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 JUNE 30, 1998
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: 000-25590
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: JUNE 30, 1998 19,011,886 shares, $0.01 par value.
<PAGE>
Datastream Systems, Inc.
FORM 10-Q
Quarter ended June 30, 1998
Index
Page No.
Part I. Consolidated Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet-
December 31, 1997 and June 30, 1998
Assets 3
Liabilities and Owners Equity 4
Consolidated Income Statement -
for the Three Months ended June 30, 1997 and 1998 5
Consolidated Income Statement -
for the Six Months ended June 30, 1997 and 1998 6
Consolidated Statement of Changes in Stockholders Equity -
for the Six Months ended June 30, 1998 7
Consolidated Statement of Cash Flows -
for the Six Months ended June 30, 1997 and 1998 8
Notes to the Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About 15
Market Risk
Part II. Other Information 16
Signature 17
<PAGE>
PART I. CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Datastream Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
December 31, June 30,
1997 1998
---- ----
(unaudited)
Current assets:
Cash and cash equivalents $2,409,387 $ 3,904,016
Accounts receivable, net of allowance
for doubtful accounts of $1,589,910
and $1,811,937, respectively 21,968,539 26,797,342
Unbilled receivables 2,271,375 2,736,213
Investments 9,735,585 160
Prepaid expenses 614,447 2,201,798
Inventories 369,486 281,821
Deferred income taxes 796,000 796,000
Other assets 619,448 1,143,881
---------- ----------
Total current assets 38,784,267 37,861,231
Investments 6,637,286 7,525,569
Property and equipment, net 10,166,101 13,055,477
Goodwill 6,545,747 14,665,727
Capitalized software development costs,
net of accumulated amortization of
$1,197,177 and $3,032,336, respectively 2,963,842 4,745,723
----------- -----------
Total assets $65,097,243 $77,853,727
=========== ===========
See notes to Consolidated Financial Statements
<PAGE>
Datastream Systems, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
Liabilities and Stockholders' Equity
December 31, June 30,
1997 1998
---- ----
(unaudited)
Current liabilities:
Accounts payable $2,696,240 $ 4,265,993
Other accrued liabilities 4,135,258 5,085,377
Income taxes payable 2,816,800 4,277,382
Current portion of long-term debt 346,197 297,079
Unearned revenue 6,499,953 8,547,331
---------- ----------
Total current liabilities 16,494,448 22,473,162
Long-term debt, less current portion 603,098 829,855
Deferred income taxes 892,000 892,000
---------- ----------
Total liabilities 17,989,546 24,195,017
Stockholders' equity:
Preferred stock, $1 par value,
1,000,000 shares authorized; - -
none outstanding
Common stock, $.01 par value, 40,000,000
shares authorized; 18,585,518 share issued
and outstanding at December 31, 1997,
19,011,886 shares issued and outstanding
at June 30, 1998 185,855 190,199
Additional paid-in capital 58,049,212 63,876,556
Accumulated deficit (11,375,601)(10,466,078)
Other accumulated comprehensive income 248,231 58,113
---------- ----------
Total stockholders' equity 47,107,697 53,658,710
----------- -----------
Total liabilities and stockholders' equity $65,097,243 $77,853,727
=========== ===========
See Notes to Consolidated Financial Statements
<PAGE>
Datastream Systems, Inc. and Subsidiaries
Statements of Income
(unaudited)
Three months ended June 30, 1997 and 1998
June 30, June 30,
1997 1998
Revenues:
Product $ 6,851,481 $ 9,332,113
Professional service 6,906,989 9,831,906
Support 3,055,072 4,278,451
---------- ----------
Total revenues 16,813,542 23,442,470
Cost of revenues:
Cost of product revenues 695,018 771,630
Cost of professional service revenues 3,711,625 5,220,774
Cost of support revenues 1,090,255 1,214,502
--------- ---------
Total cost of revenues 5,496,898 7,206,906
Gross profit 11,316,644 16,235,564
Operating expenses:
Sales and marketing 4,693,891 6,491,694
Product development 1,036,163 1,961,458
General and administrative 1,772,657 1,998,156
Write off of in-process research and development
and other acquisition charges - 2,950,000
--------- ----------
Total operating expenses 7,502,711 13,401,308
Operating income 3,813,933 2,834,256
Other income (expense):
Interest income 246,350 146,498
Interest expense (35,713) (31,246)
Other 71,343 87,978
------- -------
Net other income 281,980 203,230
Income before income taxes 4,095,913 3,037,486
Income taxes 1,495,026 2,365,155
----------- ---------
Net income $ 2,600,887 $ 672,331
=========== =========
Basic net income per share $ .14 $ .04
Diluted net income per share $ .14 $ .03
Basic weighted average number of common and
common equivalent shares outstanding 18,325,308 18,870,916
Diluted weighted average number of common and
common equivalent shares outstanding 18,753,784 20,595,098
See Notes to Consolidated Financial Statements
<PAGE>
Datastream Systems, Inc. and Subsidiaries
Statements of Income
(unaudited)
Six months ended June 30, 1997 and 1998
June 30, June 30,
1997 1998
Revenues:
Product $ 12,999,496 $16,697,210
Professional service 12,690,712 18,787,430
Support 5,805,747 8,086,490
--------- ---------
Total revenues 31,495,955 43,571,130
Cost of revenues:
Cost of product revenues 1,538,982 1,547,769
Cost of professional service revenues 7,241,598 9,365,706
Cost of support revenues 1,777,527 2,144,331
Write off of capitalized software costs - 597,944
---------- ----------
Total cost of revenues 10,558,107 13,655,750
Gross profit 20,937,848 29,915,380
Operating expenses:
Sales and marketing 8,967,363 12,041,054
Product development 1,870,211 3,483,212
General and administrative 4,007,697 4,027,943
Write off of in-process research and development
and other acquisition charges - 5,481,078
---------- ----------
Total operating expenses 14,845,271 25,033,287
Operating income 6,092,577 4,882,093
Other income (expense):
Interest income 508,860 352,288
Interest expense (138,162) (59,513)
Other 118,623 163,966
------- -------
Net other income 489,321 456,741
Income before income taxes 6,581,898 5,338,834
Income taxes 2,002,812 4,429,311
----------- ---------
Net income $ 4,579,086 $ 909,523
=========== =========
Basic net income per share $ .25 $ .05
Diluted net income per share $ .24 $ .04
Basic weighted average number of common and
common equivalent shares outstanding 18,294,079 18,755,519
Diluted weighted average number of common and
common equivalent shares outstanding 18,760,876 20,420,971
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
Datastream Systems, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
(unaudited)
For the six months ended June 30, 1998
<CAPTION>
Other
Additional Accumulated Accumulated Total
Common Paid-In Earnings Comprehensive Stockholders'
Stock Capital (Deficit) Income Equity
----- ------- --------- ------ ------
<C> <C> <C> <C> <C>
Balance at December 31, 1997 $185,855 $58,049,212 $(11,375,601) $248,231 $47,107,697
Net income - - 909,523 - 909,523
Stock options exercised 1,968 1,201,911 - - 1,203,879
Shares issued for Employee
Stock Purchase Plan 105 74,443 - - 74,548
Shares issued for acquisitions 2,191 4,550,990 - - 4,553,181
Other accumulated
comprehensive income - - - (190,118) (190,118)
Balance at June 30, 1998 $190,119 $63,876,556 $(10,466,078) $ 58,113 $53,658,710
======== =========== ============ ======== ===========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
Datastream Systems, Inc. and Subsidiaries
Statements of Cash Flows
(unaudited)
Six months ended June 30, 1997 and June 30, 1998
June 30, June 30,
1997 1998
---- ----
Cash flows from operating activities:
Net income $ 4,579,086 $ 909,523
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 986,630 1,456,146
Amortization of capitalized software
development costs 581,345 547,251
Amortization of goodwill 545,500 750,078
Other accumulated comprehensive income 397,411 (267,465)
Provision for doubtful accounts - 85,411
Write-off of in-process research and development - 5,481,078
Write-off of capitalized software costs - 597,944
Changes in operating assets and liabilities:
Accounts receivable (3,818,418) (4,690,979)
Accrued interest receivable (24,839) 5,178
Prepaid expenses (352,271) (1,525,005)
Inventories (57,433) 345,623
Other assets (1,170,427) (818,477)
Accounts payable (996,474) 1,386,412
Other accrued liabilities (4,278,673) (3,362,101)
Income taxes payable 618,656 1,456,499
Unearned revenue 1,534,707 2,047,378
---------- ----------
Net cash provided by (used in)
operating activities (1,455,200) 4,404,494
Cash flows from investing activities:
Proceeds from investments 1,681,341 9,459,618
Additions to property and equipment (1,877,354) (1,768,622)
Capitalized software development costs (842,056) (1,694,081)
Cash paid for acquisition, net of cash acquired - (10,054,691)
---------- -----------
Net cash used in investing activities (1,038,069) (4,057,776)
Cash flows from financing activities:
Proceeds from exercise of stock options 416,675 1,203,879
Proceeds from issuance of shares under employee
stock purchase plan - 74,547
Proceeds from line of credit 600,000 -
Principal payments on long-term debt (3,245,268) (130,515)
---------- --------
Net cash provided by (used in)
financing activities (2,228,593) 1,147,911
Net increase (decrease) in
cash and cash equivalents (4,721,862) 1,494,629
Cash and cash equivalents at beginning of period 6,315,719 2,409,387
--------- ---------
Cash and cash equivalents at end of period $ 1,593,857 $ 3,904,016
============ ===========
See Notes to Consolidated Financial Statement
<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 and Oracle based software products for the
industrial automation market. These products serve the desktop, file server,
client-server and enterprise-wide networking environments. 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 Canada,
the United Kingdom, The Netherlands, France, Germany, Denmark, Sweden, Norway,
Portugal, Mexico, Brazil, Argentina, Venezuela, Peru, Malaysia, Australia,
Singapore, China 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.
On March 31, 1998, the Company acquired Insta Instandhaltung Technischer Anlagen
GmbH, a German corporation headquartered in Munich, Germany ("Insta"). 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.
On June 16, 1998, the Company acquired Strategic Information Systems PTE. Ltd.,
a Singapore corporation ("SIS"). 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 March 31, 1998. Other
than as indicated herein, there have been no significant changes from the
financial data published in those reports. 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
Revenue Recognition
On January 1, 1998, the Company adopted Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"). The adoption of SOP 97-2 did not
significantly affect the Company's results of operations.
Net income per share
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Basic net income
(loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding. Diluted net income (loss) per share
is computed by dividing net income (loss) by the weighted average number of
common and potential common shares outstanding. Diluted weighted average common
and potential common shares include common shares and stock options using the
treasury stock method. The reconciliation of basic and diluted income per share
is as follows:
<PAGE>
Per Share
Income Shares Amount
Three months ended June 30, 1998:
Basic income per share $ 672,331 18,870,916 .04
Effect of dilutive securities:
Stock options - 1,724,182
---------- ----------
Diluted income per share $ 672,331 20,595,098 .03
========== ========== ===
Three months ended June 30, 1997:
Basic income per share $ 2,600,887 18,325,308 .14
Effect of dilutive securities:
Stock options - 428,476
----------- ----------
Diluted income per share $ 2,600,887 18,753,784 .14
=========== ========== ===
For the six months ended June 30, 1998 and 1997:
Per Share
Income Shares Amount
Six months ended June 30, 1998:
Basic income per share $ 909,523 18,755,519 .05
Effect of dilutive securities:
Stock options - 1,665,452
---------- ----------
Diluted income per share $ 909,523 20,420,971 .04
========== ========== ===
Six months ended June 30, 1997:
Basic income per share $4,579,086 18,294,079 .25
Effect of dilutive securities:
Stock options - 466,797
---------- ----------
Diluted income per share $4,579,086 18,760,876 .24
========== ========== ===
On March 31, 1998, the Company issued 130,435 shares of stock as partial
consideration in the Insta acquisition. On June 16, 1998, the Company issued
88,652 shares of stock as partial consideration in the SIS acquisition. See
Liquidity and Capital Resources.
Comprehensive Income
On January 1, 1998, the Company adopted Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." As required by the Statement, the Company
displays the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
Consolidated Balance Sheet. Items considered to be other comprehensive income
include adjustments made for foreign currency translation (under Statement 52)
and unrealized holding gains and losses on available-for-sale securities (under
Statement 115). Comprehensive income for the periods ended June 30, 1998 and
1997 is as follows:
June 30, June 30,
For the three months ended June 30, 1997 and 1998: 1997 1998
Net income $ 2,600,887 672,331
Foreign currency translation adjustment (28,691) 45,601
----------- -------
Comprehensive income $ 2,572,196 717,932
=========== =======
June 30, June 30,
For the six months ended June 30, 1997 and 1998: 1997 1998
Net income $ 4,579,086 909,523
Foreign currency translation adjustment 343,981 (159,162)
Unrealized loss on securities
available-for-sale - (30,956)
----------- -------
Comprehensive income $ 4,923,067 719,405
=========== =======
<PAGE>
C. Stock Split
Effective January 30, 1998, the Company's Board of Directors declared a
two-for-one stock split effected in the form of a stock dividend. All share, per
share and conversion amounts relating to the common stock, warrants and stock
options included in the accompany financial statements reflect the stock split.
D. Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement
No. 133"). Statement No. 133 requires that an enterprise recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Statement No. 133 is
effective for all fiscal quarters and all fiscal years beginning after June 15,
1999. The Company is currently assessing the effects of Statement No. 133 on its
financial position.Company is currently assessing the effects of Statement No.
133 on its financial position.
<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 complete family of "computerized maintenance management
systems" ("CMMS") / "enterprise asset management software" ("EAMS") to the
maintenance, repair and operations ("MRO") industry. Generally these products
consists of 5 major categories based on price and functionality. Maintainit and
Maintainit Pro are off-the-shelf, entry-level solutions for small to medium
businesses. MP2 Professional is a full-featured integrated maintenance system
for small to mid-size companies. MP2 Enterprise combines the benefits of PC
servers and PC networks with a Windows graphical user interface and SQL
relational database. MP5 (formally R5 CAMMS) is a high-end client-server EAMS
product. Datastream supports its software products through professional
services, including installation, consulting, integration, 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 second quarter of
1998. Total revenues increased 39% to $23,442,470 in the second quarter of 1998
from $16,813,542 in the second quarter of 1997, due principally to the continued
acceptance of the Company's products in the industrial automation market and the
expansion of the Company's sales, professional service and technical support
service organizations. The second quarter of 1998 includes $1,853,324 of revenue
from the newly acquired entities of Insta and SIS. Total revenues increased 38%
to $43,571,130 during the first six months of 1998 from $31,495,955 in the first
six months of 1997.
Product revenues increased 36% to $9,332,113 (40% of total revenues) in the
second quarter of 1998 from $6,851,481 (41% of total revenues) in the second
quarter of 1997, as a result of the growth in new product sales including MP2
Enterprise and MP2 Professional - Access, and the growth in international sales.
Product revenues increased 28% to $16,697,210 (38% of total revenues) in the
first six months from $12,999,496 (41% of total revenues) in the first six
months of 1997.
Professional service revenues increased 42% to $9,831,906 (42% of total
revenues) in the second quarter of 1998 from $6,906,989 (41% of total revenues)
in the second quarter of 1997. The increase resulted from the addition of
professional service personnel to service expansion of the Company's installed
base of systems. Professional service revenues increased 48% to $18,787,430 (43%
of total revenues) in the first six months of 1998 from $12,690,712 (40% of
total revenues) in the first six months of 1997.
Technical support services revenues for the second quarter of 1998 increased 40%
to $4,278,451 (18% of total revenues) from $3,055,072 (18% of total revenues) in
the second quarter of 1997, primarily due to the expansion of the Company's
installed base of systems. Technical support services revenues increased 39% to
$8,086,490 (19% of total revenues) in the first six months of 1998 from
$5,805,747 (18% of total revenues) in the first six months of 1997.
Cost of Revenues. Cost of revenues increased 31% to $7,206,906 (31% of total
revenues) in the second quarter of 1998, as compared to $5,496,898 (33% of total
revenues) in the comparable quarter of 1997. The decrease as a percentage of
total revenues was due to increased efficiencies realized in the restructuring
of the European operations during 1997 and higher utilization rates of
consulting personnel.
Cost of revenues increased 29% to $13,655,750 (31% of total revenues) during the
first six months of 1998 from $10,558,107 (34% of total revenues) in the first
six months of 1997.
Cost of product revenues was 3% of total revenues in the second quarter of 1998,
and 4% of total revenues during the same period of 1997. The decrease as a
percent of total revenues is due to lower rate of capitalized software
amortization and decreased costs of shipping and packaging related items.
<PAGE>
Cost of professional service revenues was 22% of total revenues during the
second quarter of 1998, and 22% of total revenues during the same period in
1997.
Cost of technical support service revenues was 5% of total revenues during the
second quarter of 1998 and 6% of total revenues during the same period in 1997.
The decrease as a percentage of total revenues was due to increased efficiencies
realized in the restructuring of the SQL support operations during 1997.
Sales and Marketing Expenses. Sales and marketing expenses increased 38% to
$6,491,694 (28% of total revenues) during the second quarter of 1998 from
$4,693,891 (28% of total revenues) during the second quarter of 1997, 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. Sales and marketing expenses increased 34% to
$12,041,054 (28% of total revenues) in the first six months of 1998 from
$8,967,363 (29% of total revenues) in the first six months of 1997.
Product Development Expenses. Total product development expenditures increased
80% to $2,848,702 (12% of total revenues) during the second quarter of 1998 from
$1,586,143 (9% of total revenues) during the same period in 1997. The
capitalized portion of these amounts were $887,245 and $549,980, respectively.
Giving effect to amounts capitalized, net product development expense increased
89% to $1,961,458 (8% of total revenues) in the second quarter of 1998 from
$1,036,163 (6% of total revenues) during the same period in 1997. The increase
in total product development expense resulted from increasing the number of
development personnel to support continued development of MP5, the increased use
of outside contractors for development work, foreign language development and
other new products.
Total product development expenditures increased 91% to $5,177,293 (12% of total
revenues) during the first half of 1998 from $2,712,226 (9% of total revenues)
during the same period in 1997. The capitalized portion of these amounts were
$1,694,081 and $842,055, respectively. Giving effect to amounts capitalized, net
product development expense increased 86% to $3,483,212 (8% of total revenues)
in the first half of 1998 from $1,870,211 (6% of total revenues) during the same
period in 1997.
General and Administrative Expenses. General and administrative expenses
increased 13% to $1,998,156 (8% of total revenues) during the second quarter of
1998 from $1,772,657 (10% of total revenues) in the second quarter of 1997,
primarily due to increased salaries. The decrease as a percentage of total
revenues is due to the restructuring of the European operations during 1997.
General and administrative expenses increased 1% to $4,027,943 (9% of total
revenues) during the first half of 1998 from $4,007,697 (13% of total revenues)
in the first half of 1997.
Miscellaneous Income. Miscellaneous income increased to $87,978 in the second
quarter of 1998 from $71,343 in the second quarter of 1997. Miscellaneous income
increased to $163,966 in the first half of 1998 from $118,623 in the first half
of 1997. The increase was due to increased rental income generated from leasing
a greater portion of the Company's building in Greenville, South Carolina.
Interest Income/(Expense). Interest income decreased to $146,498 in the second
quarter of 1998 from $246,350 in the second quarter of 1997, due to lower
investment balances realized upon completion of various acquisitions. Interest
expense decreased to $31,246 in the second quarter of 1998 from $35,713 in the
second quarter of 1997. The decrease in interest expense is due to debt
repayments in 1997. Interest income decreased to $352,288 in the first half of
1998 from $508,860 in the first half of 1997. Interest expense decreased to
$59,513 in the first half of 1998 from $138,162 in the first half of 1997.
Tax Rate. The Company's tax rate per the income statement was 77.9% for the
second quarter of 1998 but due to non-deductible items associated with the
acquisitions, the Company's effective tax rate was 39.5% as compared to 36.5%
for the second quarter of 1997. The Company's tax rate per the income statement
was 83% for the first half of 1998 but due to non-deductible items associated
with the acquisitions, the Company's effective tax rate was 38.8% as compared to
31% in the first half of 1997.
Net Income. Net income decreased 74% to $672,331 (3% of total revenues) in the
second quarter of 1998 from $2,600,887 (15% of total revenues) in the second
quarter of 1997. Net income decreased 80% to $909,523 (2% of total revenues) in
the first half of 1998 from $4,579,086 (15% of total revenues) in the first half
of 1997. These decreases are directly attributed to the charges for the
acquisition of INSTA on March 31, 1998 and SIS on June 16,1998. Without the
acquisition related charges second quarter net income would have increased 39%
to $3,622,331 (16% of total revenues) and net income for the first half of the
year would have increased 53% to $6,985,545 (16% of total revenues).
<PAGE>
Liquidity and Capital Resources
The Company has funded its activities entirely from cash generated from
operations. The Company ended its second quarter of 1998 with $3,904,016 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 Company completed renovating and assumed occupancy of its new offices at 50
Datastream Plaza, Greenville, SC 29605 during April 1996.
The acquisition of SQL was completed for $31 million, consisting of $17 million
in cash and $14 million in common stock (751,381 shares) issued pursuant to
Regulation S. In connection with the acquisition, the Company also deposited
into escrow an additional $3 million (300,522 shares) in common stock, and
assumed certain of SQL's outstanding liabilities. Following the acquisition,
SQL's 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.
In July 1997, the Company made a $2 million investment in Distinction Software,
Inc. ("Distinction") This investment represents less than 20% of the outstanding
equity interests of Distinction.
The acquisition of Insta was completed on March 31, 1998 for $7 million,
consisting of $4,375,000 in cash and $2,625,000 (130,435 shares) in common stock
issued pursuant to Regulation S. In connection with the acquisition, the Company
deposited into escrow 34,783 shares of common stock, and assumed certain of
Insta's outstanding liabilities.
The acquisition of SIS was completed on June 16, 1998 for $6.5 million,
consisting of $4,575,000 in cash and $1,925,000 (88,652 shares) in common stock
issued pursuant to Regulation S. In connection with the acquisition, the Company
deposited into escrow 29,566 shares of common stock, and assumed certain of
SIS's outstanding liabilities.
The Company's principal commitments as of June 30, 1998, consisted primarily of
long term debt assumed in the acquisition of SQL, and there were no material
commitments for capital expenditures. The Company believes that its current cash
balances, availability under its line of credit, cash flow from operations and
available for sale investments will be sufficient to meet its working capital
and capital expenditure needs for at least the next 12 months.
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Pursuant to the general instructions to Rule 305 to SEC Regulation S-K,
quantitative and qualitative disclosures called for by this Item 7A and by Rule
305 of SEC Regulation S-K are inapplicable to the Company at this time.
<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
The Annual Meeting of Stockholders was held on June 12, 1997 at which time
certain matters were submitted to such stockholders for a vote. Below is a brief
description of each such matter as well as the number of shares represented at
the meeting and entitled to vote and voting for, against or abstaining as to
each matter.
1. The following class of directors was elected to serve on a three-year term
expiring in 2001.
Shares Shares
FOR WITHHOLD
Class II:
Richard T. Brock 17,103,980 (98.9%) 183,275 (1.1%)
Ira D. Cohen 17,102,280 (98.9%) 184,975 (1.1%)
2. The stockholders approved the Company's 1998 Stock Option Plan.
Shares Shares Shares
FOR AGAINST ABSTAIN
16,388,135 (94.8%) 709,185 (4.1%) 179,035 (1.1%)
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
The Company filed a Current Report on Form 8-K on April 14, 1998 to report
the Company's acquisition of all of the captial stock and equity interests of
Insta on March 31, 1998.
The Company filed a Current Report on Form 8-K on June 26, 1998 to report
the Company's acquisition of all of the capital stock and equity interests of
SIS on June 16, 1998.
The Company filed a Current Report on Form 8-K on July 23, 1998 to report
the Company's acquisition of certain assets of Datastream (Pacific) PTY Ltd. on
July 13, 1998.
<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.
Date: 08/05/98 /s/ Daniel H. Christie
-------- -----------------------
Daniel H. Christie
Chief Financial Officer (principal
financial and accounting officer)
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statements of income for the three months ended June 30, 1998 and
the consolidated balance sheet as of June 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> JUN-30-1998 JUN-30-1997 JUN-30-1996
<CASH> 3,904,016 1,593,857 2,468,579
<SECURITIES> 160 11,344,010 12,021,173
<RECEIVABLES> 26,797,342 16,379,346 6,080,500
<ALLOWANCES> (1,811,937) (835,000) (331,000)
<INVENTORY> 281,821 381,451 321,076
<CURRENT-ASSETS> 37,861,231 33,576,169 21,974,954
<PP&E> 19,039,635 12,303,042 8,559,004
<DEPRECIATION> (5,984,158) (2,735,369) (1,155,020)
<TOTAL-ASSETS> 77,853,727 57,149,903 55,563,101
<CURRENT-LIABILITIES> 22,473,162 17,157,362 5,022,235
<BONDS> 829,855 877,595 13,334
0 0 0
0 0 0
<COMMON> 190,119 91,753 85,156
<OTHER-SE> 53,468,591 38,373,193 49,964,376
<TOTAL-LIABILITY-AND-EQUITY> 76,853,727 57,149,903 55,563,101
<SALES> 16,697,210 12,999,946 6,331,712
<TOTAL-REVENUES> 43,571,130 31,495,955 14,605,863
<CGS> 1,547,769 1,538,982 854,829
<TOTAL-COSTS> 13,655,750 10,588,848 3,998,323
<OTHER-EXPENSES> 25,033,287 14,845,271 6,574,828
<LOSS-PROVISION> 85,411 0 0
<INTEREST-EXPENSE> 59,513 138,162 2,755
<INCOME-PRETAX> 5,338,834 6,581,989 5,189,286
<INCOME-TAX> 4,429,311 2,002,812 1,999,500
<INCOME-CONTINUING> 909,523 4,579,086 3,189,786
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 909,523 4,579,086 3,189,786
<EPS-PRIMARY> 0.05 0.25 0.19
<EPS-DILUTED> 0.04 0.24 0.18
</TABLE>
