Value Microcaps Motherboard

[whyme2005]

DWCH $4.05....UPDATED DD FOR THOSE INTERESTED IN THIS COMPANY

DWCH HIGHLIGHTS:

2.4M SHARE FLOAT.....ONLY 5M OUTSTANDING SHARES.....$1/SHARE CASH.....ZERO DEBT.....PROFITABLE.....GROWING EXPONENTIALLY.....UNDERVALUED.

TARGET: $6 - 8 AFTER RECORD EARNINGS IN JANUARY 2006

Datawatch Corp (Nasdaq: DWCH) recently reported a record 4Q on 11/17/05 both in terms revenues and net income, beating analyst's expectations by a wide margin. This was the 4th consecutive quarter or simulataneous revenue and net income growth, and the 4th consecutive year of profitability. With the current momentum, 2006 is expected to be one of exponential growth in all financial metrics.

11/17/05 4Q and FY 2005 EARNINGS SUMMARY:

- 4Q 2005 Revenues: $5.7M vs. $5M in 4Q 2004

- 4Q 2005 Net Income: $617K or 11c/share vs. $266K or 5c/share - Analysts expected 5c/share

- Gross Margins: 73% ... same as 2004

- Cash: $4.9M ($1/share) at end of 2005 vs. $4.25M in 2004......ZERO DEBT

- Projected revenue for 2006 of $24M (estimated)

- Projected net income for 2006 40c - 50c/share (estimated)

Bottom Line : Undervalued forward P/E of about 10 considering: 1) DWCH is growth company with loyal customers, 2) is constantly expanding and improving its well-accepted products 3) it is entering new markets, 4) it is consistently profitable, 5) has a strong balance sheet second to none, and 6) has a small float of only 2.4M shares. Its current P/S ratio of about 1 is also low is relation to its peers with ratios above 3.

DWCH growth in revenues and profitability will continue into 2006 and beyond at an accelerated pace according to comments made in the 4Q CC.

The change in business model that the company decided to implement in 2004 to grow revenues and eventually the bottom line is clearly paying off.

You can easily see below the sequentially stronger results in every quarter of 2005:

- 4Q 2005: Revenues of $5.7M, net income of 11c/share

- 3Q 2005: Revenues of $5.6M, net income of 6c/share

- 2Q 2005: Revenues of $5.1M, net income of 0c/share

- 1Q 2005: Rev.enues of $5.0M, net LOSS of 3c/share

- Revenues for 2005 were $21.5M vs. $19.3M in 2004 and $17.7M in 2003.

- DWCH is on a path to increase revenues to about $24m in 2006.

DWCH announced late last year that it would implement a new business plan to accomodate the expected accelarated growth but that that would require an increase in sales and marketing expenses. In doing so, the company had to absorb upfront costs that resulted in no income and a loss in the first 2 quarters of 2005. This resulted in a drop in net income from 19c/share in 2004 to 14c/share in 2005. However, 2006 net income is going to grow exponentially based on what was demonstraded in the last 2 quarters.

Based on a projected 2006 net income of 40c/share, DWCH with $1/share cash and no long-term debt, is trading at a P/E of 10 and a P/S ratio of 1.1. Industry averages are 3 times as high on both criteria. Fair valuation of DWCH is at least $8/share based on conservative ratios of 20 P/E and 2.0 P/S.

The street will realize this soon, and with a float of only 2.4M, DWCH might just be the best buy in the market under $5.

Company executives made a strong statement about their confidence in the future of the company on November 19, 2005 by exercising options on 27,000 shares at $4.5.

http://www.secform4.com/insider/showhistory.php?cik=dwch

The link also shows that Diker management, an investment firm, sold its stake of 573K shares on June 28, 2005. Yahoo mistakenly shows the Diker sale as an insider sale.

Institutions have been adding consistently also having increased their stake by about 60% since last year. The link below only shows ownership up to the end of September. I am confident that institutional ownership has increased and will continue to increase based on the strong performance demonstraded by the company:

http://moneycentral.msn.com/investor/invsub/ownership/ownership.asp?Symbol=dwch

1Q 2006 earnings results will be announced in January. With the current momentum, the Q/Q revenue and net income comparables will be staggering. Remember that DWCH posted a loss in 1Q 2005 and is expected to post double-digit net income in 1Q 2006.

I believe that with continued successful excecution of its business plan and based on new products in growing markets, DWCH will be trading in the $10 -$15 range within a year.

Here is the 4Q earnings release:

http://biz.yahoo.com/prnews/051117/neth013.html?.v=33

I strongly recommend that you take the to hear the 4Q CC.

http://www.vcall.com/CustomEvent/NA011345/index.asp?id=96121

About Datawatch:

Datawatch develops a full suite of software products widely used in the Accounting, Compliance (Sarbanes_Oxley), Goverment, and Healthcare industries in areas like accounting and business monitoring, fraud detection, financial and legal compliance . Datawatch Monark software helps automate financial reporting by combining and mining totally separate databases to produce seamless reports. This software is widely used in Sarbanes-Oxley compliance reporting and is one of the fatest growing revenue streams for datawatch.

Datawatch recently entered the highly profitable sector of software solutions for the healthcare industry, and other growth areas.

Datawatch software ranges from desk-top solutions to enterprise-wide portals which fit into an organization's existing IT environment. Without the need for any hardware or programming resources, Datawatch's products enable managers to transform data from any system into meaningful information.Datawatch recently introduced Monarch Data Pump Version 8 or MDP8. MDP8 is a server-based information delivery and data ETL solution which automatically imports, transforms and delivers customized data mined from report files, databases, spreadsheets, ODBC data sources, HTML files and now PDF files, and includes the ability to export and deliver the data in multiple formats, including natively as a PDF file.Other Datwatch products include Datawatch Enteprise solutions, VisuaQSM, Visual ASP, VorteXML, etc. Datawatch products are used in more than 20,000 companies, institutions and government agencies worldwide....

**** Always Do your own DD and invest at your own risk. For risks and uncertainties always refer to the most recent company 10Q and 10K. ****