SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C. 20549

                               FORM 10-Q

(Mark One)

[X]     Quarterly report pursuant to Section 13 or 15(d) of the 
        Securities Exchange Act of 1934 for the quarterly period ended 
        December 31, 1997

[ ]     Transition report pursuant to section 13 or 15(d) of the 
        Securities Exchange Act of 1934 for the transition period 
        from ____ to ____.


                     Commission file number 0-27988


                      MICROWARE SYSTEMS CORPORATION
          (Exact name of registrant as specified in its charter)
 
         IOWA                                     42-1073916
  (State of incorporation)          (I.R.S. Employer Identification No.)

                 1500 N.W. 118TH ST. DES MOINES, IOWA  50325
                   (Address of principal executive office)

                            (515) 223-8000
             (Registrant's telephone number, including area code)

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 the number of shares outstanding of each of the issuer's 
classes of common stock, as of the latest practicable date.

   COMMON STOCK: 14,516,042 SHARES OUTSTANDING AS OF December 31, 1997

<PAGE>
                       MICROWARE SYSTEMS CORPORATION

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

The accompanying financial information is unaudited but, in the opinion 
of management, reflects all adjustments (which include only normally 
recurring adjustments) necessary for a fair presentation of the results 
for the periods shown.  The audited financial statements and notes 
thereto for the year ended March 31, 1997 are included in the Annual Report
on Form 10-K previously filed with the Securities and Exchange Commission.

The results for the quarter ended December 31, 1997, are not 
necessarily indicative of the results to be expected for the entire year.

<PAGE>
                             Microware Systems Corporation
                           Consolidated Statements of Operations
                                    (unaudited)
                        ($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
         
                                              Three Months Ended      Nine Months Ended
                                                  December 31,           December 31,
                                              -------------------    ------------------
                                                1997       1996        1997       1996
                                              -------    -------     -------    -------

<S>                                           <C>        <C>         <C>       <C>
Revenues: 
   Product                                    $ 2,936    $ 4,129     $ 8,488   $12,050
   Services                                     1,229      1,745       4,034     7,931
                                              -------    -------     -------   -------
                                                4,165      5,874      12,522    19,981
                                              -------    -------     -------   -------
Cost of revenues:	
   Product                                        855        851       2,010     2,098
   Services                                       661      1,081       2,289     2,801
                                              -------    -------     -------   -------
                                                1,516      1,932       4,299     4,899
                                              -------    -------     -------   -------
     Gross profit                               2,649      3,942       8,223    15,082
 
Operating expenses:
   Research & development                       1,849      1,748       5,505     5,170
   Sales & marketing                            2,527      2,488       7,183     7,186
   General & administrative                     1,253        861       3,453     2,478
   Special charges                                  -          -         940        75
                                              -------    -------     -------   -------
                                                5,629      5,097      17,081    14,909
                                              -------    -------     -------   -------
     Operating (loss) profit                   (2,980)    (1,155)     (8,858)      173
                                              -------    -------     -------   -------

Other income (expense):
   Foreign currency gain (loss), net               42         44         (49)       65
   Gain on sale of land and building              215          -         215         -
   Interest income                                178        265         599       946
   Interest expense                              (184)       (26)       (344)      (60)
                                              -------    -------     -------   -------
                                                  251        283         421       951
                                              -------    -------     -------   -------
     (Loss)earnings before income tax expense  (2,729)      (872)     (8,437)    1,124
Income tax expense (benefit)                       16       (257)         76       225
                                              -------    -------     -------   -------
     Net (loss) earnings                      $(2,745)   $  (615)    $(8,513)  $   899
                                              =======    =======     =======   =======
Basic (loss) earnings per share               $ (0.19)   $ (0.04)    $ (0.59)  $  0.07
                                              =======    =======     =======   =======
Weighted average common
  shares outstanding (in thousands)            14,508     13,859      14,327    13,339
                                              =======    =======     =======   =======

Diluted (loss) earnings per share             $ (0.19)   $ (0.04)    $ (0.59)  $  0.06
                                              =======    =======     =======   =======
Weighted average common and common equivalent
  shares outstanding (in thousands)            14,508     13,859      14,327    15,166
                                              =======    =======     =======   =======
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>
                   Microware Systems Corporation
                    Consolidated Balance Sheets
            ($ in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                          December 31,
                                             1997          March 31,
                                          (unaudited)         1997
                                         ------------     ----------
 
           Assets
<S>                                      <C>              <C>
Current assets:
   Cash and cash equivalents                  $ 5,749        $ 6,758
   Short-term investments                       3,527         13,204
   Trade receivables, net of allowance
      for doubtful accounts of 
      $516 and $635, respectively               3,735          7,014
   Income taxes receivable                        121            207
   Inventories                                     74             96
   Prepaid royalties                              574          1,005
   Prepaid expenses and other current assets      651            316
   Deferred tax assets                            488            507
                                            ---------      ---------
       Total current assets                    14,919         29,107

Investment, at cost                             5,004          5,004

Property and equipment:
   Land and improvements                        2,529            144
   Building                                     8,420          2,017
   Furniture, fixtures & equipment              4,576          4,115
   Research & development equipment             3,661          3,612
   Leasehold improvements                          87            123
   Construction in progress                         -          7,369
                                            ---------      ---------
                                               19,273         17,380
       Accumulated depreciation and 
         amortization                           5,507          5,463
                                            ---------       --------
       Net property and equipment              13,766         11,917

 Other assets:
   Intangible assets, net of amortization       3,197          1,675
   Deposits and other                           1,432          1,380
                                            ---------      ---------
       Total other assets                       4,629          3,055
                                            ---------      ---------
                                              $38,318        $49,083
                                            =========      =========

          Liabilities

Current liabilities:
   Notes payable to banks                        $309           $323
   Current portion of long-term debt               59             38
   Accounts payable                             1,410          2,559
   Accrued expenses                             1,832          2,194
   Deferred revenues                              645            867
   Income taxes payable                           104            102
                                            ---------      ---------
       Total current liabilities                4,359          6,083

Long-term debt, less current installments       6,941          8,038
Deferred income taxes                             242            236
                                            ---------      ---------

       Total liabilities                       11,542         14,357
                                            ---------      ---------

       Shareholders' equity 

Series A preferred  stock, $14.71 par 
  value; 340,000 shares authorized, 
  none issued or outstanding                        -              -
Series I preferred  stock, no par    
  value; 500,000 shares authorized;  
   none issued or outstanding                       -              -
Common stock, voting, no par value; 
  50,000,000 shares authorized; 
  14,741,142 and 14,190,561 shares
  issued, 14,516,042 and 13,965,461 
  shares outstanding                           36,709         36,152
Retained earnings (deficit)                    (8,424)            89
Cumulative adjustment for foreign
  currency translation                           (732)          (738)
                                            ---------      ---------
                                               27,553         35,503
Less cost of common shares acquired 
  for the treasury, 225,100 and 
  225,100 shares                                  777            777
                                            ---------      ---------
       Total shareholders' equity              26,776         34,726
                                            ---------      ---------
                                              $38,318        $49,083
                                           ==========      =========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>
                       Microware Systems Corporation
                   Consolidated Statements of Cash Flows
                                 (unaudited)
                               ($ in thousands)
<TABLE>
<CAPTION>                                              Nine Months Ended December 31,
                                                       ------------------------------
                                                           1997             1996
                                                        ---------        ---------
<S>                                                     <C>              <C>
Cash flows from operating activities:
  Net (loss) earnings                                   $  (8,513)       $     899
    Adjustments to reconcile net (loss)earnings to net 
     cash used in operating activities:
      Depreciation and amortization                         1,657            1,216
      Write-off of intangible assets                          940                -
      Gain on disposal of assets                             (204)               -
      Deferred income taxes                                    26             (156)
   Change in assets and liabilities:
      Trade receivables, net                                3,224           (3,556)
      Inventories                                              22             (117)
      Prepaid royalties                                      (135)            (848)
      Other current assets                                   (367)            (186)
      Income taxes receivable                                  87              132
      Other assets                                         (2,623)            (703)
      Accounts payable                                     (1,129)             293
      Accrued expenses                                       (323)            (320)
      Deferred revenues                                      (217)            (161)
      Income taxes payable                                     27              273
                                                        ---------        ---------
  Net cash used in operating activities                    (7,528)          (3,234)
                                                        ---------        ---------
Cash flows from investing activities:
   Capital expenditures                                    (4,317)          (5,840)
   Purchases of short-term investments                    (12,758)         (25,900)
   Maturities of short-term investments                    22,434           10,468
   Proceeds from sale of land and building, net             1,641                -
   Purchase of investment, at cost                              -           (5,004)
                                                        ---------        ---------
  Net cash provided by (used in) investing activities       7,000          (26,276)
                                                        ---------        ---------
Cash flows from financing activities:
   Principal payments on notes payable to banks and 
     long-term debt                                       (11,782)            (950)
   Proceeds from issuance of notes payable to banks
     and long-term debt                                    10,706            4,744
   Proceeds from issuance of common stock                     606           18,984
   Cost of issuance of common stock                           (49)            (410)
                                                        ---------        ---------
  Net cash (used in) provided by financing activities        (519)          22,368
Effect of foreign currency exchange rate changes on cash       38              (99)
                                                        ---------        ---------
  Net decrease in cash and cash equivalents                (1,009)          (7,241)
Cash and cash equivalents at beginning of period            6,758           12,337
                                                        ---------        ---------
Cash and cash equivalents at end of period              $   5,749        $   5,096
                                                        =========        =========
Supplemental disclosure of cash flow information:
   Cash paid for interest                               $     554         $    163
                                                        =========        =========
   Cash paid for taxes                                  $      13         $    225
                                                        =========        =========
</TABLE>
Supplemental disclosure of non-cash financing activities:
   In connection with the Company's initial public offering effective 
   April 2, 1996, the 340,000 shares of Series A Preferred Stock were 
   each converted into 4 shares of Common Stock.

See accompanying notes to consolidated financial statements.

<PAGE>
                     MICROWARE SYSTEMS CORPORATION
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
                               (UNAUDITED)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In accordance with the rules and regulations of the Securities and
Exchange Commission, the preceding unaudited financial statements omit
or condense certain information and footnote disclosure normally
required for complete financial statements prepared in accordance with
generally accepted accounting principles.  In the opinion of management,
all adjustments (which include reclassifications and normal recurring
adjustments) necessary to present fairly the financial position, results
of operations and cash flows at December 31, 1997 and for all periods
presented, have been made.

2.  NET (LOSS) EARNINGS PER SHARE

The Company adopted  SFAS No. 128, "Earnings per Share" during the three month 
period ended December 31, 1997.  This pronouncement establishes new standards 
for computing and presenting earnings per share (EPS) on a basis that is more 
comparable to international standards and provides for the presentation of 
basic and diluted EPS, replacing the previously reported primary and fully 
diluted EPS.  Basic EPS has been computed by dividing net (loss) earnings by 
the weighted average number of common shares outstanding during each period.  
Diluted EPS has been computed by dividing net (loss) income by the weighted 
average common and, when dilutive, common equivalent shares outstanding during 
each period.  Dilutive common equivalent shares are calculated using the 
treasury stock method and consist of common stock issuable upon the exercise 
of options and warrants.  All prior period EPS calculations have been 
restated.

3.  STOCK OPTIONS

In May 1997, the Company offered all recipients of stock option grants
made in October 1996 (totaling 353,100 shares) the right to cancel
those outstanding (and non-vested) options at the original exercise
price of $15.50 per share and receive new options dated May 1997 with a
new exercise price and revised vesting.  The new exercise prices are
$10.00 per share for employees who were serving as executive officers at
the time of the original grant and $6.25 for all other employees.  Both
exercise prices are equal to or in excess of the fair value of the
Company's common stock at the date of grant.  While the original grants
had a vesting schedule of 25% on each anniversary of October 14, 1996,
the new grants have vesting of 10%, 20%, 30%, and 40% on each
anniversary of May 2, 1997.  Vesting of grants accelerates in the event
of a change in control of the Company.  The new grants all have an
expiration date of May 2, 2007.

4. RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income", and Statement of Financial Accounting Standards
No. 131 (SFAS 131), "Disclosure about Segments of an Enterprise and
Related Information".  The adoption of both statements is required for
fiscal years beginning after December 15, 1997.

SFAS 130 establishes standards for reporting and displaying comprehensive
income and its components in the financial statements.  It requires that
a company classify items of their comprehensive income, as defined by
accounting standards, by their nature (i.e. unrealized gains or losses on
securities) in a financial statement, but does not require a specific
format for that statement.  

SFAS 131 changes current practice under SFAS 14, "Financial Reporting of
Segments of a Business Enterprise", by establishing a new framework on
which to base segment reporting (referred to as the management approach)
and also requires interim reporting of segment information.

The Company is studying the implications of these new statements and the
impact of their implementation on its consolidated financial statements.

In October 1997, the American Institute of Certified Public Accountants issued 
Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2).  SOP 
97-2 is effective for transactions entered into in fiscal years beginning 
after December 15, 1997. Retroactive application of the provisions of SOP 97-2
is prohibited.  The Company has reviewed SOP 97-2 and believes that, given its 
current policies, the application of SOP 97-2 when adopted effective April 1, 
1998, will not have a material impact on the recording of future revenues.

<PAGE>

                        MICROWARE SYSTEMS CORPORATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

FORWARD-LOOKING INFORMATION IS SUBJECT TO UNCERTAINTY

Except for the historical information contained herein, the following
discussion and analysis of the Company's financial condition and results
of operations includes forward-looking statements that involve risks and
uncertainties, including management's expectations for fiscal 1998 and
known trends and uncertainties in the business.  Actual future results
and trends may differ materially depending on a variety of factors,
including the volume and timing of orders received during the quarter,
the timing and acceptance of new products and product enhancements by
the Company or its competitors, changes in pricing, product life cycles,
seasonality of customer buying patterns, the existence of product errors, 
extraordinary events, such as litigation or acquisition, including 
related charges, and economic conditions generally or in various geographic 
areas.  In particular, the economic conditions in certain countries in Asia 
have worsened significantly in recent months.  The majority of the Company's 
Asian business is derived from Japan, where the down-turn has been less 
significant, but the impact on the Company's future results is uncertain.  
Additionally, the Company has recently experienced significant turnover in its 
sales force in North America and Japan, which has had, and may continue to 
have, an interim adverse affect on the Company's operations.  While the 
Company has made significant progress in filling its vacated sales positions, 
the future effect of the turnover cannot be presently determined.  All of the 
foregoing factors, and others not mentioned, make operating results difficult 
to forecast.  The Company's operating results have varied significantly from 
quarter to quarter in the past and the future operating results of the Company 
may fluctuate as a result of the above and other risk factors detailed in the 
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997, 
and other documents filed by the Company with the Securities and Exchange 
Commission.  Due to all of the foregoing 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 an indication of future 
performance.  For the fiscal year ended March 31, 1997 and the nine month 
period ended December 31, 1997, the Company's actual performance did not meet 
market expectations.  The company has experienced losses in recent quarters 
and such losses may continue.

OVERVIEW

The Company has historically derived revenues from development licenses
and run-time license royalty fees along with sales of related software
productivity tools, maintenance support and custom contract engineering
work.  Custom contract engineering revenues are typically derived from
discrete software engineering projects porting the OS-9 operating system
along with customized software products.  Typically, run-time license royalty 
fees follow the completion of these contracts.  For financial reporting 
purposes, product revenues primarily consist of software licenses and software 
development tool products, along with run-time license royalty fees earned 
(including non-refundable prepaid royalties).  Services revenues principally 
consist of revenues from custom contract engineering and maintenance support 
agreements, along with consulting and training activity. 

A key element of the Company's long-term strategy is to focus on markets 
the Company anticipates will significantly increase run-time license 
royalty fees.  The Company has made significant investments targeting 
various emerging markets including wireless personal communications, 
interactive and digital television, and Internet access devices through 
the development of specialized software modules that utilize the OS-9 
operating system. As a result, the Company's product revenues have 
demonstrated a proportionate increase in large account, vertical market 
activities and related services, and a corresponding decrease in 
traditional run-rate embedded systems business as a percentage of total 
revenues. Deriving a large portion of revenues from a small number of 
key customers increases the quarterly variability of the Company's 
financial results.  Recently the Company has begun working towards 
strengthening its traditional embedded systems business to better 
capitalize on the more stable growth in that market and thereby gain 
greater quarterly stability. 

RESULTS OF OPERATIONS

Third Quarter of Fiscal 1998 Compared to the Third Quarter of Fiscal
1997

Revenues

Total revenues decreased 29% or $1.7 million from $5.9 million in the
third quarter of fiscal 1997 to $4.2 million in the third quarter of
fiscal 1998.  During fiscal 1998, the Company experienced significant turnover 
in its sales force in North America and Japan which has had, and may continue 
to have, an adverse effect on revenues.  Product revenues decreased 29% or 
$1.2 million from $4.1 million in the third quarter of fiscal 1997 to $2.9 
million in the third quarter of fiscal 1998.  The decrease in product revenues 
from the third quarter of fiscal 1997 to the same period in fiscal 1998 was 
primarily due to a reduction in nonrefundable prepaid royalties recognized 
from customers. In addition, the initial license fees from new accounts in the 
Internet and wireless vertical markets did not meet management expectations in 
the current quarter. Future growth in the Company's product revenues will 
continue to be substantially dependent on its customers' timely and successful 
development and distribution of new products using the Company's products, 
making product revenues difficult to accurately forecast on a quarterly or 
annual basis.  Services revenues decreased 30% or $516,000 from $1.7 million 
in the third quarter of fiscal 1997 to $1.2 million in the third quarter of 
fiscal 1998.  The decrease from the third quarter of fiscal 1997 to the same 
period in fiscal 1998 primarily resulted from a decrease in funded development 
of advanced processor ports.

Cost of Revenues

Total cost of revenues decreased 22% or $416,000 from $1.9 million in the
third quarter of fiscal 1997 to $1.5 million in the third quarter of
fiscal 1998.  As a percentage of product revenues, cost of product revenues
increased from 21% in the third quarter of fiscal 1997 to 29% in the third
quarter of fiscal 1998.  Although the Company made progress in reducing its 
fixed salary costs between periods by increasing the efficiency and 
utilization of personnel, these improvements were offset by an increase in the 
amortization of purchased software and the overall decrease in product sales 
between periods.  As a percentage of services revenues, cost of services 
revenues decreased from 62% in the third quarter of fiscal 1997 to 54% in the 
third quarter of fiscal 1998.  The percentage decrease between periods 
primarily resulted from higher margin custom project work being performed 
during the third quarter of fiscal 1998 as compared to the third quarter of 
fiscal 1997. 

Research and Development

Research and development expense increased 6% or $101,000 from $1.7 
million in the third quarter of fiscal 1997 to $1.8 million in the third 
quarter of fiscal 1998.  The increase in overall dollars between periods 
resulted primarily from an increase in support costs related to certain 
acquired technology.  In addition, the overall increase is a result of a 
reduction in engineering costs transferred  to cost of services revenues 
between periods as a result of fewer services revenue project hours.

Sales and Marketing

Sales and marketing expense remained at $2.5 million in the third quarters 
ended December 31, 1996 and 1997.  During the third quarter of fiscal 1998 the 
Company continued restaffing previously eliminated or vacated sales positions 
in North America and Japan.  The Company expects to continue investing in 
sales and marketing over the remainder of fiscal 1998 to expand its sales 
force and customer base and to introduce new products.

General and Administrative Expense

General and administrative expenses increased 46% or $392,000 from $861,000
to $1.3 million in the third quarters of fiscal 1997 and 1998, respectively.
The increase in general and administrative expenses resulted from 
approximately $400,000 of recruiting and relocation costs associated with the 
hiring of new executive management and sales personnel in the U.S. and Japan.

Other Income (Expense)

Other income remained approximately $0.3 million in the third quarters ended 
December 31, 1996 and 1997, decreasing $32,000 between periods. Overall, the 
decrease is attributable to a reduction of interest income due to cash used in 
operations along with an increase in interest expense related to the Company's 
long-term debt on its new headquarters facility, offset by a $215,000 gain 
from the sale of the Company's former headquarters facility.

Nine Months Year-to-Date of Fiscal 1998 Compared to the Nine Months Year-to-
Date of Fiscal 1997

Revenues

Total revenues decreased 37% or $7.5 million from $20.0 million for the nine
month period ended December 31, 1996 to $12.5 million for the nine month
period ended December 31, 1997. During fiscal 1998, the Company experienced 
significant turnover in its North American sales force which has had, and may 
continue to have, an adverse effect on revenues.  Product revenues decreased 
30% or $3.6 million from $12.1 million for the nine month period ended 
December 31, 1996 to $8.5 million for the nine month period ended December 31, 
1997.  The decrease in product revenues from the nine month period ended 
December 31, 1996 to the nine month period ended December 31, 1997 was 
primarily due to a reduction in nonrefundable prepaid royalties recognized 
from customers. In addition, initial license fees from new accounts in the 
Internet and wireless vertical markets have not met management expectations in 
fiscal 1998. Future growth in the Company's product revenues will continue to 
be substantially dependent on its customers' timely and successful development 
and distribution of new products using the Company's products, making product 
revenues difficult to accurately forecast on a quarterly or annual basis.  
Services revenues decreased 49% or $3.9 million from $7.9 million for the nine 
month period ended December 31, 1996 to $4.0 million for the nine month period 
ended December 31, 1997.  The decrease in services revenues between periods 
primarily resulted from a decrease in funded development of advanced processor 
ports. 

Cost of Revenues

Total cost of revenues decreased 12% or $600,000 from $4.9 million for the 
nine month period ended December 31, 1996 to $4.3 million for the nine month 
period ended December 31, 1997.  As a percentage of product revenues, cost of 
product revenues increased from 17% for the nine month period December 31, 
1996 to 24% for the nine month period ended December 31, 1997. Although the 
Company made progress in reducing its fixed salary costs between periods by 
increasing the efficiency and utilization of personnel, these improvements 
were offset by an increase in the amortization of purchased software and the 
overall decrease in product sales between periods.  As a percentage of 
services revenues, cost of services revenues increased from 35% for the nine 
month period ended December 31, 1996 to 57% for the nine month period ended 
December 31, 1997.  The percentage increase between periods primarily resulted 
from small, lower margin custom work being performed during the nine month 
period ended December 31, 1997 compared to large, higher margin custom work 
being performed during the nine month period ended December 31, 1996.

Research and Development

Research and development expense increased 6% or $335,000 from $5.2 million
for the nine month period ended December 31, 1996 to $5.5 million for the nine
month period ended December 31, 1997. The increase in overall dollars resulted 
primarily from an increase in support costs related to certain acquired 
technology along with an overall reduction in engineering costs transferred to 
cost of services due to the reduction in services revenue project hours 
between periods.

Sales and Marketing

Sales and marketing expense remained at $7.2 million for each of the nine 
month periods ended December 31, 1996 and 1997.  The Company expects to 
continue investing in sales and marketing over the remainder of fiscal 1998 to 
expand its sales force and customer base and to introduce new products.

General and Administrative Expense

General and administrative expenses increased 39% or $975,000 from $2.5
million for the nine month period ended December 31, 1996 to $3.5 million
for the nine month period ended December 31, 1997. The increase in general
and administrative expenses resulted from costs incurred due to organizational 
changes in the Company's operations during fiscal 1998.  These costs included 
severance and related benefits associated with the elimination and resignation 
of employees of approximately $175,000, moving costs to the Company's new 
headquarters facility of approximately $80,000 and recruiting and relocation 
costs associated with the hiring of new executive management and sales 
personnel in the U.S. and Japan of approximately $700,000.

Special Charges

For the nine month period ended December 31, 1997, the Company determined
that due to revised estimates of the marketability of certain products under
development, a special charge of $940,000 was appropriate to more adequately 
reflect the residual value of certain intangible assets.  Included in this 
charge, taken in the quarter ended September 30, 1997, was approximately 
$566,000 of deferred development costs in the form of prepaid royalties, 
approximately $202,000 relating to goodwill associated with Micromall, a 
wholly owned subsidiary of the Company, and approximately $172,000 relating to 
the write-off of previously capitalized purchased technology.  Special charges 
incurred for the nine month period ended December 31, 1996 related to 
severance and related benefits associated with the restructuring of operations 
in France.

Other Income (Expense)

Other income decreased $530,000 from $951,000 for the nine month period ended
December 31, 1996 to $421,000 for the nine month period ended December 31,
1997.  This decrease is primarily attributable to a reduction of interest 
income due to cash used in operations, an increase in interest expense related 
to the Company's long-term debt on its new headquarters facility, offset by a 
$215,000 gain from the sale of the Company's former headquarters facility. 

Liquidity and Capital Resources

At December 31, 1997, the Company had working capital of $10.6 million and
approximately $9.3 million in cash, cash equivalents and short-term 
investments.

Net cash used in operating activities in the first nine months of fiscal 1998 
and 1997 totaled $7.5 million and $3.2 million, respectively. In the first 
nine months of fiscal 1998, the net loss of $8.5 million and an increase in 
other assets of $2.6 million were partially offset by a decrease in trade 
receivables of $3.2 million. The increase in other assets was due primarily to 
additional purchases of third party software which is or will be bundled with 
the Company's software products.  An increase in trade receivables of $3.6 
million, offset by net earnings of $899,000 were the primary reasons for the 
cash used in operations for the nine month period ended December 31, 
1996.

Net cash provided by (used in)investing activities in the first nine months of 
fiscal 1998 and 1997 totaled $7.0 million and ($26.3) million, respectively.  
In the first nine months of fiscal 1998, net maturities of short-term 
investments and proceeds from the sale of the Company's former headquarters 
facility were partially offset by construction expenditures made on the 
Company's new headquarters facility.  Uses of cash for the nine month period 
ended December 31, 1996 resulted primarily from construction expenditures made 
on the Company's new headquarters facility, along with net investment 
purchases.

Net cash (used in) provided by financing activities in the first nine months 
of fiscal 1998 and 1997 totaled ($519,000) and $22.4 million, respectively. 
The cash used in financing activities by the Company for the nine month period 
ended December 31, 1997 resulted primarily from the payoff of the Company's 
$10.0 million construction note offset against the proceeds received on the 
promissory note for the Company's new headquarters facility.  The cash 
provided by financing activities to the Company for the nine month period 
ended December 31, 1996 resulted primarily from the issuance of approximately 
$17.6 million in common stock in connection with the Company's initial public 
offering along with approximately $3.1 million in proceeds received on the 
Company's construction note on its new headquarters facility.

On December 30, 1997, the Company, through a newly organized wholly-owned 
subsidiary, Microware Systems Corporate Park, Inc., executed a promissory note 
with GMAC Commercial Mortgage Corporation in the amount of $7.0 million.  The 
note is secured by the Company's headquarters facility and associated real 
estate.  Monthly payments are $49,000, including interest at 7.46 percent, 
with the unpaid balance due January 1, 2008.

The Company believes its existing cash and short-term investments along with 
other working capital will be sufficient to meet its operating and capital 
expenditure needs for at least the next 12 months. 

PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

        (a.)  Exhibit 11 - Computation of Net Earnings (Loss) per Share. 
              Exhibit 27 - Financial Data Schedule (EDGAR version only).

        (b.)  Reports on Form 8-K: Subsequent to the end of the quarter, on 
                 January 14, 1998, the Company filed a Report on Form 8-K to
                 report a newly executed promissory note with GMAC Commercial
                 Mortgage Corporation.

        No other items.

SIGNATURE

Pursuant to the Securities Exchange Act of 1934, the Registrant has duly 
caused this report to be signed on its behalf by the undersigned thereunto 
authorized.

                      MICROWARE SYSTEMS CORPORATION

    Date: February 13, 1997   /s/ KENT R. KELDERMAN
                           ----------------------- 
                           Kent R. Kelderman
                           Chief Financial Officer,
                           Executive Vice President
                             & Treasurer (Principal
                             Financial & Accounting
                             Officer)