SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 SEPTEMBER 30, 1996
OR
_____ 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: 0-25590
DATASTREAM SYSTEMS, INC.
Incorporated pursuant to the laws of the State of Delaware
-------------------------------------------
Internal Revenue Service -- Employer Identification No. 57-0813674
50 DATASTREAM PLAZA, GREENVILLE, SC 29605
(864) 422-5001
-------------------------------------------
NOT APPLICABLE
(Former Name, Former Address, if changed since last report)
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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of the issuer's common stock as of the latest practicable date: SEPTEMBER 30,
1996; 8,517,298 shares, $0.01 par value.
<PAGE>
Datastream Systems, Inc.
FORM 10-Q
Quarter ended September 30, 1996
Index
Page No.
Part I. Consolidated Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet- September 30, 1996
Assets 3
Liabilities and Owners Equity 4
Consolidated Income Statement-
for the Three Months ended September 30, 1996 5
for the Nine Months ended September 30, 1996 6
Consolidated Statement of Changes in Stockholders Equity-
for the Three Months ended September 30, 1996 7
Consolidated Statement of Cash Flows-
for the Nine Months ended September 30, 1996 8
Notes to the Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information 13
Signature 14
2
<PAGE>
PART I: CONSOLIDATED FINANCIAL INFORMATION
ITEM 1: Consolidated Financial Statements
Datastream Systems, Inc.
Consolidated Balance Sheets
Assets
December 31, September 30,
1995 1996
(unaudited)
Current assets:
Cash and cash equivalents $ 1,184,092 $ 3,175,674
Accounts receivable, net of allowance for
doubtful accounts of $244,475 and
$380,000, respectively 4,589,254 6,536,031
Investments held to maturity 17,335,907 12,538,755
Accrued interest receivable 309,375 156,671
Prepaid expenses 162,779 281,592
Inventories 250,931 261,338
Deferred income taxes 181,000 181,000
Other assets 110,127 194,519
------------ ------------
Total current assets 24,123,465 23,325,580
Investments held to maturity 20,319,024 24,553,441
Property and equipment
Land and Land Improvements 450,000 465,981
Building 3,009,509 4,077,269
Computer equipment 2,152,780 3,681,893
Furniture and fixtures 562,073 896,088
---------- ----------
6,174,362 9,121,231
Less accumulated depreciation 877,300 1,471,461
---------- ---------
Net property and equipment 5,297,062 7,649,770
Capitalized software development costs, net of
accumulated amortization of $987,261 and
$1,335,491, respectively 952,618 2,236,792
---------- ---------
Total assets $ 50,692,169 $ 57,765,583
============= =============
See Notes to Consolidated Financial Statements
3
<PAGE>
Datastream Systems, Inc.
Consolidated Balance Sheets (Continued)
Liabilities and Stockholders' Equity
December 31, September 30,
1995 1996
(unaudited)
Current liabilities:
Accounts payable $ 199,428 $ 564,793
Other accrued liabilities 431,484 350,485
Income taxes payable 699,201 984,119
Current portion of long-term debt 20,000 20,000
Unearned revenue 2,808,348 3,469,056
--------- ---------
Total current liabilities 4,158,461 5,388,453
Long-term debt, less current portion 21,667 6,667
Deferred income taxes 478,000 478,000
---------- ----------
Stockholders' equity:
Preferred stock, $1 par value, 1,000,000 shares
authorized; none outstanding - -
Common stock, $.01 par value, 15,000,000 shares
authorized; 8,405,488 shares issued and outstanding
at December 31, 1995, 8,517,298 shares issued
and outstanding at September 30, 1996 84,055 85,173
Additional paid-in capital 40,738,355 41,575,811
Retained earnings 5,211,631 10,231,479
----------- ----------
Total stockholders' equity 46,034,041 51,892,463
---------- ----------
Total liabilities and stockholders' equity $ 50,692,169 $ 57,765,583
============= =============
See Notes to Consolidated Financial Statements
4
<PAGE>
Datastream Systems, Inc.
Consolidated Statements of Income
Three months ended September 30, 1995 and 1996
September 30, September 30,
1995 1996
(unaudited) (unaudited)
Revenues:
Product $ 2,431,968 $ 3,651,553
Applications engineering 1,925,723 3,069,642
Support 1,195,830 1,542,707
--------- ---------
Total revenues 5,553,521 8,263,902
Cost of revenues:
Cost of product revenues 341,469 472,718
Cost of applications engineering revenues 957,061 1,715,819
Cost of support revenues 172,571 258,314
---------- ----------
Total cost of revenues 1,471,101 2,446,851
--------- ---------
Gross profit 4,082,420 5,817,051
Operating expenses:
Sales and marketing 1,295,737 2,268,547
Product development 464,800 357,707
General and administrative 497,866 805,640
---------- ----------
Total operating expenses 2,258,403 3,431,894
--------- ---------
Operating income 1,824,017 2,385,157
Other income (expense):
Interest income 269,793 579,903
Interest expense (1,227) (923)
Other 2,713 11,425
--------- -----------
Net other income 271,279 590,405
---------- ----------
Income before income taxes 2,095,296 2,975,562
Income taxes 836,000 1,145,500
---------- ---------
Net income $ 1,259,296 $ 1,830,062
=========== ===========
Per share data:
Net income $ .17 $ .21
----------- -----------
Weighted average number of common and
common equivalent shares outstanding 7,550,549 8,919,505
========= =========
See Notes to Consolidated Financial Statements
5
<PAGE>
Datastream Systems, Inc.
Consolidated Statements of Income
Nine months ended September 30, 1995 and 1996
September 30, September 30,
1995 1996
(unaudited) (unaudited)
Revenues:
Product $ 6,337,199 $ 9,983,265
Applications engineering 4,552,241 8,371,707
Support 3,064,199 4,514,793
----------- -----------
Total revenues 13,953,639 22,869,765
Cost of revenues:
Cost of product revenues 789,259 1,327,546
Cost of applications engineering revenues 2,292,813 4,333,540
Cost of support revenues 470,415 784,087
---------- ----------
Total cost of revenues 3,552,487 6,445,173
--------- ---------
Gross profit 10,401,152 16,424,592
Operating expenses:
Sales and marketing 3,483,900 6,630,284
Product development 1,118,787 1,076,113
General and administrative 1,606,980 2,300,326
--------- ---------
Total operating expenses 6,209,667 10,006,723
--------- ----------
Operating income 4,191,485 6,417,869
Other income (expense):
Interest income 557,542 1,727,158
Interest expense (4,705) (3,678)
Other 12,895 23,499
----------- -----------
Net other income 565,732 1,746,979
---------- ---------
Income before income taxes 4,757,217 8,164,848
Income taxes 1,901,000 3,145,000
--------- ---------
Net income $ 2,856,217 $ 5,019,848
=========== ===========
Per share data:
Net income $ .43 $ .57
----------- -----------
Weighted average number of common and
common equivalent shares outstanding 6,677,145 8,850,754
========= =========
See Notes to Consolidated Financial Statements
6
<PAGE>
Datastream Systems, Inc.
Consolidated Statement of Changes in Shareholders' Equity
For the period ended September 30, 1996
(unaudited)
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
Balance at December 31, 1995 $ 84,055 $40,738,355 $ 5,211,631 $46,034,041
Net income - - 5,019,848 5,019,848
Stock Options Exercised 1,118 837,456 - 838,574
Balance at September 30, 1996 $ 85,173 $41,575,811 $10,231,479 $51,892,463
======= =========== =========== ===========
See Notes to Consolidated Financial Statements
7
<PAGE>
Datastream Systems, Inc.
Consolidated Statements of Cash Flows
Nine months ended September 30, 1995 and September 30, 1996
September 30, September 30,
1995 1996
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 2,856,217 $ 5,019,848
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 240,436 613,123
Amortization of capitalized software
development costs 162,332 350,519
Loss on disposal of fixed assets 49,198 (213)
Provision for doubtful accounts 114,070 135,525
Changes in operating assets and liabilities: (827,652) (572,851)
---------- ----------
Net cash provided by operating activities 2,594,601 5,545,951
Cash flows from investing activities:
Net (purchase)/proceeds from investment maturities(14,178,698) 220,252
Additions to property and equipment (984,855) (2,974,781)
Proceeds from the sale of equipment - 9,000
Capitalized software development costs (444,677) (1,632,414)
Net cash used in investing activities (15,608,230) (4,377,943)
----------- ----------
Cash flows from financing activities:
Net proceeds from initial public offering of
common stock 13,560,213 -
Proceeds from exercise of stock warrants 35,463 -
Proceeds from exercise of stock options - 838,574
Principal payments on long-term debt (21,667) (15,000)
Net cash provided by (used in)
financing activities 13,574,009 823,574
---------- ---------
Net increase (decrease) in cash and cash equivalents 560,380 1,991,582
Cash and cash equivalents at beginning of period 1,151,977 1,184,092
Cash and cash equivalents at end of period $ 1,712,357 $ 3,175,674
============ ============
See Notes to Consolidated Financial Statements
8
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Datastream Systems, Inc.
Notes to Consolidated Financial Statements
1) Summary of significant Accounting Policies
A. Organization and Basis of Presentation
Datastream Systems, Inc. (the "Company" or "Datastream") develops, markets,
sells and supports Microsoft Windows-based personal computer software for the
industrial automation market. Datastream's software enables users to schedule
preventive maintenance, record equipment maintenance histories, organize and
control spare parts inventories, schedule equipment and parts inventory
purchases and deploy maintenance personnel.
The interim financial information included herein is unaudited. Certain
information and footnote disclosures normally included in the Consolidated
Financial statements have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC), although the
Company believes that the disclosures made are adequate to make the information
presented not misleading. These Consolidated Financial statements should be read
in conjunction with the Consolidated Financial statements and related notes
contained in the Company's Form 10-K filed with the SEC on April 1, 1996. Other
than as indicated herein, there have been no significant changes from the
Consolidated Financial data published in that report. In the opinion of
management, such unaudited information reflects all adjustments, consisting only
of normal recurring accruals and other adjustments as disclosed herein,
necessary for a fair presentation of the unaudited information.
Results for interim periods are not necessarily indicative of results expected
for the full year.
B. Accounting Policies
Net income per share
Net income per share is computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding. Weighted average
common and common equivalent shares include common shares and stock options
using the treasury stock method.
C. Public Offering of Common Stock
On April 5, 1995, the Company closed its initial public offering of 1,633,000
shares of common stock (633,000 of which were sold by existing shareholders) for
$15.00 per share before giving effect to the two for one stock split referred to
in the following paragraph. The Company invested the net proceeds of
approximately $13.95M from the offering in U.S. Government securities.
Effective September 12, 1995 the Company completed a two for one stock split
effected in the form of a stock dividend. All references in the accompanying
Consolidated Financial statements to the number of shares have been presented to
reflect this stock split.
On October 3, 1995, the Company closed its secondary public offering of
2,000,000 shares of common stock for $22.25 per share (1,085,670 of such shares
were sold by existing shareholders). The Company invested the net proceeds of
approximately $19.12 million from the offering in U.S. Government securities. In
conjunction with the secondary offering, on October 17, 1995, the Company closed
on the over-allotment option of 300,000 shares of common stock. The Company
invested the net proceeds of approximately $6.28 million from the over-allotment
option in U.S. Government securities.
9
<PAGE>
Datastream Systems, Inc.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This report contains certain forward-looking statements with respect to the
Company's operations, industry, financial condition and liquidity. These
statements reflect the Company's assessment of a number of risks and
uncertainties. The Company's actual results could differ materially from the
results anticipated in these forward-looking statements as a result of certain
factors set forth in this report.
Overview
The Company offers a family of "computerized maintenance management
systems" ("CMMS") to the maintenance, repair and operations ("MRO") industry,
including MP2 (DOS), SideArm (DOS), SideArm for Windows, MP2 for Windows, MP2
for Client Server, MaintainIt and MaintainIt Pro. Datastream supports its
software products through applications engineering services, including
installation, consulting, custom programming and training. Ongoing technical
support services are supplied pursuant to renewable annual technical support
contracts.
Results of Operations
Total Revenues. The Company reported higher revenues for the third quarter
of 1996. Total revenues increased 48.8% to $8,263,902 in the third quarter of
1996 from $5,553,521 in the third quarter of 1995, due principally to the
continued acceptance of the Company's products in the industrial automation
market and the expansion of the Company's sales, applications engineering and
technical support service organizations. Total revenues increased 63.9% to
$22,869,765 during the first nine months of 1996 from $13,953,639 in the first
nine months of 1995.
Product revenues increased 50.1% to $3,651,553 (44.2% of total revenues) in
the third quarter of 1996 from $2,431,968 (43.8% of total revenues) in the third
quarter of 1995, as a result of growth in sales of the Company's Microsoft
Windows based products. Product revenues increased 57.5% to $9,983,265 (43.7% of
total revenues) in the first nine months of 1996 from $6,337,199 (45.4% of total
revenues) in the first nine months of 1995.
Application engineering services revenues increased 59.4% to $3,069,642
(37.1% of total revenues) in the third quarter of 1996 from $1,925,723 (34.7% of
total revenues) in the third quarter 1995. The increase resulted from the
addition of application engineering personnel to service expansion of the
Company's installed base of systems. Application engineering services revenues
increased 83.9% to $8,371,707 (36.6% of total revenues) in the first nine months
of 1996 from $4,552,241 (32.6% of total revenues) in the first nine months of
1995.
Technical support services revenues for the third quarter 1996 increased
29.0% to $1,542,707 (18.7% of total revenues) from $1,195,830 (21.5% of total
revenues) in the third quarter of 1995, primarily due to the expansion of the
Company's installed base of systems. Technical support services revenues
increased 47.3% to $4,514,793 (19.7% of total revenues) in the first nine months
of 1996 from $3,064,199 (22.0% of total revenues) in the first nine months of
1995.
10
<PAGE>
Cost of Revenues. Cost of revenues increased 66.3% to $2,446,851 (29.6% of
total revenues) in the third quarter of 1996, as compared to $1,471,101 (26.5%
of total revenues) in the comparable quarter of 1995. The increase in cost of
revenues as a percentage of sales is attributed to increased expenses incurred
in the Applications Engineering Department related to salaries, travel and
customer reimbursed travel expenses. Cost of revenues increased 81.4% to
$6,445,173 (28.2% of total revenues) during the first nine months of 1996 from
$3,552,487 (25.5% of total revenues) in the first nine months of 1995.
Cost of product revenues was 5.7% of total revenues in the third quarter of
1996, and 6.1% of total revenues during the same period of 1995. The decrease as
a percentage of total revenues was due to decreased costs of packaging
associated with software products as a result of shifting media to CD from
floppy disk.
Cost of application engineering services revenues was 20.8% of total
revenues during the third quarter of 1996, and 17.2% of total revenues during
the same period in 1995. The increase as a percentage of total revenues was due
to increased personnel and customer reimbursed travel costs.
Cost of technical support service revenues was 3.1% of total revenues
during the third quarter of 1996 and 3.1% of total revenues during the same
period in 1995.
Sales and Marketing Expenses. Sales and marketing expenses increased 75.1%
to $2,268,547 (27.5% of total revenues) during the third quarter of 1996 from
$1,295,737 (23.3% of total revenues) during the third quarter in 1995, as a
result of an increased number of sales personnel and commissions associated with
the increase in sales revenue, and increased marketing expenses associated with
new product introductions, including MP2 for Windows 95 and MaintainIt Pro.
Sales and marketing expenses increased 90.3% to $6,630,284 (29.0% of total
revenues) in the first nine months of 1996 from $3,483,900 (25.0% of total
revenues) in the first nine months of 1995.
Product Development Expenses. Total product development expenditures
increased 58.0% to $1,089,505 (13.2% of total revenues) during the third quarter
of 1996 from $689,700 (12.4% of total revenues) during the same period in 1995.
The capitalized portion of these amounts were $731,798 and $224,900,
respectively. Giving effect to amounts capitalized, product development expense
decreased 23.0% to $357,707 (4.3% of total revenues) in the third quarter of
1996 from $464,800 (8.4% of total revenues) during the same period in 1995. The
increase in total product development expense resulted from increasing the
number of development personnel to support continued development of
client/server and other new products. The net decrease in product development
expense resulted from capitalizing development costs associated with the large
number of new products entering the capitalizable portion of the development
cycle.
Total product development expenditures increased 70.2% to $2,708,516 (11.8%
of total revenues) during the first nine months of 1996 from $1,591,783 (11.4%
of total revenues) during the same period in 1995. The capitalized portion of
these amounts were $1,632,404 and $472,997, respectively. Giving effect to
amounts capitalized, product development expense decreased 3.8% to $1,076,113
(4.7% of total revenues) in the first nine months of 1996 from $1,118,787 (8.0%
of total revenues) during the same period in 1995.
General and Administrative Expenses. General and administrative expenses
increased 61.8% to $805,640 (9.7% of total revenues) during the third quarter of
1996 from $497,866 (9.0% of total revenues) in the third quarter of 1995,
primarily due to increased salaries expense, salary related costs, and insurance
cost. General and administrative expenses increased 43.1% to $2,300,326 (10.1%
of total revenues) during the first nine months of 1996 from $1,606,980 (11.5%
of total revenues) in the first nine months of 1995.
11
<PAGE>
Miscellaneous Income. Miscellaneous income increased to $11,425 in the
third quarter of 1996 from $2,713 in the third quarter of 1995. The increase was
due to higher rental income in the third quarter of 1996. Miscellaneous income
increased to $23,499 in the first nine months of 1996 from $12,895 in the first
nine months of 1995.
Interest Income/(Expense). Interest income increased to $579,903 in the
third quarter of 1996 from $269,793 in the third quarter of 1995, due to higher
investment balances realized upon completion of the Company's initial and
secondary public offerings of stock in April 1995 and October 1995,
respectively. Interest expense decreased to $923 in the third quarter of 1996
from $1,227 in the third quarter of 1995, due to lower balances remaining on
notes payable. Interest income increased to $1,727,158 in the first nine months
of 1996 from $557,542 in the first nine months of 1995. Interest expense
decreased to $3,678 in the first nine months of 1996 from $4,705 in the first
nine months of 1995.
Tax Rate. The Company's effective tax rate was 38.5% for the third quarter
of 1996 as compared to 39.9% for the third quarter of 1995. The Company's
effective tax rate was 38.5% in the first nine months of 1996 as compared to
40.0% in the first nine months of 1995.
Net Income. Net income increased 45.3% to $1,830,062 (22.1% of total
revenues) in the third quarter of 1996 from $1,259,296 (22.7% of total revenues)
in the third quarter of 1995. Net income increased 75.8% to $5,019,848 (21.9% of
total revenues) in the first nine months of 1996 from $2,856,217 (20.5% of total
revenues) in the first nine months of 1995.
Liquidity and Capital Resources
The Company has funded its activities entirely from cash generated from
operations. The Company ended its third quarter of 1996 with $3,175,674 in cash
and cash equivalents. The Company intends to re-invest the proceeds of maturing
government securities in similar government securities.
The Company completed renovating and assumed occupancy of its new offices
at 50 Datastream Plaza, Greenville, SC 29605 during April 1996.
The Company's principal commitments as of June 30, 1996, consisted
primarily of leases on its former headquarters facilities and operating
equipment, and there were no material commitments for capital expenditures. The
Company completed its initial public offering in April 1995, raising proceeds,
net of underwriting discounts and commission (but before payment of other
expenses of $389,787) of $13,950,000. Proceeds from the offering were invested
in U.S. government securities. The Company completed its secondary public
offering in October 1995, raising proceeds, net of underwriting discounts and
commission (but before payment of other expenses of $255,064) of $25,400,000.
Proceeds from the offering were invested in U.S. government securities. The
Company believes that its current cash balances, availability under its line of
credit, cash flow from operations and the proceeds of the Company's most recent
public offering will be sufficient to meet its working capital and capital
expenditure needs for at least the next 12 months.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Stockholders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on form 8-K were filed during the period.
13
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Datastream Systems, Inc.
/s/ Daniel H. Christie
Date: 11/14/96 ______________________
Daniel H. Christie
Chief Financial Officer (principal
financial and accounting officer)
14
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,175,674
<SECURITIES> 12,538,755
<RECEIVABLES> 6,916,031
<ALLOWANCES> (380,000)
<INVENTORY> 261,338
<CURRENT-ASSETS> 23,325,580
<PP&E> 9,121,231
<DEPRECIATION> (1,471,461)
<TOTAL-ASSETS> 57,765,583
<CURRENT-LIABILITIES> 5,388,453
<BONDS> 6,667
0
0
<COMMON> 85,173
<OTHER-SE> 51,807,290
<TOTAL-LIABILITY-AND-EQUITY> 57,765,583
<SALES> 9,983,265
<TOTAL-REVENUES> 22,869,765
<CGS> 1,327,546
<TOTAL-COSTS> 6,445,173
<OTHER-EXPENSES> 10,006,723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,678
<INCOME-PRETAX> 8,164,848
<INCOME-TAX> 3,145,000
<INCOME-CONTINUING> 5,019,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-PRIMARY> .57
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