U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                   FORM 10-QSB

Quarterly-report under Section 13 or 15 (d) of the Securities Exchange Act of
1934. For the quarterly period ended March 31, 1997.



Commission file number 0-11476

                               HEALTHWATCH, INC.,
         Exact Name of Small Business Issuer as Specified in Its Charter

           Minnesota                                      84-0916792
(State or Other Jurisdiction  of            (I.R.S. Employer Identification No.)
Incorporation or Organization)

                     2445 Cades Way, Vista California 92083
                    (Address of Principal Executive Offices)

                                 (619) 598-4333
                (Issuer's Telephone Number, Including Area Code)

-------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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_____

Number of registrant's common shares outstanding at
May 12, 1997: 3,110,670.

         Traditional Small Business Issuer (check one)
Yes___X___ No_____



PART 1. FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                HEALTHWATCH, INC.
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)

                                                                     March 31,         June 30,
                             ASSETS                                    1997              1996
                                                                   ------------      ------------
<S>                                                                <C>               <C>         
Current assets:
     Cash                                                          $    272,929      $     79,083
     Accounts receivable, net of allowance for doubtful
        accounts of $11,057 and $11,567, respectively                   285,006           229,543
     Inventory (Note 4)                                                 790,609           818,935
     Subscription receivable                                                -0-           104,568
     Other current assets (Note 5)                                       57,041            27,134
                                                                   ------------      ------------

             Total current assets                                     1,405,585         1,259,263

     Property and equipment, net (Note 5)                               138,802            72,086
     Intangible assets, net                                             984,090         1,169,232
     Other assets                                                        49,203           117,971
                                                                   ------------      ------------

             Total assets                                          $  2,577,680      $  2,618,552
                                                                   ============      ============

            LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
     Accounts payable                                              $    160,421      $    215,804
     Accrued compensation and payroll taxes                             230,889           235,241
     Other accrued expenses - related parties                             5,001            34,154
     Other accrued expenses - unrelated parties                         215,185           298,304
     Deferred revenue                                                   145,584           171,202
     Debentures payable - related parties                                15,000               -0-
     Debentures payable - unrelated parties                             565,000               -0-
                                                                   ------------      ------------

             Total current liabilities                                1,337,080           954,705

Debentures payable - related parties                                        -0-            15,000
Debentures payable - unrelated parties                                      -0-           565,000
                                                                   ------------      ------------

             Total liabilities                                        1,337,080         1,534,705
                                                                   ------------      ------------

Shareholders' equity:
  Cumulative preferred stock, $.07 par value; 1,428,571 shares
     authorized, 100,000 and 200,000 shares issued and out-
     standing, respectively (Note 6)                                      7,000            14,000
  Common stock, $.07 par value; 14,285,714 shares authorized,
     3,096,173 and 1,624,581 issued and outstanding,
     respectively (Notes 5 & 7)                                         216,732           113,720
  Additional paid-in capital                                         14,487,209        12,958,348
  Accumulated deficit                                               (13,429,421)      (11,963,662)
  Equity adjustment from foreign currency translation                   (40,920)          (38,559)
                                                                   ------------      ------------

             Total shareholders' equity                               1,240,600         1,083,847
                                                                   ------------      ------------

             Total liabilities and shareholders' equity            $  2,577,680      $  2,618,552
                                                                   ============      ============

</TABLE>



<TABLE>
<CAPTION>
                               HEALTHWATCH , INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
           FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
                                   (UNAUDITED)

                                                             Three Months                      Nine Months
                                                             ------------                      -----------

                                                         1997             1996             1997             1996
                                                     -----------      -----------      -----------      -----------
<S>                                                     <C>          <C>              <C>              <C>        
Product sales                                            614,878      $   535,115      $ 1,611,658      $ 1,531,833
Product cost of sales                                    485,290          414,225        1,333,024        1,173,462
                                                     -----------      -----------      -----------      -----------

              Gross profit                               129,588          120,890          278,634          358,371

Operating costs and expenses:
   Selling, general and administrative                   460,803          363,866        1,208,509        1,030,246
   Depreciation and amortization                          74,037           87,198          219,640          261,596
   Research and development                               77,280           65,391          267,426          263,200
                                                     -----------      -----------      -----------      -----------

              Total operating costs and expenses         612,120          516,455        1,695,575        1,555,042
                                                     -----------      -----------      -----------      -----------

              Loss from continuing operations           (482,532)        (395,565)      (1,416,941)      (1,196,671)

Other income (expense):
   Interest income                                           -0-              798              -0-            7,998
   Interest expense                                      (15,091)         (15,132)         (48,818)         (50,756)
   Miscellaneous                                             -0-              -0-              -0-           10,102
                                                     -----------      -----------      -----------      -----------
              Total operating costs and expenses         (15,091)         (14,334)         (48,818)         (32,656)
                                                     -----------      -----------      -----------      -----------

              Net loss                               $  (497,623)     $  (409,899)     $(1,465,759)     $(1,229,327)
                                                     ===========      ===========      ===========      ===========

Net loss per share                                   $     (0.17)     $     (0.32)        $(0.66 )      $     (1.05)
                                                     ===========      ===========      ===========      ===========

Weighted average number of shares outstanding
                                                       2,919,176        1,268,918        2,237,659        1,169,871
                                                     ===========      ===========      ===========      ===========

</TABLE>


<TABLE>
<CAPTION>
                               HEALTHWATCH , INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
           FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
                                   (UNAUDITED)

                                                                      Three Months                     Nine Months
                                                                      ------------                     -----------
                                                                 1997             1996            1997             1996
                                                            --------------------------------------------------------------
<S>                                                        <C>              <C>              <C>              <C>         
Cash flows from operating activities:
  Net income (loss)                                         $  (497,623)     $  (409,899)     $(1,465,759)     $(1,229,327)
Adjustments to reconcile net loss to net cash
 provided by (used in) operating activities:
  Stock issued as payment of expenses                            37,605           42,689          155,544          140,125
  Depreciation and amortization                                  74,037           87,198          219,640          261,596
  Gain on extinguishment of debt                                    -0-              -0-              -0-          (10,102)

Decrease (increase) in assets:
  Accounts receivable                                          (100,323)         (59,703)         (55,463)          73,506
  Inventory                                                      (6,710)          86,502           28,326          (58,549)
  Other current assets                                              231            2,662          (16,782)         104,928
  Other assets                                                   (7,442)           4,553           (2,899)           2,733
Increase (decrease) in liabilities:
  Accounts payable                                               10,753           28,678          (55,383)         (66,088)
  Accrued expenses - related                                     18,387            4,872          (33,505)           9,818
  Accrued expenses - unrelated                                   55,706           42,883           31,481         (176,495)
  Deferred revenue                                                2,413          (17,064)         (25,618)         (55,901)
                                                            --------------------------------------------------------------
    Net cash used in operating activities                      (412,966)      (1,220,418)      (1,003,756)        (186,629)
                                                            --------------------------------------------------------------

Cash flows from investing activities:
  Purchase of property and equipment                            (19,771)             -0-          (29,547)          (8,461)
  Increase in intangible assets
                                                            --------------------------------------------------------------
    Net cash provided by (used in) investing activities         (19,771)             -0-          (29,547)          (8,461)
                                                            --------------------------------------------------------------

Cash flows from financing activities:
  Proceeds (repayment) of note payable                              -0-              -0-              -0-         (285,000)
  Repayment of long-term debt                                       -0-           (1,100)             -0-           (3,230)
  Net costs of issuance of common stock                          19,504          170,350          291,604          701,127
  Payments received on stock subscriptions                      600,000              -0-        1,154,568              -0-
                                                            --------------------------------------------------------------
    Net cash provided by (used in) financing activities         619,504          169,250        1,446,172          412,897
                                                            --------------------------------------------------------------

Effect of exchange rate changes on cash                          (6,161)          (2,698)          (2,361)         (27,810)
                                                            --------------------------------------------------------------

Increase (decrease) in cash and cash equivalents                180,606          (20,077)         193,846         (627,130)
Cash and cash equivalents-beginning of period                    92,323          135,928           79,083          742,981
                                                            --------------------------------------------------------------
Cash and cash equivalents-end of period                     $   272,929      $   115,851      $   272,929      $   115,851
                                                            ==============================================================

</TABLE>



                                HEALTHWATCH, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
                                   (UNAUDITED)

Note 1: Principles of Presentation

The accompanying unaudited financial statements reflect all adjustments which in
the opinion of management are necessary for a fair presentation of the Company's
financial position as of March 31, 1997, and it's results of operations and cash
flows for the three months and nine months ended March 31, 1997 and 1996. This
report should be read in conjunction with the Company's Financial Statements and
Notes thereto contained in the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1996.

Note 2: Management's Operating Plans

As a result of recurring losses and negative cash flow from operations,
management has reviewed its operational and financial plans relative to the
Company's ability to continue in existence. Management's plans in this regard,
include the completion of development of the Company's new proprietary product
to be used in the intravenous ("IV") drug infusion industry.

Note 3: Net Income (Loss) per Share

The net income (loss) per share in the fiscal 1996 and 1995 periods were
computed based on the weighted average number of shares outstanding during the
periods without taking into effect outstanding options as their effect would be
either anti-dilutive or dilutive by less than 3%.

Note 4: Inventory

Inventory consisted of the following at March 31, 1997 and June 30, 1996:

                           03/31/97             6/30/96
                           --------             -------
Raw materials              $592,956            $728,852
Work in process             158,122              81,894
Finished goods               39,531               8,189
                           --------            --------
                           $790,609            $818,935
                           --------            --------

Note 5: Supplemental schedule of non-cash operating, investing and financing
activities during the three months and nine months ended March 31, 1997.

The Company issued an aggregate of 9,000 shares and 86,581 shares valued at
$24,480 and $283,269, respectively, during the three and nine month periods
ended March 31, 1997, respectively. Of this amount, 30,000 shares valued at
$114,600 were included in accrued liabilities - unrelated parties as of June 30,
1996, 15,000 shares valued at $52,500 were issued in exchange for certain
investment banking services of which $13,125 remains in prepaid expense as of
March 31, 1997, 35,781 shares valued at $104,569 were issued for other
consulting services and 5,800 shares valued at $11,600 were issued as employee
stock bonuses. Other assets with a fair market value of $71,667 were placed in
service as equipment during the quarter ended March 31, 1997.

Note 6: Preferred Stock/Warrants

In May 1995, as settlement of a dispute with certain common stockholders, the
Company contractually committed to convert 57,143 shares of the Company's Common
Stock purchased for $600,000 into 400,000 shares of the Company's Series A,
$1.50 stated value, 10% cumulative and Convertible Preferred Stock. In June
1996, 200,000 shares of Preferred Stock were converted to 171,428 shares of
Common Stock in accordance with the conversion option. In August 1996, the
remaining 200,000 shares of Preferred Stock were converted to 157,192 shares of
Common Stock in accordance with the agreement's conversion option. Accrued and
unpaid dividends of $7,500 at June 30, 1996 were paid in August 1996.

On November 14, 1996, the Company agreed to issue an aggregate of 500,000 Units
of its securities, for a purchase price of $2.25 per Unit ($1,125,000 in the
aggregate). Each Unit consisted of one share of Series B Preferred Stock and
three Warrants, each Warrant representing the right to acquire one share of the
Company's Common Stock at $2.00 per share. Each share of Preferred Stock is
convertible into three shares of the Company's Common Stock. During the three
and nine months ended March 31, 1997, the Company issued 266,666 and 466,666
Units, respectively. As of March 31, 1997, 366,666 shares of Series B
Convertible Preferred Stock had been converted into 1,100,000 shares of the
Company's Common Stock. Subsequent to the end of the third quarter of fiscal
1997, the remaining 33,334 Units were issued.

Note 7: Common Stock

During the three months and nine months ended March 31, 1997, the Company issued
an aggregate of 16,428 shares and 127,238 shares of Common Stock for $30,000 and
$302,100, respectively, as the result of option and warrant exercises.



                                HEALTHWATCH, INC.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                           OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS


GENERAL

         In recent years, the markets in which the Company participates have
experienced significant changes and a period of uncertainty due to proposed
changes in health-care administration in the United States and efforts by
health-care organizations to reduce their operating costs and the cost of
health-care in general. As a result, the Company has focused its products in the
hospital marketplace in anticipation of lower sales directly to physicians. The
Company believes that the major changes which have been introduced to the
health-care industry will place greater emphasis on lower-cost products. While
medical standards for safety and effectiveness are expected to remain strong,
costs are expected to be a deciding factor on health-care purchases.

         HealthWatch has incurred losses from operations in each of its last
three fiscal years. Due to the significantly better margins anticipated for its
IV products than for its diagnostic products, the Company's primary focus is on
the development of its IV business. During the quarter ended March 31, 1997, the
Company reported the first sales of the Pacer, its new IV product.

RESULTS OF OPERATIONS

         Revenues for the 1997 periods increased 15% and 5% for the 1997 quarter
and 9-month periods, respectively, compared to the similar periods in 1996. The
increased revenues were primarily due to sales of the Company's first IV
product, the Pacer. The Company believes that product sales continue to be
depressed as a result of the Company's lack of adequate working capital which
has adversely affected its level of sales as the Company has not been able to
support both the development of its new IV product and selling efforts and
enhancements to its existing products. In addition, the Company believes that
uncertainty in the medical community regarding the reimbursement effects of
health-care reforms; consolidations of hospital and other health-care
institutions resulting in fewer customers for the Company's diagnostic products
and delays in making purchase commitments by institutions engaged in merger or
consolidation discussions; and competitive pressure on product prices also
contribute to depressed sales.

         Gross margins were 21% and 17% for the 1997 quarter and 9-month
periods, respectively, compared to 23% and 23% for the similar 1996 periods. The
lower gross margins in 1997 were due primarily to increased cost of parts and
materials and increased salary expenses.

         Selling, general and administrative expenses as a percent of sales were
75% for the 1997 quarter and 9-month periods compared to 68% and 67%,
respectively, for the similar 1996 periods. The increase in the 1997 periods was
due primarily to planned expenditures associated with the introduction of the
new IV product, increased promotional expenses, and increased salary expenses.
The decrease in net loss per share in the 1997 periods is due to the increase in
the number of outstanding shares.

LIQUIDITY AND CAPITAL RESOURCES

         At March 31, 1997, the Company had $557,935 of cash and accounts
receivable. Due to the Company's operating losses, it has been required to raise
additional debt and equity capital to fund its operations. Capital expenditures
during this period have been limited to routine capital purchases. During the
first 9-months of fiscal 1997, the Company raised $1,352,100 of additional
working capital primarily through the issuance of 466,666 Units of its
securities as described in Note 6 to the financial statements.

         The Company believes that with the proceeds from the sale of the
466,666 Units during the first 9-months of fiscal 1997, and the subsequent sale
of an aggregate of 33,334 additional Units, it has sufficient working capital to
fund operations through the balance of fiscal 1997. However, the Company
believes that it should raise approximately $800,000 of additional capital to
better fund the sales and marketing expenses for the rollout of the new IV
product, to continue the development of additional IV products and for general
working capital purposes during the next twelve months. In addition, the Company
will either have to raise an additional $580,000 to pay certain debentures which
are due and payable in September 1997, or enter into agreements with the holders
of such securities to extend the due date thereof or to convert the debentures
into shares of the Company's common stock at a reduced conversion rate (current
conversion rate is $14.00 per share).

SAFE HARBOR STATEMENT

         Information and statements in this report, other than historical
information, should be considered forward looking and reflect management's
current views of future events and financial performance that involve a number
of risks and uncertainties. The factors that could cause actual results to
differ materially include, but are not limited to, the items discussed under
Item 1 "BUSINESS-Risk Factors" in the Company's Annual Report, Form 10-KSB, for
the fiscal year ended June 30, 1996.


PART II. OTHER INFORMATION

Items 1 and 3 through 5. Not applicable.

Item 2. During the second and third quarters of fiscal 1997, the Company sold in
private transactions an aggregate of 466,666 Units of its securities. For
further information regarding these sales, see Note 6 of Notes to financial
statements.

Item 6. Exhibits and Reports on Form 8-K.

Exhibits:
        Exhibit 27 - Financial Data Schedule

The Company was not required to file a report on form 8-K during the quarter
ended March 31, 1997.


                                   SIGNATURES

In accordance with the Exchange Act, the registrant caused this report to be
signed by the undersigned, thereunto duly authorized.

Date:  May 14, 1997
                                        HealthWatch, Inc.

                                        BY /s/ Daniel J. Kelly
                                           ------------------------------------
                                           Daniel J. Kelly
                                           (President & Chief Executive Officer)


                                        BY /s/ Annette Agner
                                           ------------------------------------
                                           Annette Agner
                                           (Chief Accounting Officer)