SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
__X__ SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
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.
(Exact name of Registrant as specified in Its Charter)
DELAWARE 57-0813674
(State of Incorporation) (IRS Employer Identification No.)
50 DATASTREAM PLAZA, GREENVILLE, SC 29605
(address of principle executive offices) (Zip Code)
(Telephone number of registrant) (864) 422-5000
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: March 31, 1997 -
9,151,095 shares, $0.01 par value.
<PAGE>
Datastream Systems, Inc.
FORM 10-Q
Quarter ended March 31, 1997
Index
Page No.
Part I. Consolidated Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet- March 31, 1997
Assets 3
Liabilities and Owners Equity 4
Consolidated Income Statement -
for the Three Months ended March 31, 1997 5
Consolidated Statement of Changes in Stockholders Equity -
for the Three Months ended March 31, 1997 6
Consolidated Statement of Cash Flows -
for the Three Months ended March 31, 1997 7
Notes to the Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II. Other Information 13
Signature 14
<PAGE>
PART I. CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Datastream Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
December 31, March 31,
1996 1997
(unaudited)
Current assets:
Cash and cash equivalents $ 6,315,719 $ 2,954,591
Accounts receivable, net of allowance
for doubtful accounts of $835,000
and $835,000, respectively 11,725,928 14,643,949
Investments held to maturity 13,011,856 10,981,553
Accrued interest receivable 221,827 85,960
Prepaid expenses 586,647 835,258
Inventories 324,018 269,353
Deferred income taxes 395,000 395,000
Other assets 1,961,496 2,546,185
Total current assets 34,542,491 32,711,849
Investments held to maturity 4,547,220 4,548,423
Property and equipment
Land 465,981 465,981
Building 4,371,113 4,345,348
Computer equipment 4,719,340 5,250,372
Furniture and fixtures 930,226 1,172,053
10,486,660 11,233,754
Less accumulated depreciation 1,794,337 2,228,284
Net property and equipment 8,692,323 9,005,470
Goodwill 7,636,748 7,364,260
Capitalized software development costs,
net of accumulated amortization of
$1,197,177 and $1,526,600, respectively 2,158,436 2,166,571
Total assets $ 57,577,218 $ 55,796,573
See notes to Consolidated Financial Statements
Datastream Systems, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
Liabilities and Stockholders' Equity
December 31, March 31,
1996 1997
(unaudited)
Current liabilities:
Accounts payable $ 4,403,205 $ 3,283,308
Other accrued liabilities 9,139,078 6,626,934
Income taxes payable 743,707 977,175
Current portion of long-term debt 1,507,274 263,417
Unearned revenue 5,116,007 7,176,708
Total current liabilities 20,909,271 18,327,542
Long-term debt, less current portion 2,892,743 1,229,331
Deferred income taxes 650,000 650,000
Total liabilities 24,452,014 20,206,873
Stockholders' equity:
Preferred stock, $1 par value, 1,000,000
shares authorized; none outstanding - -
Common stock, $.01 par value, 15,000,000 shares
authorized; 9,126,789 shares issued and
outstanding at December 31, 1996; 9,151,095
shares issued and outstanding at March 31, 1997 91,268 91,406
Additional paid-in capital 55,832,034 55,944,523
Foreign currency translation adjustment - 373,672
Retained earnings (22,798,098)(20,819,901)
Total stockholders' equity 33,125,204 35,589,700
Total liabilities and stockholders' equity $57,577,218 $55,796,573
See Notes to Consolidated Financial Statements
<PAGE>
Datastream Systems, Inc. and Subsidiaries
Consolidated Statements of Income
Three months ended March 31, 1996 and 1997
(unaudited)
March 31, March 31,
1996 1997
Revenues:
Product $ 3,072,710 $ 6,148,014
Applications engineering 2,488,643 5,783,723
Support 1,340,090 2,750,674
Total revenues 6,901,443 14,682,411
Cost of revenues:
Cost of product revenues 362,463 843,963
Cost of applications engineering revenues 1,176,031 3,529,973
Cost of support revenues 264,484 687,272
Total cost of revenues 1,802,978 5,061,208
Gross profit 5,098,465 9,621,203
Operating expenses:
Sales and marketing 2,127,715 4,273,471
Product development 417,071 834,048
General and administrative 627,721 2,235,040
Total operating expenses 3,172,507 7,342,559
Operating income 1,925,958 2,278,644
Other income (expense):
Interest income 576,138 262,510
Interest expense (894) (102,449)
Other 715 47,279
Net other income 575,959 207,340
Income before income taxes 2,501,917 2,485,984
Income taxes 963,000 507,787
Net income $ 1,538,917 $ 1,978,197
Per share data:
Net income $ .18 $ .21
Weighted average number of common and
common equivalent shares outstanding 8,724,003 9,383,985
See Notes to Consolidated Financial Statements
<PAGE>
Datastream Systems, Inc. and Subsidiaries
Consoldiated Statement of Changes in Shareholders' Equity
For the period ended March 31, 1997
(unaudited)
Foreign
Additional Currency Total
Common Paid-In Retained Translations Stockholders'
Stock Capital Earnings Adjustment Equity
Balance at
December 31, 1996 $ 91,268 $55,832,034 $(22,798,098) $ - $33,125,204
Net income - - 1,978,197 - 1,978,197
Stock options
exercised 138 112,489 - - 112,627
Foreign currency
translations - - - 372,672 372,672
Balance at
December 31, 1996 $ 91,406 $55,944,523 $(20,819,901) $ 372,672 $35,588,700
See Notes to Consolidated Financial Statements
<PAGE>
Datastream Systems, Inc.
Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and March 31, 1997
(unaudited)
March 31, March 31,
1996 1997
Cash flows from operating activities:
Net income $ 1,538,917 $ 1,978,198
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 129,710 458,577
Amortization of capitalized software
development costs 114,766 275,203
Amortization of goodwill - 272,750
Foreign currency translation adjustment - 373,672
(Gain) Loss on disposal of fixed assets - 53,420
Provision for doubtful accounts 30,525 -
Changes in operating assets and liabilities:
Accounts receivable (557,131) (2,918,021)
Accrued interest receivable 78,317 135,867
Prepaid expenses (48,081) (248,611)
Inventories 12,422 54,665
Other assets (22,881) (584,689)
Accounts payable 123,220 (1,120,244)
Other accrued liabilities (59,635) (2,511,796)
Income taxes payable 505,000 233,467
Unearned revenue 577,521 2,060,701
Net cash provided by
operating activities 2,422,670 (1,486,841)
Cash flows from investing activities:
Proceeds from investment - 2,045,000
Additions to property and equipment (1,031,067) (832,569)
Capitalized software development costs (332,348) (292,076)
Net cash used in investing (1,363,415) 920,355
Cash flows from financing activities:
Proceeds from exercise of stock options 315,150 112,627
Principal payments on long-term debt (5,000) (2,907,269)
Net cash provided by (used in)
financing activities 310,150 (2,794,642)
Net increase (decrease) in cash and cash equivalents 1,369,405 (3,361,128)
Cash and cash equivalents at beginning of period 1,184,092 6,315,719
Cash and cash equivalents at end of period $ 2,553,497 $ 2,954,591
See Notes to Consolidated Financial Statements
<PAGE>
Datastream Systems, Inc. and Subsidiaries
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. In addition to its U.S. operations,
the Company has direct sales or distribution offices in the United Kingdom,
Latin America, Malaysia, Australia and South Africa.
On December 31, 1996, the Company acquired SQL Group, B.V. ("SQL"). The
acquisition has been accounted for using the purchase method. The purchase price
has been allocated to the tangible and intangible assets purchased and the
liabilities assumed based on the fair values on the date of acquisition.
The interim financial information included herein is unaudited. Certain
information and footnote disclosures normally included in the 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 15, 1997. Other
than as indicated herein, there have been no significant changes from the
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
Datastream Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
common shares, stock options using the treasury stock method, and the assumed
exercise price of the outstanding warrants to purchase common stock.
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.
<PAGE>
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 for Windows, MP2 for Windows, MP2 for Client
Server, MP2 Pro, MP2 Enterprise, MaintainIt, Maintainit Pro and R5 CAMMS.
Datastream supports its software products through applications engineering
services, including installation, consulting, integration, custom programming
and training. Ongoing technical support services are supplied pursuant to
renewable annual technical support contracts.
Financial information for the first quarter of 1997 include the operations
of Datastream and its European subsidiary, SQL Group, B. V. ("SQL"), which was
acquired December 31, 1996. SQL's financial results from 1996 are not included.
Results of Operations
Total Revenues. The Company reported higher revenues for the first quarter
of 1997. Total revenues increased 112.7% to $14,682,411 in the first quarter of
1997 from $6,901,443 in the first quarter of 1996, due principally to the
acquisition of SQL, 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.
Product revenues increased 100.1% to $6,148,014 (41.9% of total revenues)
in the first quarter of 1997 from $3,072,710 (44.5%) in the first quarter of
1996, as a result of the addition of new products including MP2 Enterprise and
Maintain It Pro, the growth in international sales and the impact of the
acquisition of SQL.
Application engineering services revenues increased 132.4% to $5,783,723
(39.4% of total revenues) in the first quarter of 1997 from $2,488,643 (36.1%)
in the first quarter 1996. The increase resulted from the addition of
application engineering personnel to service expansion of the Company's
installed base of systems and the acquisition of SQL.
Technical support services revenues for the first quarter 1997 increased
105.3% to $2,750,674 (18.7% of revenues) from $1,340,090 (19.4%) in the first
quarter of 1996, primarily due to the expansion of the Company's installed base
of systems and the acquisition of SQL.
Cost of Revenues. Cost of revenues increased 180.7% to $5,061,208 (34.5% of
total revenues) in the first quarter of 1997, as compared to $1,802,978 (26.1%)
in the comparable quarter of 1996. 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 and customer reimbursed
travel, increased costs of technical support and as a result of the acquisition
of SQL.
Cost of product revenues was 5.7% of total revenues in the first three
months of 1997, and 5.3% of total revenues during the same period of 1996. The
increase is due to increased amortization of capitalized software costs and
increased shipping costs.
Cost of application engineering services revenues was 24.0% of total
revenues during the first three months of 1997, and 17.0% of total revenues
during the same period in 1996. 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 4.7% of total revenues
during the first quarter of 1997 and 3.8% of total revenues during the same
period in 1996. The increase in cost of technical support services resulted from
costs associated with supporting the Company's expanded international customer
base.
Sales and Marketing Expenses. Sales and marketing expenses increased 100.8%
to $4,273,471 (29.1% of total revenues) during the first quarter of 1997 from
$2,127,715 (30.8%) during the first quarter in 1996, as a result of an increased
number of sales personnel, commissions associated with the increase in sales
revenue and increased marketing expenses associated with new product
introductions.
Product Development Expenses. Total product development expenditures
increased 100.0% to $834,048 (5.7% of total revenues) during the first quarter
of 1997 from $417,071 (6.0%) during the same period in 1996. The capitalized
portion of these amounts were $292,075 and $332,348, respectively. Giving effect
to amounts capitalized, product development expense increased 50.3% to
$1,126,123 (7.7%) in the first quarter of 1997 from $749,419 (10.9%) during the
same period in 1996. The increase in product development expense resulted from
increasing the number of development personnel to support continued development
of new products.
General and Administrative Expenses. General and administrative expenses
increased 256.1% to $2,235,040 (15.2% of total revenues) during the first
quarter of 1997 from $627,721 (9.1%) in the first quarter of 1996, primarily due
to increased salary expense resulting from the acquisition of SQL.
Miscellaneous Income. Miscellaneous income for the quarter increased to
$47,279 in the first quarter of 1996 from $715 in the first quarter of 1996. The
increase is primarily due to income realized from the rental of a portion of the
Company's building in Greenville, South Carolina.
Interest Income/(Expense). Interest income decreased to $262,510 in the
first quarter of 1997 from $576,138 in the first quarter of 1996, due to lower
investment balances realized upon completion of the Company's acquisition of SQL
in December 1996. Interest expense increased to $102,449 for the first quarter
of 1997 from $894 in the first quarter of 1996 due to the increased debt assumed
in the SQL acquisition.
Tax Rate. The Company's effective tax rate was 20.4% for the first quarter
of 1997 as compared to 38.5% for the first quarter of 1996. The lower tax rate
was due to a one-time benefit for certain items relating to the acquisition of
SQL.
Net Income. Net income increased 28.5% to $1,978,198 (13.5% of total
revenues) in the first quarter of 1997 from $1,538,917 (22.3%) in the first
quarter of 1996.
<PAGE>
Liquidity and Capital Resources
The Company has funded its activities entirely from cash generated from
operations. The Company ended its first quarter of 1997 with $2,954,591 in cash
and cash equivalents defined as securities maturing in less than 90 days. The
Company intends to re-invest the proceeds of maturing U. S. Government
securities in similar U. S. Government securities.
The acquisition of SQL was completed for $31 million, $17 million in cash
and $14 million in stock issued pursuant to Regulation S. In connection with the
acquisition, the Company also deposited into escrow an additional $3 million in
stock, and assumed certain of SQL's outstanding liabilities. Following the
acquisition, SQL long-term debt totaling approximately $2.7 million was repaid
by the Company and additional working capital infusions of approximately $2.5
million were required to sustain SQL's operations and pay current liabilities.
Approximately $1.7 million of SQL's long-term debt remains, of which
approximately $800,000 is scheduled to be repaid by the end of 1997.
The Company's principal commitments as of March 31, 1997, consisted
primarily of long term debt assumed in the acquisition of SQL Systems, 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.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
<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) Reports on Form 8-K
b) Exhibits
27 Financial Data Schedule
<PAGE>
a) Form 8-K:
The Company filed a Current Report on Form 8-K on January 10, 1997, as amended
by Amendment No. 1 on Form 8-K/A filed March 18, 1997, to report the Company's
acquisition of all of the capital sotck and equity interests of SQL on December
31, 1996.
1) Financial Statements of Businesses Acquired
The following financial statements of SQL were filed with the Company's
Current Report on Form 8-K:
SQL Systems Group Annual Report
Director's Report
Consolidated balance sheet as of December 31, 1996
Consolidated statement of earnings for the year ended December 31,
1996 and 1995
Notes to the consolidated Balance sheet and statement of earnings
Parent company balance sheet as of December 31, 1996
Parent company statement of operations for 1996
Notes to the parent company balance sheet
Allocation of result
Report of Deloitte & Touche, Registered Accountants
United States Generally Accepted Accounting Principles (US GAAP)
reconciliation
2) Pro Forma Financial Information:
The following pro forma financial information was filed with the Company's
Current Report on 8-K:
Pro Forma Combined Balance Sheet as of September 30, 1996
Pro Forma Combined Statement of Operations for the year ended
December 31, 1995
Pro Forma Combined Statement of Operations for nine months ended
September 30, 1996
Notes to Pro Forma Combined Financial Statements
<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: 05/15/97 ______________________
Daniel H. Christie
Chief Financial Officer
(principal financial and
accounting officer)
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,954,591
<SECURITIES> 10,981,553
<RECEIVABLES> 15,478,949
<ALLOWANCES> 835,000
<INVENTORY> 269,353
<CURRENT-ASSETS> 32,711,849
<PP&E> 11,233,754
<DEPRECIATION> (2,228,284)
<TOTAL-ASSETS> 55,796,573
<CURRENT-LIABILITIES> 18,327,542
<BONDS> 1,229,331
0
0
<COMMON> 91,406
<OTHER-SE> 35,498,294
<TOTAL-LIABILITY-AND-EQUITY> 55,796,573
<SALES> 6,148,014
<TOTAL-REVENUES> 14,682,411
<CGS> 843,963
<TOTAL-COSTS> 5,061,208
<OTHER-EXPENSES> 7,342,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,449
<INCOME-PRETAX> 2,485,984
<INCOME-TAX> 507,787
<INCOME-CONTINUING> 1,978,197
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