SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10Q
(Mark One)
__X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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: March 31, 2000 20,476,995 shares, $0.01 par
value.
<PAGE>
Datastream Systems, Inc.
FORM 10-Q
Quarter ended March 31, 2000
Index
Page No.
Part I. Consolidated Financial Information
"Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995 3
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets-
December 31, 1999 and March 31, 2000
Assets 4
Liabilities and Stockholders' Equity 5
Consolidated Statements of Operations -
for the Three Months ended March 31, 1999 and 2000 6
Consolidated Statement of Changes in Stockholders' Equity
and Comprehensive Income -
for the Three Months ended March 31, 2000 7
Consolidated Statements of Cash Flows -
for the Three Months ended March 31, 1999 and 2000 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 14
Market Risk
Part II. Other Information 15
Signature 16
<PAGE>
PART I. CONSOLIDATED FINANCIAL INFORMATION
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
From time to time, Datastream Systems, Inc. ("Datastream" or the "Company")
makes oral and written statements that may constitute "forward looking
statements" (rather than historical facts) as defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") or by the Securities and Exchange
Commission (the "SEC") in its rules, regulations and releases, including Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company desires to take advantage of the "safe harbor" provisions in the Act for
forward looking statements made from time to time, including, but not limited
to, the forward looking statements made in this Quarterly Report on Form 10-Q
(the "Report"), as well as those made in other filings with the SEC.
Forward looking statements can be identified by the use of forward looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"believe," "continue" or other similar words. Such forward looking statements
are based on management's current plans and expectations and are subject to
risks and uncertainties that could cause actual results to differ materially
from those described in the forward looking statements. In the preparation of
this Annual Report, where such forward looking statements appear, the Company
has sought to accompany such statements with meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those described in the forward looking statements. Such factors
include, but are not limited to: the ability of the Company to successfully
transition to the development of further Internet-based products; the continued
acceptance of the Internet for business transactions; our ability to
successfully implement an application service provider business model;
increasing competition in the markets in which the Company competes; the ability
of the Company to enhance its current products and develop new products that
address technological and market developments; the stability of certain of the
Company's strategic relationships, including those with suppliers of
maintenance, repair and operations parts; increasing competition in markets for
the Company's products; the ability of the Company to protect its proprietary
technology; risks associated with managing international operations, including,
but not limited to, exposure to foreign exchange fluctuations and the ability of
the Company to successfully compete in foreign markets; fluctuations in
quarterly results due to seasonality and longer sales cycles in certain regions
where the Company markets its products; and changes in economic conditions
generally, both domestic and international. The preceding list of risks and
uncertainties, however, is not intended to be exhaustive, and should be read in
conjunction with other cautionary statements made herein including, but not
limited to, the "Risk Factors" set forth in the Company's Form 10-K for the
fiscal year ended December 31, 1999, as well as other risks identified from time
to time in the Company's SEC reports, registration statements and public
announcements.
The Company does not have, and expressly disclaims, any
obligation to release publicly any updates or any changes in the Company's
expectations or any changes in events, conditions or circumstances on
which any forward-looking statement is based.
<PAGE>
ITEM 1. Consolidated Financial Statements
Datastream Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
December 31, March 31,
1999 2000
---- ----
(unaudited)
Current assets:
Cash and cash equivalents $17,912,797 $20,599,692
Accounts receivable, net of allowance
for doubtful accounts of $3,388,719
and $ 3,389,836, respectively 30,221,995 28,079,762
Unbilled receivables 2,311,247 2,389,585
Investments 250,790 85,340
Prepaid expenses 1,392,028 1,912,449
Inventories 109,453 91,766
Income tax receivable - 5,472,695
Deferred income taxes 1,410,000 1,410,000
Other assets 1,710,019 2,185,635
--------- ---------
Total current assets 55,318,329 62,226,924
Investments 4,200,000 6,170,000
Property and equipment, net 13,583,471 14,428,266
Goodwill, net 15,073,239 14,317,824
---------- ----------
Total assets $88,175,039 $97,143,014
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
Datastream Systems, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
Liabilities and Stockholders' Equity
December 31, March 31,
1999 2000
---- ----
(unaudited)
Current liabilities:
Accounts payable $3,919,404 $ 4,418,820
Other accrued liabilities 7,387,417 9,283,883
Income taxes payable 120,928 -
Current portion of long-term debt 650,578 2,299
Unearned revenue 8,587,980 11,482,772
--------- ----------
Total current liabilities 20,666,307 25,187,774
Long-term debt, less current portion 224,285 139,631
------- -------
Total liabilities 20,890,592 25,327,405
Stockholders' equity:
Preferred stock, $1 par value,
1,000,000 shares authorized; none issued - -
Common stock, $.01 par value,
40,000,000 shares authorized;
19,674,208 shares issued at December 31, 1999,
20,476,995 shares issued at March 31, 2000 196,742 204,770
Additional paid-in capital 70,533,683 78,375,943
Retained earnings (deficit) 760,050 (2,307,728)
Other accumulated comprehensive income (loss) (153,265) (404,613)
Treasury stock, 405,000 shares at cost (4,052,763) (4,052,763)
---------- ----------
Total stockholders' equity 67,284,447 71,815,609
Total liabilities and stockholders' equity $88,175,039 $97,143,014
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
Datastream Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
Three months ended March 31, 1999 and 2000
March 31, March 31,
1999 2000
---- ----
Revenues:
Product $10,422,468 $ 7,552,929
Professional service 13,173,938 11,667,233
Support 5,202,315 6,030,782
---------- ----------
Total revenues 28,798,721 25,250,944
Cost of revenues:
Cost of product revenues 535,086 462,141
Cost of professional service revenues 6,689,912 8,954,791
Cost of support revenues 1,317,820 1,614,316
Amortization of capitalized software 583,391 -
---------- ----------
Total cost of revenues 9,126,209 11,031,248
---------- ----------
Gross profit 19,672,512 14,219,696
Operating expenses:
Sales and marketing 7,655,576 11,476,286
Product development 2,897,020 4,227,046
General and administrative 2,643,305 3,006,895
Goodwill amortization 764,115 755,416
---------- ----------
Total operating expenses 13,960,016 19,465,643
---------- ----------
Operating income (loss) 5,712,496 (5,245,947)
Other income (expense):
Interest and other income 174,423 161,235
Interest expense (52,370) (31,000)
---------- ----------
Net other income 122,053 130,235
Income (loss) before income taxes 5,834,549 (5,115,712)
Income tax expense (benefit) 2,187,913 (2,047,934)
---------- ----------
Net income (loss) $ 3,646,636 $(3,067,778)
=========== ===========
Basic net income (loss) per share $ .19 $ (.16)
---------- ----------
Diluted net income (loss) per share $ .18 $ (.16)
---------- ----------
Basic weighted average number of common and
potential common shares outstanding 19,203,241 19,602,852
Diluted weighted average number of common and
potential common shares outstanding 19,837,256 19,602,852
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Datastream Systems, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity and Comprehensive Income(Loss)
(unaudited)
For the three months ended March 31, 2000
<CAPTION>
Other
Additional Accumulated Accumulated Total
Common Paid-In Earnings Comprehensive Treasury Stockholders'
Stock Capital (Deficit) Income(Loss) Stock Equity
----- ------- --------- ----------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $196,742 $70,533,683 $ 760,050 $(153,265) $(4,052,763) $67,284,447
Comprehensive (loss)
Net loss - - (3,067,778) - - (3,067,778)
Unrealized losses on
securities available for sale - - - (71,113) - (71,113)
Foreign currency
translation adjustment - - - (180,235) - (180,235)
----------
Total comprehensive loss (3,319,126)
----------
Exercise of stock options 7,854 5,694,978 - - - 5,702,832
Tax benefit of options exercised - 1,851,000 - - - 1,851,000
Stock issued for Employee
Stock Purchase Plan 174 236,880 - - - 237,054
Amortization of compensatory
stock options - 59,402 - - - 59,402
-------- ----------- ----------- --------- ----------- -----------
Balance at March 31, 2000 $204,770 $78,375,943 $(2,307,728) $(404,613) $(4,052,763) $71,815,609
======== =========== =========== ========= =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Datastream Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31, 1999 and 2000
March 31, March 31,
1999 2000
---- ----
Cash flows from operating activities:
Net income $ 3,646,636 $(3,067,778)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,140,395 1,272,672
Amortization of capitalized software
development costs 583,391 -
Goodwill amortization 764,115 755,416
Other accumulated comprehensive (loss) (952,648) (180,234)
Accretion of investment discount, net (320) -
Gain on disposal of fixed assets (32,809) -
Provision for doubtful accounts 409,140 5,617
Stock based compensation - 59,402
Changes in operating assets and liabilities:
Accounts receivable (1,264,504) 2,141,117
Unbilled receivable (137,092) (82,838)
Accrued interest receivable 10,237 298
Prepaid expenses 10,224 (520,421)
Inventories 121,849 17,687
Other assets (10,127) (475,914)
Accounts payable 625,635 499,416
Other accrued liabilities (923,262) 1,896,466
Income taxes payable 1,729,047 (3,742,623)
Unearned revenue 1,487,233 2,894,792
--------- ---------
Net cash provided by operating activities 7,207,140 1,473,075
--------- ---------
Cash flows from investing activities:
Purchase of investments (4,310,000) (2,000,000)
Proceeds from sale and maturities of investments 2,575,058 124,337
Additions to property and equipment (868,098) (2,117,470)
Capitalized software development costs (967,007) -
--------- ---------
Net cash used in investing activities (3,570,047) (3,993,133)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 112,528 5,702,832
Proceeds from issuances of shares under employee
stock purchase plan 196,451 237,054
Cash paid to acquire treasury stock (918,750) -
Principal payments on long-term debt (72,320) (732,933)
--------- ---------
Net cash provided by (used in)
financing activities (682,091) 5,206,953
--------- ---------
Net increase in cash and cash equivalents 2,955,002 2,686,895
Cash and cash equivalents at beginning of period 6,739,209 17,912,797
--------- ---------
Cash and cash equivalents at end of period $ 9,694,211 $20,599,692
=========== ===========
See accompanying 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") is a leading provider
of Internet-based solutions for asset maintenance and industrial procurement.
The Company's asset maintenance solutions allow businesses, government and other
organizations to optimize the productivity of high-value capital assets through
increased maintenance productivity and improved management of assets, personnel
and other resources. Datastream's business-to-business electronic commerce
industrial procurement solutions provide companies an on-line marketplace where
they can efficiently manage the procurement of a wide range of industrial
maintenance, repair and operations ("MRO") parts. Combined, the Company's
solutions offer a complete, scaleable asset management solution that is more
unique to the market. In addition to its U.S. operations, the Company has direct
sales or distribution offices in Canada, the United Kingdom, The Netherlands,
France, Germany, Ireland, Denmark, Sweden, Norway, Portugal, Mexico, Brazil,
Argentina, Chile, Venezuela, Peru, Malaysia, Australia, Indonesia, Singapore,
China and South Africa.
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. 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. 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 for the year ended December 31, 1999 filed
with the SEC on March 30, 2000. Other than as indicated herein, there have been
no significant changes from the financial data published in those reports.
Results for interim periods are not necessarily indicative of results expected
for the full year.
B. Accounting Policies
Revenue Recognition
The Company's revenue, which consists primarily of fees for product sales,
professional services and support, is recognized in accordance with AICPA
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition". SOP
97-2 generally requires revenue earned on software arrangements involving
multiple elements (i.e., software products, upgrades/enhancements, postcontract
customer support, installation, training, etc.) to be allocated to each element
based on the relative fair values of the elements. The fair value of an element
must be based on evidence which is specific to the vendor. The revenue allocated
to software products (including specified upgrades/enhancements) generally is
recognized upon delivery of the products. The revenue allocated to postcontract
customer support generally is recognized ratably over the term of the support
and revenue allocated to service elements (such as training and installation)
generally is recognized as the services are performed. If a vendor does not have
evidence of the fair value for all elements in a multiple-element arrangement,
all revenue from the arrangement is deferred until such evidence exists or until
all elements are delivered.
In December 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-9, "Modifications of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions" ("SOP
98-9"), which amends SOP 97-2 and supercedes Statement of Position 98-4. SOP
98-9 requires the recognition of revenue using the residual method with respect
to certain transactions. The Company adopted SOP 98-9 in fiscal year 1999 and
there was no material effect on the financial position, results of operations or
cash flows.
The Company continually evaluates its obligations with respect to warranties,
returns and refunds. Based on historical trends and management's evaluation of
current conditions, any potential obligations that are inherent in the accounts
receivable balance are adequately provided for through the allowance for
doubtful accounts. The Company may in certain circumstances grant discounts when
a purchase order is received. The discounts are recognized in the product
revenue at the time of shipment.
Net Income (Loss) 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 dilutive common shares outstanding.
Diluted weighted average common and potential dilutive 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>
For the three months ended March 31, 1999 and 2000
Per Share
Income Shares Amount
Three months ended March 31, 1999:
Basic income per share $ 3,646,636 19,203,241 $ .19
Effect of dilutive securities:
Stock options - 634,015
----------- ----------
Diluted income per share $ 3,646,636 19,837,256 $ .18
=========== ========== =====
Three months ended March 31, 2000:
Basic income (loss) per share $(3,067,778) 19,602,852 $(.16)
Effect of dilutive securities:
Stock options - -
----------- ----------
Diluted income (loss) per share $(3,067,778) 19,602,852 $(.16)
=========== ========== =====
As a result of the Company's loss from operations during the first quarter of
2000, options to purchase approximately 2.7 million shares of common stock were
excluded in the computation of diluted net income (loss) per share. The dilutive
effect of these options would be to increase diluted shares outstanding to
21,556,330.
C. Restructuring Charges
In 1998, the Company determined that it was necessary to aggressively migrate
its current and future products to a new web-based technology platform and
developed a plan to restructure certain of its operations in response to
increased competition and rapidly changing technology. The restructuring plan
required the discontinuance of certain internally developed and acquired
products and the reorganization of the Company's product development and
distribution structures domestically and internationally to improve efficiencies
and customer service and eliminate redundancy. As a result, the Company recorded
a restructuring charge at December 31, 1998 of $3,977,000 and established
certain reserves for the costs.
As of March 31, 1999, approximately $679,000 of the restructuring accruals were
utilized as follows: $120,000 for severance and related costs, $237,000 for
costs of closing redundant facilities and $322,000 for provisions for increased
credit risks.
D. Capitalized Software Development Costs
Capitalized software development costs consist principally of salaries and
certain other expenses related to development and modifications of software
products and are capitalized in accordance with the provisions of Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed". Capitalization of such
costs begins only upon establishment of technological feasibility, which is
defined by the Company as completion of a working model of the software and ends
when the resulting product is available for sale.
Amortization of capitalized software development costs is provided on a
product-by-product basis and begins when the product is available for sale.
Annual amortization is the greater of the amount computed using the ratio of
current product revenue to the total of current and anticipated product revenue
or the straight-line basis over the remaining estimated economic life of the
software, which is generally from six months to 36 months. The ongoing
assessment of the realizability of these costs requires considerable judgment as
to anticipated future product revenues, related estimated economic life, and
changes in hardware and software technology. Amortization of software
development costs is included in cost of product revenues in the accompanying
statements of income.
E. Geographical and Segment Information
The Company has identified two reportable industry segments: the asset
maintenance division provides solutions that optimize productivity of assets
through various preventative maintenance and asset management programs ("asset
maintenance") and the business-to-business electronic commerce industrial
procurement division, which enables customers to automate their industrial
procurement ("iProcure"). Asset information by industry segment is not reported,
as the Company does not produce such information internally. The Company manages
the asset maintenance segment across geographically reportable segments. The
principal areas of operation include the United States, Europe, Latin America
and Asia. The iProcure segment operates in the United States market only.
Information about the Company's operations in different segments and geographic
locations is as follows:
<PAGE>
<TABLE>
For the three months ended March 31, 1999 and 2000:
<CAPTION>
Asset
United Latin Maintenance iProcure
States Europe America Asia Total Total Total
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1999:
Total revenues $19,046,602 $ 7,398,590 $ 1,632,809 $ 720,523 $28,798,524 $ 197 $28,798,721
Operating income (loss) 2,969,184 2,448,958 531,307 68,390 6,017,839 (305,343) 5,712,496
Total assets 69,461,285 17,906,217 1,269,462 3,084,133 91,721,097 NA 91,721,097
March 31, 2000:
Total revenues 16,504,74 15,796,408 1,350,882 1,574,563 25,226,594 24,350 25,250,944
Operating income (loss) (2,012,118) (31,081) 260,461 (41,949) (1,824,687) (3,421,260) (5,245,947)
Total assets 67,590,248 15,750,385 3,577,359 4,752,327 91,670,319 NA 91,670,319
</TABLE>
F. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (Statement No. 133). This standard requires
a public company to recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair value.
In July 1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No.
133" (Statement No. 137). Statement No. 137 delayed the effective date for
Statement No. 133 for one year. The Company is required to adopt Statement No.
133 in the first quarter of 2001. The Company has not yet assessed the impact
this standard will have on its financial condition or results of operations at
the time of adoption; however, the impact will ultimately depend on the amount
and type of derivative instruments held at the time of adoption, if any.
<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. An additional statement made pursuant to the
Private Securities Litigation Reform Act of 1995 and summarizing certain of the
principal risks and uncertainties inherent in the Company's business is included
in Part I of this Report under the caption "'Safe Harbor' Statement Under the
Private Securities Litigation Reform Act of 1995". Readers of this Report are
encouraged to read such statement carefully.
Overview
Datastream is a leading provider of Internet-based solutions for asset
management and industrial procurement for businesses, governments and other
organizations. The Company divides its business into two main segments.
Datastream's asset maintenance division provides solutions that optimize
productivity of assets through various preventative maintenance and asset
management programs. The Company's asset maintenance products includes solutions
for virtually any size of operation, from the large, multi-site organization
needing a full featured enterprise solution to the single, small shop with basic
requirements. The Company's iProcure division provides business-to-business
electronic commerce industrial procurement solutions, enabling customers to
automate their industrial procurement resulting in reduced costs of maintaining
assets.
The asset maintenance products consist of 3 major categories based on price
and functionality. MP2 Professional provides maintenance solutions for the small
to medium size facility, MP2i offers enterprise-wide maintenance solutions for
the large and mid-sized organizations that are required to manage capital assets
and personnel in multiple locations, and MP5i is designed for larger enterprises
with asset intensive and safety critical operations. iProcure is a
business-to-business Internet procurement application that enables customers to
automate their industrial procurement. Datastream supports its products with
professional and support services.
Results of Operations
Total Revenues. The Company reported lower revenues for the first quarter
of 2000. Total revenues decreased 12% to $25,250,944 in the first quarter of
2000 from $28,798,721 in the first quarter of 1999, due principally to lower
than expected software license revenues and a related decrease in services
revenue.
Product revenues decreased 28% to $7,552,929 (30% of total revenues) in the
first quarter of 2000 from $10,422,468 (36% of total revenues) in the first
quarter of 1999, as a result of changes within the sales organization causing a
disruption to license sales.
Professional service revenues decreased 11% to $11,667,233 (46% of total
revenues) in the first quarter of 2000 from $13,173,938 (46% of total revenues)
in the first quarter of 1999. The decrease is a result of decreased software
license sales in the first quarter of 2000. Professional services revenue for
the first quarter of 2000 includes approximately $24,000 of revenue attributed
to the iProcure division.
Support services revenues for the first quarter of 2000 increased 16% to
$6,030,782 (24% of total revenues) from $5,202,315 (18% of total revenues) in
the first quarter of 1999, primarily due to the expansion of the Company's
installed base of systems during 1999.
Cost of Revenues. Cost of revenues increased 21% to $11,031,248 (44% of
total revenues) in the first quarter of 2000, as compared to $9,126,209 (32% of
total revenues) in the comparable quarter of 1999. The increase in cost of
revenues is attributed to increased expenses incurred in the Professional
Services and Support Departments related to increased head count to meet
customer demand, increased travel costs and expenses incurred to support
iProcure.
Cost of product revenues was 2% of total revenues in the first quarter of
2000 and 2% of total revenues during the same period in 1999.
Cost of professional service revenues was 36% of total revenues during the
first quarter of 2000, and 23% of total revenues during the same period in 1999.
The increase as a percentage of total revenues was due to lower utilization
rates as a result of decreased license revenue sales and increased costs for
iProcure. Cost of professional services revenue for the first quarter of 2000
includes approximately $341,000 of expenses related to the iProcure division.
Cost of support service revenues was 6% of total revenues during the first
quarter of 2000 and 5% of total revenues during the same period in 1999. Cost of
support services revenue for the first quarter of 2000 includes approximately
$35,000 of expenses related to the iProcure division.
Amortization of capitalized software costs was $583,391 (2% of total
revenues) in the first quarter of 1999. No amortization expense was recorded in
the first quarter of 2000 due to capitalized software costs being fully
amortized as of December 31, 1999.
Sales and Marketing Expenses. Sales and marketing expenses increased 50% to
$11,476,286 (45% of total revenues) during the first quarter of 2000 from
$7,655,576 (27% of total revenues) during the first quarter of 1999, as a result
of an increased number of sales personnel and increased sales and marketing
expenditures for iProcure. Sales and marketing expenses for the first quarter of
2000 includes approximately $2.2 million of iProcure division expenses.
<PAGE>
Product Development Expenses. Total product development expenditures
increased 9% to $4,227,046 (17% of total revenues) during the first quarter of
2000 from $ 3,864,027(13% of total revenues) during the same period in 1999.
There was no capitalized portion of these amount in the first quarter of 2000 as
compared to $967,007 in the first quarter of 1999. The increase in total product
development expense resulted from increasing the number of development personnel
to support continued development of MP5i and iProcure. Total product development
expenses for the first quarter of 2000 includes approximately $627,000 of
iProcure division expenses.
General and Administrative Expenses. General and administrative expenses
increased 14% to $3,006,895 (12% of total revenues) during the first quarter of
2000 from $2,643,305 (9% of total revenues) in the first quarter of 1999,
primarily due to costs associated with the iProcure division. Total general and
administrative expenses for the first quarter of 2000 includes approximately
$266,000 of iProcure division expenses.
Amortization of Goodwill. Amortization of goodwill expense decreased 1% to
$755,416 (3% of total revenues) during the first quarter of 2000 from $764,115
(3% of total revenues) in the first quarter of 1999, due to adjustments made to
goodwill balances in 1999.
Interest and other income. Interest and other income decreased to $161,235
in the first quarter of 2000 from $174,423 in the first quarter of 1999. The
decrease was due to do gains recognized on the disposal of fixed assets in the
first quarter of 1999.
Interest Expense. Interest expense decreased to $31,000 in the first
quarter of 2000 from $52,370 in the first quarter of 1999 due to lower third
party debt balances.
Tax Rate. The Company's effective tax rate was 40% for the first quarter of
2000 as compared to 37.5% for the first quarter of 2000.
Net Income. Net income decreased 184% to ($3,067,778) ((12%) of total
revenues) in the first quarter of 2000 from $3,646,636 (13% of total revenues)
in the first quarter of 2000. The decrease is attributed to lower than expect
sales and an increase in iProcure division expenses during the first quarter of
2000.
Liquidity and Capital Resources
The Company has funded its operating activities entirely from cash
generated from operations. The Company ended its first quarter of 2000 with
$20,599,692 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.
In March 2000, the Company made a $2.0 million investment in Dovebid, Inc.
("Dovebid"), one of the world's leading auctioneers and operators of a business
to business Internet auction site. The investment will be accounted for on a
cost basis.
The Company's principal commitments as of March 31, 2000, consisted
primarily of long term debt and there were no material commitments for capital
expenditures. In March 2000, the Company entered into a 10-year operating lease
for approximately $1 million for improvements to the Company's heating
ventilation and air conditioning ("HVAC") system at its Greenville, SC
headquarters. The Company believes that its current cash balances, availability
under its line of credit and cash flow from operations will be sufficient to
meet its working capital and capital expenditure needs for the next 12 months.
Year 2000
Many currently installed computer systems and software products are coded
to accept only a two-digit format in the date field. These date code fields
needed to accept a four-digit format to distinguish 21st century dates from 20th
century dates. As a result, computer systems and/or software used by many
companies needed to be upgraded to comply with such "Year 2000" requirements. To
address the Year 2000 issue, the Company organized a Year 2000 Committee with
the responsibility of determining the Company's Year 2000 readiness, as well as
the Year 2000 readiness of third parties upon which the Company relies,
including suppliers and vendors. The Company implemented a Year 2000 plan as
described in our Form 10-Q for the quarter ended September 30, 1999. As of
December 31, 1999, the Company had implemented its Year 2000 plan. To date, and
with the January 1, 2000 date rollover, the Company has not experienced any
material disruptions associated with the Year 2000 issue and the Company's
internal systems, products, customers, or suppliers and vendors. The Company
does not expect to experience any material disruptions associated with the Year
2000 issue in the future. As of December 31, 1999, the Company had spent
approximately $1.4 million in connection with its Year 2000 plan. Such costs
have been funded with operating cash flows and cash on hand. Datastream
designates all statements in this Report regarding its Year 2000 efforts as
"Year 2000 Readiness Disclosures" pursuant to the Year 2000 Information and
Readiness Disclosure Act.
Earnings Per Share Calculation
Because the Company experienced a net loss of $(3,067,778) in the first
quarter of 2000, in accordance with FASB Statement of Financial Accounting
Standards No. 128, "Earnings Per Share", options to purchase approximately 2.7
million shares of common stock have been excluded in calculating diluted net
loss per share $(.16) for the first quarter of 2000. Such options were included
in the diluted net loss per share calculation $(.14) in the Company's press
release of April 25, 2000.
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Company did not experience any material changes in market risk in the
first quarter of 2000.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On January 11, 1999, several shareholders filed a putative class action
complaint in the United States District Court for the District of South
Carolina, Greenville Division, naming as defendants, the Company, Larry G.
Blackwell and the Company's former Chief Financial Officer. Several
substantially similar complaints were filed in the same court shortly
thereafter. The complaints alleged violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. Plaintiffs seek to represent a class of
individuals who purchased the Company's common stock from April 1 to October 20,
1998. On June 25, 1999, the court ordered that the actions be consolidated and
that a single consolidated complaint be filed. On August 13, 1999, the
plaintiffs filed a consolidated amended class action complaint. The consolidated
amended complaint alleges that defendants artificially inflated Datastream's
earnings and stock price by (i) taking certain one-time charges not in
accordance with generally accepted accounting principles ("GAAP") in connection
with Datastream's acquisitions of Insta and SIS and (ii) materially understating
the Company's reserves for doubtful accounts in violation of GAAP. The
plaintiffs seek compensatory damages and unspecified equitable relief. On
September 13, 1999, the Company and the individual defendants moved to dismiss
the consolidated amended complaint. The court denied the defendants' motion to
dismiss on January 27, 2000. The Company filed its answer to the consolidated
class action complaint on February 24, 2000. The Company intends to defend this
action vigorously, but due to the inherent uncertainties of the litigation
process, the Company is unable to predict the outcome of this litigation. If the
outcome of the litigation is adverse to the Company, it could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Datastream is occasionally involved in other claims arising out of its
operations in the normal course of business, none of which are expected,
individually or in the aggregate, to have a material adverse affect on the
Company.
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
None.
<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/ C. Alex Estevez
Date: 5/09/00 ______________________
C. Alex Estevez
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 (unaudited) statements of income for the three months ended March
31, 2000 and the consolidated balance sheet as of March 31, 2000 contained in
the Company's Quarterly Report on Form 10 Q for the Quarter Ended March 31, 2000
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 20,599,692
<SECURITIES> 85,340
<RECEIVABLES> 31,469,598
<ALLOWANCES> (3,389,836)
<INVENTORY> 91,766
<CURRENT-ASSETS> 62,226,924
<PP&E> 26,875,117
<DEPRECIATION> (12,446,851)
<TOTAL-ASSETS> 97,143,014
<CURRENT-LIABILITIES> 25,187,774
<BONDS> 139,631
0
0
<COMMON> 204,770
<OTHER-SE> 71,610,839
<TOTAL-LIABILITY-AND-EQUITY> 97,143,014
<SALES> 7,552,929
<TOTAL-REVENUES> 25,250,944
<CGS> 462,141
<TOTAL-COSTS> 11,031,248
<OTHER-EXPENSES> 19,465,643
<LOSS-PROVISION> 5,617
<INTEREST-EXPENSE> 31,000
<INCOME-PRETAX> (5,115,712)
<INCOME-TAX> (2,047,934)
<INCOME-CONTINUING> (3,067,778)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,067,778)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
