordshire,  England,  which  expires   in   January   2005,
approximately  3,500  square  feet in Raleigh,  North  Carolina,  which
expires  in January 1998, approximately 16,000 square feet in Plymouth,
Devon,  England,  which expires in December 2017, and  maintains  small
offices in Germany, France and Australia.

      The  Company believes its facilities are suitable for its current
needs.

Item 3.  LEGAL PROCEEDINGS

      At  the  current time, the Registrant does not have any  material
legal proceedings.


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No  matters were submitted to a vote of the Registrant's security
holders  during  the last quarter of the fiscal year  covered  by  this
report.


EXECUTIVE OFFICERS OF THE REGISTRANT

      The  names,  ages  and titles of the executive  officers  of  the
Company are as follows:

Thomas R. Foley     58   Former President, Chief Executive Officer and Director
Bruce R. Gardner    54   President,  Chief Executive Officer and Director
Andrew W. Mathews   55   Former Vice President of Sales
Marco D. Peterson   42   Senior Vice President of North American Operations
Robert Hagger       49   Senior Vice President  of International Operations,
                         Managing Director of WorkGroup Systems Limited
Betsy J. Hartwell   50   Vice President of Finance, Chief Financial Officer 
                         and Treasurer
Scott Crenshaw      32   Vice President of Product Development
John Loring         47   Vice President of Information Technology

Officers  are elected by, and serve at the discretion of, the Board  of
Directors.

      THOMAS  R.  FOLEY, Former President, Chief Executive Officer  and
Director.   Mr.  Foley resigned from the Company on October  31,  1997.
Mr.  Foley, a founder and director of DATAWATCH, had been its President
and Chief Executive Officer since the Company was founded in 1985.

     BRUCE R. GARDNER, President, Chief Executive Officer and Director.
Mr.  Gardner,  a  founder  and director of  DATAWATCH,  was  the  Chief
Financial Officer and Treasurer since the Company was founded  in  1985
until  November 1, 1997.  Mr. Gardner was a Senior Vice President until
June 1993 when he became Executive Vice President.  Mr. Gardner assumed
his current position on November 1, 1997.

      ANDREW  W. MATHEWS, Former Vice President of Sales.  Mr.  Mathews
resigned  his  position  from the Company on  October  31,  1997.   Mr.
Mathews  had been a Vice President since March 1986 serving in  various
capacities  in the areas of marketing, sales and as a division  general
manager.

      MARCO  D.  PETERSON,  Senior  Vice President  of  North  American
Operations.  Mr. Peterson was the founder of PERSONICS and has been its
President  since  its  founding in 1984.   Mr.  Peterson  took  on  the
additional  role of Vice President of Marketing and Product Development
of the Company in October 1994 until he became Senior Vice President on
November 1, 1997.

      ROBERT HAGGER, Senior Vice President of International Operations,
Managing  Director  of WorkGroup Systems Limited.   Mr.  Hagger  joined
DATAWATCH  as Managing Director of WorkGroup Systems on March  4,  1997
and  assumed  the  title  of  Senior Vice  President  of  International
Operations  on November 1, 1997.  Mr. Hagger, since 1993,  was  founder
and  Managing  Director of Insight Strategy Management Ltd.   Prior  to
that he was Managing Director of Byrne Fleming Ltd.

      BETSY  J.  HARTWELL, Vice President of Finance,  Chief  Financial
Officer  and  Treasurer.  Ms. Hartwell assumed the  positions  of  Vice
President of Finance, Chief Financial Officer and Treasurer on November
1,  1997.   Prior  to  that  and since July,  1990,  Ms.  Hartwell  was
DATAWATCH's Corporate Controller.

      SCOTT  CRENSHAW,  Vice  President of  Product  Development.   Mr.
Crenshaw  assumed the position of Vice President of Product Development
on  November  1,  1997.  Prior to that and since joining  DATAWATCH  in
1992, Mr. Crenshaw has held various management positions, most recently
as  Director  of Business Development and International  Marketing  and
prior  to  that  as  Business Segment Manager and Director  of  Product
Development.

     JOHN LORING, Vice President of Information Technology.  Mr. Loring
assumed  the  position of Vice President of Information  Technology  on
November  1, 1997.  Prior thereto and since November, 1993, Mr.  Loring
was the Company's Director of Business Development/Information Systems.
Prior   to  that,  Mr.  Loring  was  DATAWATCH's  Manager  of   Systems
Engineering.



                            Part II

Item  5.    MARKET  FOR  THE  REGISTRANT'S COMMON  EQUITY  AND  RELATED
SHAREHOLDER MATTERS

The  Registrant's  common  stock is listed and  traded  on  the  Nasdaq
National Market under the symbol DWCH. The range of high and low prices
during  each fiscal quarter for the last two fiscal years is set  forth
below:
      
                
                For the Year Ended           Common Stock
                September 30, 1997         High        Low
                ------------------       ---------------------
                4th Quarter               2 7/8        1 7/16
                3rd Quarter               4 5/16       1 5/8
                2nd Quarter               6 5/8        3 5/8
                1st Quarter               8 3/4        5
          
                
                For the Year Ended           Common Stock
                September 30, 1996         High        Low 
                ------------------        --------------------
                4th Quarter               11  5/8      6  3/8
                3rd Quarter               11  5/8      4  3/4
                2nd Quarter               5   1/4      3  3/8
                1st Quarter               5   7/8      3  3/4
                
  There are approximately 213 shareholders of record as of December 19,
1997.

   The  Company  has not paid any cash dividends and it is  anticipated
that  none  will  be declared in the foreseeable future.   The  Company
intends  to  retain future earnings, if any, to provide funds  for  the
operation, development and expansion of its business.


Item 6.   SELECTED FINANCIAL DATA

   The  following table sets forth selected consolidated financial data
of  the  Company for the periods indicated.  The selected  consolidated
financial  data  for and as of the end of the years in  the  five  year
period  ended  September  30, 1997 are derived  from  the  Consolidated
Financial  Statements of the Company. The information set  forth  below
should  be  read  in  conjunction  with  "Management's  Discussion  and
Analysis  of  Financial Condition and Results of  Operations"  and  the
Consolidated Financial Statements and notes appearing elsewhere in this
report.

<TABLE>

Statements of Operations Data
Years Ended September 30,   1997         1996         1995         1994         1993
                         ---------------------------------------------------------------
<S>                     <C>          <C>          <C>         <C>          <C>        
Net Sales -
 IBM PC-based 
 Products               $25,995,197  $24,216,794  $18,839,265 $13,027,232  $10,360,927
Net Sales - 
 Macintosh-based
 Products                 6,052,298    5,805,328    4,520,716   3,854,910    3,580,975
                        ----------------------------------------------------------------
Net Sales                32,047,495   30,022,122   23,359,981  16,882,142   13,941,902
Costs and Expenses       33,929,460   28,894,600   23,678,935  19,956,576   17,883,679
Income (Loss) from
 Continuing Operations   (1,881,965)   1,127,522     (318,954) (3,074,434)  (3,941,777)
Loss from Discontinued
 Operation                     -            -             -            -       (741,145)
Loss on Disposal of
 Discontinued Operation        -            -             -            -     (1,478,082)

Net Income (Loss)       ($1,995,433)  $1,125,360    ($331,423) ($3,042,767) ($6,125,104)
                                          
Income (Loss) from                                             
 Continuing Operations
 per Common Share             ($.22)       $0.13       ($0.04)     ($0.41)      ($0.54)
Loss from Discontinued
 Operation per Common
 Share                         0.00         0.00         0.00        0.00        (0.10)
Loss on Disposal of                                             
 Discontinued Operation
 per Common Share              0.00         0.00         0.00        0.00        (0.20)
Net Income (Loss) per                                             
 Common Share                 ($.22)       $0.13       ($0.04)     ($0.41)      ($0.84)




Balance Sheet Data
 September 30,               1997        1996        1995        1994       1993
                        ----------------------------------------------------------
                                                             
Total Assets            $16,146,645   $15,240,571   $12,358,132  $9,646,324  $12,108,270
Working Capital           4,451,821     5,210,457     2,631,759   1,547,706    3,920,512
Long-Term Obligations     1,399,089       209,824       163,868     137,324      152,484
Shareholders' Equity     $6,924,849    $8,238,886   $ 6,062,170  $5,266,588  $ 8,086,154
                                                                       
</TABLE>

Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
     CONDITION AND RESULTS OF OPERATIONS

      The  following discussion and analysis is qualified by  reference
to,  and should be read in conjunction with, the consolidated financial
statements of DATAWATCH and its subsidiaries.

GENERAL

      DATAWATCH CORPORATION (the "Company" or "DATAWATCH"), is  engaged
in the design, development, manufacture, marketing, consulting services
and support of personal computer software.


      On  November  7,  1996 the Company acquired all  the  outstanding
shares  of  capital stock of Guildsoft Holdings Limited  ("Guildsoft"),
located  in  Plymouth, England, which provides software companies  with
multi-lingual  telesales, support and fulfillment  services  throughout
Europe, in exchange for 125,000 shares of DATAWATCH common stock.  This
acquisition was accounted for as a purchase.

     On October 9, 1997 (subsequent to the end of the 1997 fiscal year)
the Company sold its Virex and netOctopus product lines to Dr Solomon's
Software for $16,750,000 in cash.

      DATAWATCH's  principal products are:  Monarch, a report mining solution 
that leverages legacy reports and reporting systems to provide business 
intelligence on the Windows desktop; Monarch/ES, a client/server version
of Monarch with an integrated report warehouse subsystem; Redwing, a plug-in 
for Abode(R) Acrobat(R) that accurately extracts text and tables from PDF 
files; Q-Support (in the United  States), and Quetzal (internationally),
an integrated help desk and asset management solution for multi-user, 
networked support centers.

RESULTS OF OPERATIONS

      Fiscal Year Ended September 30, 1997 as Compared to
              Fiscal Year Ended September 30, 1996

      Net  sales  for  the fiscal year ended September  30,  1997  were
$32,047,000 which represents an increase of $2,025,000 or 7%  from  the
net  sales of $30,022,000 for the fiscal year ended September 30, 1996.
Sales  have been segregated on the statements of operations  so  as  to
highlight  the  product lines which remain after the  disposal  of  the
Macintosh based products.  Monarch, which amounted to approximately 40%
of  sales,  increased by 5%; Q-Support, which amounted to approximately
34%  of  sales, decreased by 6%; Virex, which amounted to approximately
15%  of  sales  and netOctopus, which amounted to approximately  4%  of
sales,  did not change as a percentage of sales from fiscal year  ended
September  30,  1996.  Guildsoft, acquired in November  1997,  had  net
sales  for fiscal 1997 which amounted to $1,876,000 or 6% of total  net
sales.   For  the fiscal year ended September 30, 1997,  the  Company's
products for the IBM compatible PC accounted for approximately  81%  of
sales while  the  Company's products for the Macintosh PC accounted for
approximately 19%.

   The Company's cost of sales for the fiscal year ended September  30,
1997  were $5,900,000 or approximately 18% of net sales.  Cost of sales
for  the  fiscal  year  ended September 30,  1996  were  $4,516,000  or
approximately 15% of net sales.  The increase in cost of  sales,  as  a
percentage  of  net  sales, results from the inclusion  of  Guildsoft's
product  sales which bear lower gross margins than the Company's  other
products.   Cost of sales, as a percentage of net sales for the  fiscal
year  ended  September 30, 1997, excluding Guildsoft, would  have  been
16%, which is relatively consistent with the prior period.

   Engineering and product development expenses were $2,804,000 for the
fiscal  year  ended  September 30, 1997, an  increase  of  $465,000  or
approximately  20% from $2,339,000 for the fiscal year ended  September
30,  1996.  This  increase (net of approximately  $80,000  of  expenses
associated  with  organizational changes) is primarily attributable  to
the  increase  in personnel costs and expenses necessary for  continued
development  of  the Q-Support product and quality  assurance  for  the
Monarch  product.  Product development costs related to the  Virex  and
netOctopus   products  were  approximately  $1,296,000  in   1997   and
$1,104,000 in 1996.

   Selling,  general and administrative expenses were  $25,225,000  for
fiscal  year  ended September 30, 1997, an increase  of  $3,186,000  or
approximately 14% from $22,039,000 for the fiscal year ended  September
30,  1996.  Included in the expenses were $608,000 of one-time expenses
principally  associated  with organizational changes  within  WorkGroup
during  the  third  fiscal quarter. Included in the  expenses  for  the
fiscal  year  ended  September  30,  1996  were  $450,000  of  expenses
associated  with the acquisition of WorkGroup in March 1996.  Excluding
these  expenses,  selling,  general and  administrative  expenses  were
$24,617,000 for the 1997 fiscal year and were $21,589,000 for the  1996
fiscal  year  resulting in an increase of $3,028,000  or  approximately
14%.  This increase is primarily attributable to increases in personnel
within the sales and marketing organizations, principally for Q-Support
and   Monarch,  and  the  inclusion  of  Guildsoft  operating  expenses
amounting to approximately $912,000 for the period or approximately 30%
of the increase.

   As  a result of the foregoing, the net loss from operations for  the
fiscal year ended September 30, 1997 was $1,995,000, which compares  to
the net income  of $1,125,000 for the fiscal year ended  September  30,
1996.   The  Company  recorded  only de minimis  tax  provisions,  both
domestically  and internationally, during the periods  because  of  its
ability  to  utilize  net operating loss ("NOL")  carryforwards  during
fiscal  1996  and  because  of  its ability  to  utilize  domestic  NOL
carryforwards and foreign losses during fiscal 1997.

      Fiscal Year Ended September 30, 1996 as Compared to
              Fiscal Year Ended September 30, 1995

      Net  sales  for  the fiscal year ended September  30,  1996  were
$30,022,000 which represents an increase of $6,662,000 or 29% from  the
net sales of $23,360,000 for the fiscal year ended September 30, 1995.
Sales have been segregated on the statements of operations  so  as  to
highlight  the  product lines which remain after the  disposal  of  the
Macintosh based products.  This increase results from growth  in  sales
of   all   of   DATAWATCH's  products.  Monarch,  which   amounted   to
approximately 41% of sales, increased by 14%; Q-Support, which amounted
to  approximately 39% of sales, increased by 51%; Virex, which amounted
to  approximately 15% of sales, increased by 14%; and netOctopus, which
amounted  to  approximately 4% of sales, increased by  143%.   For  the
fiscal  year ended September 30, 1996, the Company's products  for  the
IBM  compatible PC accounted for approximately 80% of sales  while  the
Company's products for the Macintosh PC accounted for approximately 20%.
Revenues were reduced by approximately $400,000 for the fourth quarter,
and  consequently  for  the year, as a result  of  consultancy  revenue
deferrals.   See Note 1 (Revenue Recognition - Services and  Other)  to
Notes  to  Consolidated Financial Statements which appear elsewhere  in
this Report on Form 10-K.

   The Company's cost of sales for the fiscal year ended September  30,
1996  were $4,516,000 or approximately 15% of net sales.  Cost of sales
for  the  fiscal  year  ended September 30,  1995  were  $3,809,000  or
approximately  16%  of  net  sales.  These  costs  remained  reasonably
constant as a percentage of net sales for the two periods.

   Engineering and product development expenses were $2,339,000 for the
fiscal  year  ended  September 30, 1996, an  increase  of  $119,000  or
approximately  5% from $2,220,000 for the fiscal year  ended  September
30,  1995.  This increase is primarily attributable to the increase  in
personnel  costs associated with the development and quality  assurance
for  its products.  Product development costs related to the Virex  and
netOctopus   products  were  approximately  $1,104,000  in   1996   and
$1,072,000 in 1995.

   Selling,  general and administrative expenses were  $22,039,000  for
fiscal  year ended September 30, 1996. Included in these expenses  were
non-recurring  expenses  associated with the acquisition  of  WorkGroup
amounting   to  $450,000.   Excluding  these  non-recurring   expenses,
selling, general and administrative expenses were $21,589,000  for  the
1996   fiscal   year  resulting  in  an  increase  of   $3,939,000   or
approximately 22% from $17,650,000 for the fiscal year ended  September
30,  1996.  This  increase is primarily attributable  to  increases  in
personnel  within  the  sales  and  marketing  organizations   and   in
promotional expenses principally for Q-Support and Monarch.

   As  a  result of the foregoing, the net income for the  fiscal  year
ended September 30, 1996 was $1,125,000, an increase of $1,457,000 when
compared  to  the  net  loss  of $331,000 for  the  fiscal  year  ended
September  30,  1995.   The  Company  recorded  only  de  minimis   tax
provisions,  both domestically  and internationally, during the  fiscal
year  ended  September 30, 1996 because of its ability  to utilize  NOL
loss carryforwards.


LIQUIDITY AND CAPITAL RESOURCES

      In  October  1997,  the  Company  received  $16,750,000  from  Dr
Solomon's Software for its Virex and netOctopus product lines.

      The  Company's management believes that its currently anticipated
capital  needs for future operations of the Company will  be  satisfied
through  at least September 30, 1998 by funds currently available  from
the  above  mentioned sale.  The Company also has its unused $3,000,000
bank  lines  of  credit.  Working capital  decreased  by  approximately
$759,000  during  fiscal  1997 primarily as a  result  of  unprofitable
operations  of  and  cash flow required by the Company's  international
subsidiaries.

      Management believes that the Company's current operations are not
materially impacted by the effects of inflation.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

      The  Company  does not provide forecasts of its future  financial
performance.   However,  time  to time,  information  provided  by  the
Company  or  statements  made  by its employees  may  contain  "forward
looking"  information  that  involves  risks  and  uncertainties.    In
particular,  statements  contained in  this  Form  10-K  that  are  not
historical facts (including, but not limited to statements contained in
"Item  7:  Management's Discussion and Analysis of Financial  Condition
and Results of Operations" relating to liquidity and capital resources)
may  constitute forward looking statements and are made under the  safe
harbor  provisions of The Private Securities Litigation Reform  Act  of
1995.   The  Company's  actual  results  of  operations  and  financial
condition  have  varied and may in the future vary  significantly  from
those stated in any forward looking statements.  Factors that may cause
such  differences include, without limitation, the risks, uncertainties
and  other  information discussed below and within this Form  10-K,  as
well as the accuracy of the Company's internal estimates of revenue and
operating  expense levels.  The following discussion of  the  Company's
risk   factors  should  be  read  in  conjunction  with  the  financial
statements  and related notes thereto. Such factors, among others,  may
have a material adverse effect upon the Company's business, results  of
operations and financial condition.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

      The  Company's future operating results could vary  substantially
from   quarter  to  quarter  because  of  uncertainties  and/or   risks
associated  with  such  things  as technological  change,  competition,
delays  in  the  introduction of products or product  enhancements  and
general  market  trends.  Historically, the Company has  operated  with
little  backlog of orders because its software products  are  generally
shipped  as orders are received.  As a result, net sales in any quarter
are  substantially  dependent on orders  booked  and  shipped  in  that
quarter.   Because  the Company's staffing and operating  expenses  are
based  on  anticipated  revenue levels and a  high  percentage  of  the
Company's  costs are fixed in the short-term, small variations  in  the
timing  of  revenues  can  cause significant  variations  in  operating
results from quarter to quarter.  Because of these factors, the Company
believes that period-to-period comparisons of its results of operations
are  not  necessarily  meaningful and should  not  be  relied  upon  as
indications of future performance.  There can be no assurance that  the
Company will not experience such variations in operating results in the
future  or that such variations will not have a material adverse effect
on the Company's business, financial condition or results of operation.

DEPENDENCE ON PRINCIPAL PRODUCTS

      In fiscal 1997, Monarch and Q-Support accounted for approximately
40%  and 34%, respectively, of the Company's net sales.  Subsequent  to
year  end  with the disposal of the Virex and netOctopus products,  the
Company  is wholly dependent on such principal products.  As a  result,
any  factor adversely affecting sales of either of these products could
have  a  material adverse effect on the Company.  The Company's  future
financial   performance  will  depend  in  part   on   the   successful
introduction  of  its new and enhanced versions of these  products  and
development of new versions of these and other products and  subsequent
acceptance of such new and enhanced products.  In addition, competitive
pressures or other factors may result in significant price erosion that
could  have  a  material  adverse effect  on  the  Company's  business,
financial condition or results of operations.

INTERNATIONAL SALES

      In  1997,  1996  and  1995,  international  sales  accounted  for
approximately  47%,  47% and 45%, respectively, of  the  Company's  net
sales.   The Company anticipates that international sales will continue
to account for a significant percentage of its revenues.  A significant
portion  of the Company's net sales will therefore be subject to  risks
associated  with international sales, including unexpected  changes  in
legal  and regulatory requirements, changes in tariffs, exchange  rates
and other barriers, political and economic instability, difficulties in
account receivable collection, difficulties in managing distributors or
representatives,  difficulties in staffing and  managing  international
operations,  difficulties  in  protecting  the  Company's  intellectual
property  overseas,  seasonality of sales and potentially  adverse  tax
consequences.

ACQUISITION STRATEGY

      The Company has addressed and may continue to address the need to
develop  new  products,  in  part, through  the  acquisition  of  other
companies.   Acquisitions involve numerous risks including difficulties
in the assimilation of the operations, technologies and products of the
acquired companies, the diversion of management's attention from  other
business  concerns, risks of entering markets in which the Company  has
no  or  limited direct prior experience and where competitors  in  such
markets have stronger market positions, and the potential loss  of  key
employees  of  the  acquired company.  Achieving  and  maintaining  the
anticipated benefits of an acquisition will depend in part upon whether
the  integration  of  the companies' business  is  accomplished  in  an
efficient and effective manner, and there can be no assurance that this
will  occur.   The  successful combination of  companies  in  the  high
technology industry may be more difficult to accomplish than  in  other
industries.

DEPENDENCE ON NEW INTRODUCTIONS; NEW PRODUCT DELAYS

      Growth  in the Company's business depends in substantial part  on
the  continuing  introduction of new products.  The length  of  product
life  cycles  depends in part on end-user demand for new or  additional
functionality  in  the  Company's products.  If the  Company  fails  to
accurately  anticipate  the demand for, or encounters  any  significant
delays  in  developing  or  introducing,  new  products  or  additional
functionality on its products, there could be a material adverse effect
on the Company's business.  Product life cycles can also be affected by
the  introduction  by  suppliers  of operating  systems  of  comparable
functionality  within their products.  The failure of  the  Company  to
anticipate  the  introduction of additional functionality  in  products
developed by such suppliers could have a material adverse effect on the
Company's  business.   In  addition,  the  Company's  competitors   may
introduce  products  with  more features  and  lower  prices  than  the
Company's  products.   Such  increase in  competition  could  adversely
affect  the life cycles of the Company's products, which in turn  could
have a material adverse effect on the Company's business.

      Software products may contain undetected errors or failures  when
first  introduced or as new versions are released.   There  can  be  no
assurance  that,  despite testing by the Company  and  by  current  and
potential  end-users, errors will not be found in  new  products  after
commencement of commercial shipments, resulting in loss of or delay  in
market acceptance.  Any failure by the Company to anticipate or respond
adequately  to changes in technology and customer preferences,  or  any
significant delays in product development or introduction, could have a
material adverse effect on the Company's business.


RAPID TECHNOLOGICAL CHANGE

      The markets in which the Company competes have undergone, and can
be expected to continue to undergo, rapid and significant technological
change.   The ability of the Company to grow will depend on its ability
to successfully update and improve its existing products and market and
license  new  products to meet the changing demands of the  marketplace
and that can compete successfully with the existing and new products of
the  Company's competitors.  There can be no assurance that the Company
will  be  able  to  successfully anticipate and  satisfy  the  changing
demands of the personal computer software marketplace, that the Company
will  be  able  to continue to enhance its product offerings,  or  that
technological  changes  in  hardware platforms  or  software  operating
systems, or the introduction of a new product by a competitor, will not
render the Company's products obsolete.

COMPETITION IN THE PC SOFTWARE INDUSTRY

      The  software market for personal computers is highly competitive
and  characterized by continual change and improvement  in  technology.
Several  of the Company's existing and potential competitors (including
IBM,   McAfee   Associates,  Inc.,  Remedy,  Astea  and  Applix)   have
substantially greater financial, marketing and technological  resources
than the Company.  No assurance can be given that the Company will have
the resources required to compete successfully in the future.

YEAR 2000 ISSUE

      Although the Company does not expect that Year 2000 issues will
have a material effect on the Company's results of operations or financial 
condition, the Company is exposed to Year 2000 issues with respect  to
internal  software and external product offerings.  Should  this  issue
not  be  addressed  properly, there may be an event  that  would  cause
reported  financial  information not to be  necessarily  indicative  of
future  operating  results.  The Company continues to  undertake  an
evaluation of these issues.

DEPENDENCE ON PROPRIETARY SOFTWARE TECHNOLOGY

      The  Company's  success  is dependent upon  proprietary  software
technology.  Although the Company does not own any patents on any  such
technology,  it  does  hold exclusive licenses to such  technology  and
relies  principally  on  a combination of trade secret,  copyright  and
trademark  laws,  nondisclosure and other  contractual  agreements  and
technical   measures  to  protect  its  rights  to   such   proprietary
technology.   Despite such precautions, there can be no assurance  that
such   steps  will  be  adequate  to  deter  misappropriation  of  such
technology.

RELIANCE ON SOFTWARE LICENSE AGREEMENTS

      Substantially  all  of the Company's products  incorporate  third
party proprietary technology which is generally licensed to the Company
on  an  exclusive,  worldwide basis. Failure by such third  parties  to
continue  to  develop  technology for  the  Company  and  license  such
technology to the Company could have a material adverse effect  on  the
Company's business and results of operations.

INDIRECT DISTRIBUTION CHANNELS

   During  1997, 1996 and 1995, the Company derived approximately  20%,
17% and 19%, respectively, of its net sales through resellers, none  of
which  are under the direct control of the Company.  The loss of  major
resellers of the Company's products, or a significant decline in  their
sales,  could have a material adverse effect on the Company's operating
results.    Other   than  Ingram  Micro  Inc.,  which   accounted   for
approximately  14%, 13%, and 10% of the Company's 1997, 1996  and  1995
net  sales,  respectively, no reseller or other customer accounted  for
more  than 10% of the Company's revenues in 1997, 1996 or 1995.   There
can  be no assurance that the Company will be able to attract or retain
additional qualified resellers or that any such resellers will be  able
to  effectively  sell  the Company's products.  The  Company  seeks  to
select  and retain resellers on the basis of their business credentials
and  their ability to add value through expertise in specific  vertical
markets or application programming expertise.  In addition, the Company
relies on resellers to provide post-sales service and support, and  any
deficiencies  in  such service and support could adversely  affect  the
Company's business.

VOLATILITY OF STOCK PRICE

   As  is  frequently  the  case with the  stocks  of  high  technology
companies, the market price of the Company's common stock has been, and
may  continue  to be, volatile.  Factors such as quarterly fluctuations
in  results  of operations, increased competition, the introduction  of
new  products  by  the Company or its competitors,  expenses  or  other
difficulties  associated with assimilating companies  acquired  by  the
Company,  changes  in  the  mix  of  sales  channels,  the  timing   of
significant  customer orders, and macroeconomics conditions  generally,
may  have a significant impact on the market price of the stock of  the
Company.   Any  shortfall  in  revenue  or  earnings  from  the  levels
anticipated  by  securities  analysts  could  have  an  immediate   and
significant adverse effect on the market price of the Company's  common
stock in any given period. In addition, the stock market has from  time
to  time experienced extreme price and volume fluctuations, which  have
particularly  affected  the  market  price  for  many  high  technology
companies and which, on occasion, have appeared to be unrelated to  the
operating performance of such companies.

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The  information required by this item is set forth in Item 14(a)
under   the   captions   "Consolidated   Financial   Statements"    and
"Consolidated Financial Statement Schedule" as a part of this report.

Item  9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

     Not Applicable.
                            PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Information  with  respect to Directors may be  found  under  the
caption  "Election of Directors" appearing in the Company's  definitive
Proxy  Statement for the Annual Meeting of Shareholders for the  fiscal
year ended September 30, 1997.  Such information is incorporated herein
by  reference.   Information with respect to  the  Company's  executive
officers  may  be  found under the caption "Executive Officers  of  the
Registrant" appearing in Part I of this Annual Report on Form 10-K.

Item 11.  EXECUTIVE COMPENSATION

      The  information  set forth under the caption  "Compensation  and
Other  Information Concerning Directors and Officers" appearing in  the
Company's  definitive  Proxy  Statement  for  the  Annual  Meeting   of
Shareholders  for  the  fiscal  year  ended  September  30,   1997   is
incorporated herein by reference.

Item   12.   SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS   AND
MANAGEMENT

      The information set forth under the caption "Principal Holders of
Voting   Securities"  appearing  in  the  Company's  definitive   Proxy
Statement  for the Annual Meeting of Shareholders for the  fiscal  year
ended September 30, 1997 is incorporated herein by reference.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information set forth under the caption "Certain Transactions"
appearing  in the Company's definitive Proxy Statement for  the  Annual
Meeting of Shareholders for the fiscal year ended September 30, 1997 is
incorporated herein by reference.
                            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).
(8)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
report  to  be signed on its behalf by the undersigned, thereunto  duly
authorized.

                         DATAWATCH CORPORATION


Date:  December 29, 1997           By:  /s/ Bruce R. Gardner
                                        Bruce R. Gardner
                                        President,  Chief Executive Officer 
                                        and Director
                                        (Principal Executive Officer)

      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    December 29, 1997
Bruce R. Gardner              Officer and Director


/s/ Betsy J. Hartwell         Vice President Finance,       December 29, 1997
Betsy J. Hartwell             Chief Financial Officer
(Principal Financial          and Treasurer  
 and Accounting Officer)


/s/ Jerome Jacobson            Director                     December 29, 1997
Jerome Jacobson


/s/ David Riddiford            Director                     December 29, 1997
David Riddiford