<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K

                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal year ended December 31, 2000.

                                      OR

[_]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

     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 or other jurisdiction of           (I.R.S. Employer
         incorporation or organization)          Identification No.)


               50 Datastream Plaza, Greenville, South Carolina   29605
              --------------------------------------------------------
               (Address of principal executive offices)     (Zip Code)

      Registrant's telephone number, including area code: (864) 422-5001
       Securities registered pursuant to Section 12(b) of the Act:  None
          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $.01 par value
                               (Title of Class)

     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 [_]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

   Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 16, 2001, assuming for these purposes, but not conceding,
that all executive officers and directors are "affiliates" of the Registrant:
$136,155,979.

   Number of shares of Common Stock outstanding as of March 16, 2001:
20,538,065.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None.
<PAGE>

                           DATASTREAM SYSTEMS, INC.

                          ANNUAL REPORT ON FORM 10-K
                  For the Fiscal Year Ended December 31, 2000

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
    Item                                                                                                            Page
   Number                                                                                                         Number
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   <S>                                                                                                            <C>
                 "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

                                                     PART I

        1.       Business......................................................................................        1
        2.       Properties....................................................................................        6
        3.       Legal Proceedings.............................................................................        6
        4.       Submission of Matters to a Vote of Security Holders...........................................        7

                                                     PART II

        5.       Market for Registrant's Common Stock and Related Stockholder Matters..........................        8
        6.       Selected Financial Data.......................................................................        8
        7.       Management's Discussion and Analysis of Financial Condition and Results of Operations.........        9

     7(A).       Quantitative and Qualitative Disclosures about Market Risk....................................       23
        8.       Financial Statements and Supplementary Data...................................................       23
        9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........       23


                                                     PART III

       10.       Directors and Executive Officers of the Registrant............................................       24
       11.       Executive Compensation........................................................................       29
       12.       Security Ownership of Certain Beneficial Owners and Management................................       33
       13.       Certain Relationships and Related Transactions................................................       35

                                                     PART IV

       14.       Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................       36


                                                     SIGNATURES
</TABLE>
<PAGE>

                   "SAFE HARBOR" STATEMENT UNDER THE PRIVATE
                   SECURITIES LITIGATION REFORM ACT OF 1995

     From time to time, we make 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 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"). We desire to take advantage of the "safe harbor" provisions in
the Private Securities Litigation Reform Act of 1995 for forward looking
statements made from time to time, including, but not limited to, the forward
looking statements made in this Annual Report on Form 10-K (the "Annual
Report"), as well as those made in other filings with the SEC.

     Forward looking statements can be identified by our 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 our management's current plans and expectations and are subject to
risks, uncertainties and changes in plans 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,
we have 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, and we
have described many such items under "Risk Factors" set forth in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Annual Report. Such factors include, but are not limited to:
our ability 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 we
compete; our ability to enhance our current products and develop new products
that address technological and market developments; the stability of certain of
our strategic relationships, including those with iProcure network suppliers and
technology providors; increasing competition in markets for our products; our
ability to protect our proprietary technology; risks associated with managing
international operations, including, but not limited to, exposure to foreign
exchange fluctuations and our ability to successfully compete in foreign
markets; fluctuations in quarterly results due to seasonality and longer sales
cycles; retaining our key personnel; 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 that we make herein including, but
not limited to, the "Risk Factors" set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as other
risks and uncertainties identified from time to time in our SEC reports,
registration statements and public announcements.

     We do not have, and expressly disclaim, any obligation to release publicly
any updates or any changes in our expectations or any changes in events,
conditions or circumstances on which any forward-looking statement is based.
<PAGE>

PART I

Item 1.  Business.

Basis of Presentation

     As used herein, except as otherwise indicated by the context, the terms
"Datastream" and "Company" are used to refer to Datastream Systems, Inc. and its
subsidiaries.

Company Overview

     Datastream is a leading provider of asset lifecycle management solutions.
These solutions enable businesses, government agencies and other organizations
to maximize the profitability of assets in the four distinct phases of their
lifecycle: buy, track, manage, and sell. As a result, assets perform for longer
periods of time, reducing requirements to procure new capital assets and
increasing the total profitability of existing assets. One important component
of this lifecycle is the procurement of spare parts used to maintain assets.
Datastream's iProcure solution automates this process by connecting suppliers
with buyers of industrial spare parts through the Internet. Combined, these
offerings create a complete, scaleable asset lifecycle management solution
representing a unique value proposition to the market.

     For over fifteen years, Datastream has succeeded in providing asset
management solutions to the marketplace. As a result, Datastream has a broad
customer base, including AT&T Wireless, Chevron, ConAgra Frozen Foods, Dell
Corporation, Del Monte, Enron (EEIS), FMC Airport Services, Frito-Lay, Georgia-
Pacific, Hewlett-Packard, Honeywell, Inc., Kaiser Permanente, Lear Corporation,
Lucent Technologies, Southern Nuclear and Total Oil. The Company's customer base
represents more than 75 percent of the Fortune 50 and more than 60 percent of
the Fortune 500. Datastream has sold systems in 129 countries through a
combination of telesales, direct sales and international distributors in
virtually every major industry. The Company's products are found in a wide range
of industries, including aerospace and defense, automotive, chemicals,
communications, computers and electronics, food, general facilities, general
manufacturing, government, healthcare, hospitality, metals, petroleum,
transportation and utilities.

Company Background

     Datastream was incorporated as a South Carolina corporation in February
1986 upon consummation of the acquisition of the assets and liabilities of the
Datastream Systems Division of a subsidiary of Wisconsin Power & Light.
Datastream reincorporated as a Delaware corporation in January 1995.
Datastream's executive offices are located at 50 Datastream Plaza, Greenville,
South Carolina 29605, and its telephone number is (864) 422-5001. Additional
information on the Company can be found at www.datastream.net. Information
contained on the Company's home page shall not be deemed to be part of this
Annual Report.

Industry Overview

     For years, most organizations accounted for their assets at a central
financial level and managed these assets at an operational level. While
Enterprise Resource Planning (ERP) vendors helped organizations consolidate
basic asset data at the corporate level, Computerized Maintenance Management
Software (CMMS) vendors helped automate the daily management of these assets for
improved asset productivity. The CMMS solution, however, was locally focused,
which typically did not address broader enterprise opportunities.

     With advances in client server technology, organizations began to expand
the nature of this asset management process, integrating plants, offices and
buildings in a way that produced a more comprehensive and dynamic approach to
asset management. These offerings became known as Enterprise Asset Management
Solutions (EAM), and many CMMS vendors broadened their vision to offer
consolidated asset management across an enterprise. This EAM solution, however,
continued to address more operational issues than executive concerns, and asset
information at the corporate level remained fairly static within the fixed asset
module of an ERP system. As a result, the operational information, though
powerful in terms of accuracy, comprehension and detail, seldom became a
strategic tool for executive decision making.

                                      -1-
<PAGE>

     Given the increasingly significant amounts of capital investments in fixed
assets in recent years, executives have begun to view asset management as an
opportunity for increased corporate-wide productivity and profitability.
According to a 2000 survey by CFO Enterprise's Research Services Group of senior
financial executives, 70% said that fixed asset management at their companies
was inefficient and 90% recognized an opportunity to increase shareholder value
at their companies by improving the process by which they managed their assets.

     As a result of the Internet, organizations now have the opportunity to
increase shareholder value through cost-effective deployment of Internet-based
asset management solutions. These solutions establish a bridge from operations,
such as plant management and maintenance management, to executive decision-
makers by producing dynamic information on assets throughout the four distinct
phases of their lifecycle: buy, track, manage, and sell. An important component
of this lifecycle is the procurement of industrial spare parts used to maintain
assets. The Internet enables automation of this process, driving significant
costs and inefficiencies out of the supply chain. According to the 2000 Jupiter
Communications report, such purchases of industrial equipment and supplies are
expected to grow to $556 billion by 2005 from $20 billion in 2000.

     Through Internet-based asset management, asset information is more easily
distributed through management levels, from the maintenance manager to the chief
financial officer. This information improves asset deployment and repair,
optimizes the frequency of asset maintenance, reduces risk of catastrophic
failure, and streamlines the selection, pricing and procurement of spare parts
necessary to asset longevity. As a result, assets perform for longer periods of
time, reducing requirements to procure new capital assets and increasing the
total profitability of existing assets.

Datastream products and offerings

     MPX: Datastream offers Internet-based solutions for asset lifecycle
management through its MPX product family: MP5i and MP2i. Datastream's
MPXconnect(SM) is the hosted version of this offering. These solutions appeal to
virtually any size operation, from the large, multi-site global client needing a
full-featured enterprise solution to the single, small shop with basic
requirements. The following is a detailed description of these offerings:

          MP5i(TM). MP5i is designed for large multi-site enterprises with
     mission critical and asset intensive environments, such as those found in
     manufacturing, mining, petrochemical, pharmaceutical, telecommunication,
     and transportation industries. It is also well suited for very large multi-
     national organizations with high transaction volumes, which require
     concurrency in multi-currency and multi-lingual environments. MP5i offers a
     wide range of functionality, including asset management, configuration
     management, workflow management, inventory management, purchasing
     management, project management, workflow capacity management and budget
     management. Other unique features include an outsourced maintenance
     activity tracker, process management for corrosion inspection routines, a
     short-term scheduling feature, extensive security features and on-line,
     context sensitive help. MP5i operates on an Oracle database as an n-tiered
     application, offering scalability to an infinite number of concurrent
     users. MP5i is available in seven languages.

          MP2i(TM). MP2i is designed for medium-sized organizations looking to
     leverage the advantages of an Internet solution for improved asset
     management without the costs associated with a high-end solution. Because
     MP2i is built on the same foundation as MP5i, the product leverages the
     power of MP5i while offering a tailored, easy-to-use solution for medium-
     sized organizations. Functionality includes equipment management, work
     order management, inventory management, preventive maintenance management,
     purchasing management, and reporting.

          MPXconnect. MPXconnect is the hosted version of Datastream's MPX
     product family. An application service provider (ASP) solution, MPXconnect
     provides significant economic and operational advantages over traditional
     EAM software packages. Many software implementations require significant
     human and capital resources to successfully deploy the application. Hidden
     costs include server and desktop hardware, and network management time, and
     ongoing service work. Through central deployment at UUNET's world class
     application hosting center, MPXconnect eliminates many of these traditional
     costs of deployment and ownership. To achieve the benefits of MPXconnect,
     customers may either purchase the license up front and

                                      -2-
<PAGE>

     host the application under a monthly hosting fee arrangement, or rent the
     software with monthly hosting services at a combined fixed monthly rate.

     The Datastream Network. The Datastream Network provides customers with a
single access point through the Internet for utilizing a range of applications,
tools and services to manage capital assets throughout their lifecycle. Using
Datastream Network, customers are able to transact with supply chain partners,
collaborate with third party asset lifecycle management companies, remotely
access MPX and iProcure product functionality, utilize online product support
and integrate with third party software providers. The Datastream Network was
released in the first quarter of 2001.

     iProcure(TM). iProcure automates the process of procuring industrial spare
parts by connecting suppliers and buyers of industrial spare parts through the
Internet. iProcure integrates seamlessly with the MPX product line in a way that
expands the functionality of purchasing management, inventory management and
supply chain management. As a result, customers reduce item costs, improve
catalog search time, streamline requisition processing, reduce "maverick"
purchasing and improve inventory control. The iProcure solution can function as
a stand-alone procurement module or seamlessly integrate with existing demand
driver systems such as ERP or EAM.

     MP2(R) Professional. MP2 Professional, is designed for more traditional
small- to medium-sized organizations dependent on more established technology
architectures, such as those found in client server and file server
environments. MP2 Professional, available in both file server and client server
versions, is able to generate over 4,000 standard reports providing analysis
down to specific location, piece of equipment, and employee. Add-on features to
MP2 Professional include MP2 Messenger, Pocket MP2, Pagerlink, Weblink and the
capability to integrate OSHA regulations and FDA validation. The file server
version of MP2 Professional is available for Microsoft Access database; the
client server version is available for Microsoft SQL Server and Oracle
databases. The client server version of MP2 Professional manages most of the
processing at the server, which expedites performance, ensures data integrity
and security and reduces network traffic. MP2 Professional is available in
thirteen languages.

Customers

     For over fifteen years, Datastream has succeeded in providing asset
management solutions to the marketplace. As a result, Datastream has a broad
customer base, including AT&T Wireless, Chevron, ConAgra Frozen Foods, Dell
Corporation, Del Monte, Enron (EEIS), FMC Airport Services, Frito-Lay, Georgia-
Pacific, Hewlett-Packard, Honeywell, Inc., Kaiser Permanente, Kroger, Lear
Corporation, Lucent Technologies, Southern Nuclear and Total Oil. The Company's
customer base represents more than 75 percent of the Fortune 50 and more than 60
percent of the Fortune 500. Datastream has sold systems in 129 countries through
a combination of telesales, direct sales and international distributors in
virtually every major industry. The Company's products are found in almost every
industry where capital investments are important, including aerospace and
defense, automotive, chemicals, communications, computers and electronics, food,
general facilities, general manufacturing, government, healthcare, hospitality,
metals, petroleum, transportation and utilities.

     No customer has represented more than 5% of the Company's total annual
revenue in any of the last three fiscal years.

Sales and Marketing

     The Company markets and sells its products and services through 294 sales
and marketing professionals (as of March 1, 2001), including a telesales force
of 86 representatives and a direct sales force of 174. The Company's direct
sales force calls on larger accounts marketing its enterprise-wide solutions,
including MP5i, MP2i, and iProcure. The Company uses a customer resource
management (CRM) software system with database marketing, telemarketing, lead
tracking and analysis and customer support capabilities.

     The Company's marketing department consists of 34 employees (as of March 1,
2001) and is responsible for generating leads through advertising, public
relations, trade shows and seminars, strategic partnerships and direct mail. The
marketing department is also responsible for web site design and management,
product marketing,

                                      -3-
<PAGE>

collateral development, market research and competitive analysis and provides
input for the Company's product development efforts.

     Internationally, the Company sells its products from its offices in
Argentina, Brazil, China, France, Germany, Mexico, the Netherlands, Singapore,
and the United Kingdom. In addition, the Company has a network of affiliates
located throughout the balance of Europe, Latin America and the Pacific Rim. For
financial information about the Company's segments and operations in different
geographic locations, see note 14 to the Company's consolidated financial
statements.

Professional Services

     The Company offers seven types of value added professional services to
customers: (i) consulting and advisory services to provide solutions to
customer-specific applications problems, such as asset management or preventive
maintenance, (ii) technical services, which provides on-site installation and
systems integration services, (iii) configuration services, which enhances the
functionality of a customer's system, (iv) content services, which organizes MRO
purchases, bringing structure and discipline to the parts purchasing and
management process, (v) maintenance and support services (vi) project management
and (vii) customer training.

     The Company offered a total of 450 training sessions in 2000 at both
customer locations and its training facilities throughout the United States.
Additionally, the Company offered training sessions at various international
locations. Most of the Company's training and consulting services are performed
on a daily fee arrangement in connection with implementation of the Company's
systems. As of March 1, 2001, the Company employed 251 professional service
personnel worldwide.

     Maintenance and support services include unlimited, toll-free international
access to Datastream's Support staff, product upgrades, a searchable Internet
site for common questions and requests, an Internet-based support tool for self-
help via the Internet, e-mail support and an Internet-based file download
service. As of March 1, 2001, the Company employed 110 support personnel in
support operations worldwide. The Company provides support for its international
customers via a tiered approach: first-level support is provided by a network of
partners in conjunction with the local office, with back-up expertise offered
through the European technical center in Grenoble, France and the North American
technical center in Greenville, South Carolina.

Product Development

     As of March 1, 2001, the Company's product development department consisted
of 143 people, focused on five key functions: development, quality assurance,
documentation, localization and technology. The Development group consisted of
88 software developers, most of whom hold advanced programming or engineering
degrees. From time to time, the Company utilizes contractors for certain product
development projects.

     Management believes the Company has been able to respond quickly to
technology trends. The Company introduced its first DOS-based desktop product in
1986. In 1994, it released a Windows-based desktop product and shortly
thereafter added PC networking capabilities with its file server products. In
1996, the Company successfully released the first of its enterprise class
products based on a client server architecture. During the last two years the
Company committed significant investments into building Internet-based
applications, including MP5i, MP2i, and iProcure. The Company's product
development efforts are currently focused on the Internet as a medium for client
connection to the Company's range of products and as a conduit for purchasing
transactions through the iProcure network.

Competition

     The market for application software is intensely competitive. The principle
methods of competition in our markets include price, service and product
performance. Certain of the Company's existing competitors, as well as a number
of potential market entrants, have greater financial, marketing, service and
support and technical resources than the Company. The Company will be required
to make continued investments in product development, particularly the
development of Internet-based products, to meet competitive pressures. There can
be no assurance

                                      -4-
<PAGE>

that the Company will have sufficient resources to make those investments or
that the Company will be able to make the technical advances necessary to
continue to compete effectively in the future.

     Datastream's asset lifecycle management solutions allow companies to
effectively manage assets throughout their entire lifecycle. As a result, the
Company competes with providers of EAM-related solutions such as Indus
International, Marcam Corporation, Mincom, Inc., Peregrine Systems, MRO
Software, Inc. (formerly Project Software and Development, Inc. (PSDI)) and
several ERP vendors such as J.D. Edwards, Oracle, and SAP who offer enterprise-
wide management systems with asset maintenance modules.

     An important component of asset lifecycle management is the procurement of
spare parts used to maintain these assets. Within this procurement market, the
Company competes with existing asset lifecycle management competitors, including
MRO Software, Inc., and the Company expects to compete more frequently with
companies such as Ariba, Clarus, Commerce One, Concur and PurchasePro. This
market is characterized by competitors with significantly higher capital and
human resources than the Company, and it is an industry driven by highly dynamic
changes in technology.

     Internationally, the Company competes with both local and global software
vendors. Local and regional competitors are generally smaller, but are more
knowledgeable of the specific markets in which they compete. Global competitors
participate actively in the European, Latin American and Pacific Rim countries,
entering these markets through distributors, direct sales and service offices or
through strategic partnerships. Competition in these countries is frequently
intense and there can be no assurance that the Company will be successful in
these markets.

Intellectual Property

     The Company claims exclusive title to and ownership of the software it
develops. The Company relies on a combination of trade secret, copyright and
trademark laws, nondisclosure and licensing agreements, ''shrink-wrap'' licenses
and other contractual provisions and technical measures to protect its
intellectual property rights. There can be no assurance that these protections
will be adequate to protect the Company's intellectual property rights or that
the Company's competitors will not independently develop software products that
are superior to the Company's products. Existing copyright laws provide limited
protection to the Company in prohibiting competitors from independently
producing software products that are substantially similar to Datastream's
products. The Company does not hold any patents or have any patent applications
pending.

     Although the Company relies on a "shrink-wrap" license for protection
against unauthorized use of its products for its file server and certain of its
client server licensing transactions, in instances involving large sales, the
Company may specifically negotiate license agreements that are signed by both
the licensee and the Company. Certain provisions of these licenses, including
restrictions on use, copying, transfer and disclosure of the licensed program,
may be unenforceable under the laws of certain jurisdictions. The Company's
international operations expose it to certain additional intellectual property
risks in that the laws of some countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States.
Although the Company believes that its products, trademarks, servicemarks and
other proprietary rights do not infringe upon the proprietary rights of third
parties, there can be no assurance that such parties will not assert
infringement claims against the Company. Any such claim made against the
Company, with or without merit, could be time-consuming and expensive to defend.
The loss of proprietary technology or a successful claim against the Company
could have a material adverse effect on the Company's financial condition and
results of operations.

     Datastream(R), iProcure, MP2(R), MP2i(TM), MP2(R) Enterprise, MP2(R)
Professional(TM), MP5i(TM), MPXconnect(SM), MP2(R) WebLink, and PagerLink(TM)
are trademarks or service marks of the Company and are used in this report to
denote the products and services of the Company. SQL Server, Windows CE, Windows
95, Windows NT and Microsoft BackOffice are either trademarks or registered
trademarks of Microsoft Corporation. Oracle is a registered trademark of Oracle
Corporation. Other product and company names mentioned herein may be trademarks
of their respective owners.

Seasonality

                                      -5-
<PAGE>

     The Company's international operations expose the Company to seasonal
fluctuations in Europe, Asia and Latin America, principally consisting of slower
business conditions in the first and third quarters of the year.

Employees

     As of March 1, 2001, the Company employed approximately 908 persons,
including 294 sales and marketing personnel, 361 service and support
representatives, 110 administrative personnel and 143 employees involved in
product development. None of Datastream's employees is represented by a labor
organization and the Company is not a party to any collective bargaining
agreement. Management considers relations between the Company and its employees
to be good.

Item 2. Properties

     The Company conducts its principal operations out of a 125,000 square foot
headquarters building owned by the Company located in Greenville, South
Carolina. The Company also owns a 15,000 square foot building in Dessau,
Germany. The Company also has the following office properties under lease:

                                                                  Square Footage
Location                              Lease Expiration            (approx.)
--------                              ----------------            ---------
Munich, Germany                       November 2002               16,000
Rotterdam, The Netherlands            November 2002               12,000
Singapore                             June 2001                    9,900
Grenoble, France                      February 2002                6,500
Buenos Aires, Argentina               March 2005                   4,306
Slough, Great Britain                 March 2000                   4,000
Irvine, California                    September 2003               3,800
Toronto, Canada                       May 2003                     3,600
Brisbane, Australia                   August  2000                 3,000
Woodbridge, New Jersey                November 2003                2,800
Paris, France                         August 2001                  2,000
Mexico City, Mexico                   July 2001                    2,600
Atlanta, Georgia                      April  2001                  2,994
Sao Paulo, Brazil                     January 2002                 1,500
Chicago, Illinois                     July 2003                    1,400
Dallas, Texas                         February 2003                1,400
Shanghai, China                       Month-to-Month               1,000
Tokyo, Japan                          October 2001                   420
Lancaster, Pennsylvania               Month-to-Month                 150


Item 3.  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, its Chief
Executive Officer and its 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 sought 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, which alleged 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
Instandhaltung technischer Anlagen GmbH and Strategic Information Systems PTE
Ltd and (ii) materially understating the Company's reserves for doubtful
accounts in violation of GAAP. The plaintiffs sought compensatory damages and
unspecified equitable relief. 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. During the third quarter of 2000, the
parties, without any admission of

                                      -6-
<PAGE>

liability by the Company or any of the other defendants, reached an agreement to
settle the litigation, which was approved by the District Court on December 6,
2000. On that date, the court entered a final judgment dismissing the claims
against the Company and the individual defendants, and the settlement is now
effective. The principal financial terms of the agreement called for a payment
to the plaintiffs, for the benefit of the class, of a total of $5.0 million in a
combination of $3.75 million in cash and $1.25 million in shares of the
Company's common stock, which was determined to be 132,571 shares. The cash
portion of the settlement was paid in the fourth quarter of 2000, of which the
Company's insurance carrier funded $2.4 million. Datastream issued the common
stock portion of the settlement in the first quarter of 2001. The litigation is
now concluded.

     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 4.  Submission of Matters to a Vote of Security Holders.

     No matters were submitted to a vote of Datastream's stockholders during the
fiscal quarter ended December 31, 2000.

                                      -7-
<PAGE>

                                    PART II

Item 5.  Market for Registrant's Common Stock and Related Stockholder Matters.

     The Company's common stock, $.01 par value per share (the "Common Stock"),
is traded on the Nasdaq National Market under the symbol DSTM. The Company has
never declared or paid any cash dividends on its Common Stock. However, the
Company declared a two-for-one stock split, effected in the form of a one-for-
one share dividend, effective September 12, 1995. The Company declared a second
two-for-one stock split, effected in the form of a one-for-one share dividend,
effective January 30, 1998. The Company does not anticipate paying any cash
dividends in the foreseeable future. The chart below sets forth the high and low
closing prices for each quarter of the Company's last two fiscal years.

<TABLE>
<CAPTION>
                         Quarter Ended                        High              Low
                         -------------                        ----               ---
                         <S>                                  <C>              <C>
                         March 31, 1999                       12.250            8.313
                         June 30, 1999                        16.000            6.625
                         September 30, 1999                   16.688           11.000
                         December 31, 1999                    25.000            7.125

                         March 31, 2000                       47.500           17.250
                         June 30, 2000                        30.250            8.250
                         September 30, 2000                   13.688            8.250
                         December 31, 2000                    14.750            7.125
</TABLE>

     The closing price of a share of the Company's Common Stock on March 16,
2001, was $8.250. As of March 16, 2001, the Company had 204 shareholders of
record of its Common Stock. As of the date of the Company's last Annual Meeting
of Stockholders, June 9, 2000, the Company had approximately 9,500 beneficial
owners of its Common Stock.

Item 6.  Selected Financial Data.

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                    --------------------------------------------------------------------------
                                                        1996             1997            1998           1999           2000
                                                        ----             ----            ----           ----           ----
                                                                   (in thousands, except per share data)
<S>                                                 <C>               <C>             <C>           <C>            <C>
Statement of Operations Data:
Total revenues...............................       $ 32,466          $69,768         $98,555       $118,776       $ 97,368
Total cost of revenues (1)...................         11,507           22,131          34,756         46,545         42,023
                                                    --------          -------         -------       --------       --------

Gross profit.................................         20,959           47,637          63,799         72,231         55,345
Total operating expenses (2).................         47,758           31,076          53,251         61,845         76,268
                                                    --------          -------         -------       --------       --------

Operating income (loss)......................        (26,799)          16,561          10,548         10,386        (20,923)
Net other income (expense)...................          2,370              987             536          1,461         (4,021)
                                                    --------          -------         -------       --------       --------

Income (loss) before income taxes............        (24,429)          17,548          11,084         11,847        (24,944)
Income tax expense (benefit).................          3,581            6,110           6,384          4,412         (8,101)
                                                    --------          -------         -------       --------       --------
Net income (loss)............................       $(28,010)         $11,438         $ 4,700       $  7,435       $(16,843)
                                                    ========          =======         =======       ========       ========
Basic net income (loss) per share............       $  (1.65)         $   .62         $   .25       $    .39       $   (.84)
                                                    ========          =======         =======       ========       ========
Diluted net income (loss) per share..........       $  (1.65)         $   .59         $   .23       $    .37       $   (.84)
                                                    ========          =======         =======       ========       ========

Proforma net income (loss)(3)................       $  5,284          $11,723         $15,271       $ 13,332       $(10,794)
                                                    ========          =======         =======       ========       ========
Proforma basic net income (loss) per
 share(3)....................................       $    .31          $   .64         $   .81       $    .70       $   (.54)
                                                    ========          =======         =======       ========       ========

Proforma diluted net income (loss) per
 share(3)....................................       $    .31          $   .61         $   .75       $    .66       $   (.54)
                                                    ========          =======         =======       ========       ========

Basic weighted average common shares
</TABLE>

                                      -8-
<PAGE>

<TABLE>
<S>                                              <C>              <C>             <C>            <C>            <C>
 outstanding(4)..............................    16,977           18,397          18,935         19,118         20,009
Diluted weighted average common
shares outstanding(4)........................    16,977           19,246          20,279         20,098         20,009
</TABLE>

<TABLE>
<CAPTION>
                                                                       As of December 31,
                                                  ---------------------------------------------------------------------
                                                   1996            1997            1998           1999           2000
                                                   ----            ----            ----           ----           ----
                                                                         (in thousands)
<S>                                             <C>             <C>             <C>             <C>            <C>
Balance Sheet Data:
Working capital.............................    $13,633         $22,290         $25,792        $34,652        $32,271
Total assets................................     57,577          65,097          86,790         88,175         85,283
Long-term debt, less current portion........      2,893             603             297            224              8
Total stockholders' equity..................     33,125          47,108          60,606         67,284         60,598
</TABLE>

(1)  In 1996, includes $1,804 of capitalized software written off as a result of
     the acquisition of SQL. In 1998, includes $3,944 of capitalized and
     acquired software written off as a result of the acquisition of Datastream
     Systems GmbH & Co KG and pursuant to a plan of re-organization and
     restructuring.

(2)  In 1996, includes $33,600 of in-process research and development acquired
     and written off as part of the acquisition of SQL Group BV. In 1998,
     includes $6,667 of tax effected in-process research and development
     acquired and written off as a part of the acquisition of Datastream Systems
     GmbH & Co KG and Datastream - SIS PTE, Ltd., and other charges pursuant to
     a plan of re-organization and restructuring. In 1999, includes ($294) of
     restructuring reserves written off at completion of re-organization and
     restructuring plan. In 2000, includes $3,028 related to tax effected legal
     settlements.

(3)  The company defines pro forma net income (loss) as net income (loss)
     excluding the effect of amortization of goodwill and capitalized software,
     capitalized software costs and non-recurring charges such as restructuring
     charges, legal settlements and write-offs of in-process research and
     development costs.

(4)  See note 15 to the consolidated financial statements for discussion of
     calculation of basic and diluted common shares outstanding.


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

     The following discussion should be read in conjunction with the ''Selected
Financial Data'' and the Company's consolidated financial statements and notes
thereto included herein.

Overview

     Datastream is a leading provider of asset lifecycle management solutions.
These solutions enable businesses, government agencies and other organizations
to maximize the profitability of assets in the four distinct phases of their
lifecycle: buy, track, manage, and sell. As a result, assets perform for longer
periods of time, reducing requirements to procure new capital assets and
increasing the total profitability of existing assets. One important component
of this lifecycle is the procurement of spare parts used to maintain assets.
Datastream's iProcure solution automates this process by connecting suppliers
with buyers of industrial spare parts through the Internet. Combined, these
offerings create a complete, scaleable asset lifecycle management solution
representing a unique value proposition to the market.

     During 2000, the Company's products consist of 4 major categories based on
price and functionality. MP2 Professional provides asset management solutions
for the small to medium size facility; MP2 Enterprise offers enterprise-wide
asset management solutions for the large and mid-sized organization that are
required to manage capital assets and personnel in multiple locations; MP5i
offers internet-based asset lifecycle management solutions for the larger,
multi-site global client needing a full featured enterprise solution,
additionally MP5i is offered as a hosted solution through MPXconnect; and
iProcure is an internet procurement application that enables customers to
automate their industrial procurement. Datastream supports its products with
professional and support services. See

                                      -9-
<PAGE>

note 1(c) of the notes to consolidated financial statements for information
concerning the Company's revenue recognition policies.

Recent Developments

     On February 26, 2001, the Company announced that its Board of Directors has
authorized a plan to repurchase up to 500,000 shares of the Company's common
stock over a period of time ending no later than August 26, 2001.  Subject to
availability, the repurchases may be made from time to time in the open market
or otherwise at prices that the company deems appropriate.  The repurchased
shares will have the status of treasury shares and may be used, when needed, for
the general corporate purposes, including the grant of stock options.

     The Company issued the common stock portion of the settlement of its class
action litigation in the first quarter of 2001.  The issuance was for a total of
132,571 shares of common stock.  For full discussion of the financial terms of
the settlement, please see "Item 3.  Legal Proceedings" of this Annual Report.

Results of Operations

     The following tables set forth statement of operations data for the three
years ended December 31, 1998, 1999 and 2000, the percentage change in such data
from period to period for each of the corresponding periods and the percentage
that such data bears to total revenues for each period.

<TABLE>
<CAPTION>
                                                   Year Ended December 31,          Percent Change
                                                   -----------------------         ----------------
                                                 1998       1999          2000       98-99     99-00
                                                 ----       ----          ----       -----     -----
                                                    (in thousands, and per share data)
<S>                                             <C>        <C>          <C>         <C>        <C>
Statement of Operations Data:
Revenues:
     Product...............................     $38,226    $ 39,268     $ 29,371       2.7%      (25.2)%
     Professional services.................      42,622      56,334       44,710      32.2       (20.6)
     Support...............................      17,707      23,174       23,287      30.9         0.5
                                                -------    --------     --------     -----     -------
        Total revenues.....................      98,555     118,776       97,368      20.5       (18.0)

Cost of revenues:
     Cost of product revenues..............       2,109       2,320        1,982      10.0       (14.6)
     Cost of professional
        services revenues..................      22,402      34,718       33,173      55.0        (4.4)
     Cost of support revenues..............       4,731       5,406        6,868      14.3        27.1
        Amortization and
        write off of capitalized software..       5,514       4,101            -       N/M         N/M
                                                -------    --------     --------     -----     -------
        Total costs of revenues............      34,756      46,545       42,023      33.9        (9.7)


Gross profit...............................      63,799      72,231       55,345      13.2       (23.4)

Operating expenses:
     Sales and marketing...................      25,398      33,695       44,405      32.7        31.8
     Product development...................       8,174      14,555       15,887      78.1         9.2
     General and administrative............       7,645      10,833       12,954      41.7        19.6
     Goodwill amortization.................       2,044       3,056        3,022      49.5        (1.1)
     In-process research and development,
      restructuring and other..............       9,990        (294)           -       N/M         N/M
                                                -------    --------     --------     -----     -------

     Total operating expenses..............      53,251      61,845       76,268      16.1        23.3
                                                -------    --------     --------     -----     -------

Operating income (loss)....................      10,548      10,386      (20,923)     (1.5)     (301.5)
Net other income (expense).................         536       1,461       (4,021)    172.5      (375.2)
                                                -------    --------     --------     -----     -------

Income (loss) before income taxes..........      11,084      11,847      (24,944)      6.9      (310.6)
</TABLE>

                                      -10-
<PAGE>

<TABLE>
<S>                                               <C>         <C>        <C>         <C>       <C>
Income tax expense (benefit)...............       6,384       4,412       (8,101)    (30.9)     (283.6)
                                                -------    --------     --------     -----     -------

Net income (loss)..........................     $ 4,700    $  7,435     $(16,843)     58.2%     (326.5%)
                                                =======    ========     ========     =====     =======

Basic net income (loss) per share..........     $   .25    $    .39     $   (.84)     56.0%     (315.4%)
                                                =======    ========     ========     =====     =======

Diluted net income (loss) per share........        $.23        $.37     $   (.84)     60.9%    (327.0%)
                                                =======    ========     ========     =====      ======
</TABLE>

N/M - Not meaningful

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                          ------------------------------------------
                                                                            1998              1999              2000
                                                                           -----             -----             -----
<S>                                                                        <C>               <C>               <C>
Statement of Operations Data:
Revenues:
 Product......................................................              38.8%             33.1%             30.2%
 Professional services........................................              43.2              47.4              45.9
 Support......................................................              18.0              19.5              23.9
                                                                           -----             -----             -----

   Total revenues.............................................             100.0             100.0             100.0

Cost of revenues:
 Cost of product revenues.....................................               2.1               1.9               2.0
 Cost of professional services revenues.......................              22.7              29.2              34.1
 Cost of support revenues.....................................               4.8               4.6               7.1
 Amortization and write off of capitalized software...........               5.7               3.5                 -
                                                                           -----             -----             -----
   Total cost of revenues.....................................              35.3              39.2              43.2

Gross profit..................................................              64.7              60.8              56.8

Operating expenses:
 Sales and marketing..........................................              25.8              28.4              45.6
 Product development..........................................               8.3              12.2              16.3
 General and administrative...................................               7.7               9.1              13.3
 Goodwill amortization........................................               2.1               2.6               3.1
 In-process research and development,
  restructuring and other.....................................              10.1              (0.2)                -
                                                                           -----             -----             -----
   Total operating expenses...................................              54.0              52.1              78.3

Operating income (loss).......................................              10.7               8.7             (21.5)
Net other income (expense)....................................               0.5               1.2              (4.1)
                                                                           -----             -----             -----

Income (loss) before income taxes.............................              11.2               9.9             (25.6)
Income tax expense (benefit)..................................               6.5               3.7              (8.3)
                                                                           -----             -----             -----

Net income (loss).............................................               4.8%              6.2%            (17.3%)
                                                                           =====             =====             =====
</TABLE>

2000 Compared to 1999 and 1999 Compared to 1998

     Total Revenues.  Total revenues for 2000 decreased 18.0% to approximately
$97.4 million from approximately $118.8 million in 1999, due principally to
unfavorable market conditions, longer sales cycles, product rotations, changes
within the sales organization causing a disruption in license sales, and
decreased service revenue resulting from decreased license revenues.

                                      -11-
<PAGE>

     Total revenues for 1999 increased 20.5% to approximately $118.8 million
from approximately $98.6 million in 1998, due principally to (i) the expansion
of the Company's professional service and technical support service
organizations, (ii) the continued acceptance of the Company's products in the
asset maintenance market, (iii) full integration of the Company's acquisitions
in 1998 of the stock of Datastream Systems GmbH & Co KG, Datastream-SIS PTE Ltd,
Computec Sistemas and its affiliate Datastream Systems de Mexico S.A. de C.V.
and the acquisition of the assets of Datastream Pacific Pty Ltd. (together the
"1998 Acquisitions), and (iv) the introduction of new products including MP5
v5.5 in the first quarter of 1999.

     International revenues were approximately $35.4 million, or 36.3% of total
revenues in 2000, compared to $42.8 million, or 36.1% of total revenues in 1999,
compared to $37.4 million, or 37.9% of total revenues in 1998. See note 14 to
the consolidated financial statements.

     Product revenues decreased 25.2% to approximately $29.4 million in 2000
from approximately $39.3 million in 1999, and increased 2.7% to approximately
$39.3 million in 1999 from approximately $38.2 million in 1998. The 2000
decrease is a result of unfavorable market conditions, longer sales cycles,
product rotations and changes within the sales organization causing a disruption
in license sales. The 1999 increases are due to an increase in the average
selling price of the systems sold and reflect the impact of the 1998
Acquisitions. As a percentage of revenues, revenues from software products
decreased to 30.2% in 2000 from 33.1% in 1999 and decreased to 33.1% in 1999
from 38.8% in 1998.

     Professional service revenues decreased 20.6% to approximately $44.7
million in 2000 from approximately $56.3 million in 1999 and increased 32.2% to
approximately $56.3 million in 1999 from approximately $42.6 million in 1998.
The 2000 decrease is due to the decrease in license sales resulting in decreased
installation, training and integration services. The 1999 increases generally
reflect the impact of the 1998 Acquisitions, and increased installation,
training and integration services provided to support increased product sales.
As a percentage of revenues, revenues from professional services decreased to
45.9% in 2000 from 47.4% in 1999 and increased to 47.4% in 1999 from 43.2% in
1998.

     Technical support service revenues increased 0.5% to approximately $23.3
million in 2000 from approximately $23.2 million in 1999, and increased 30.9% to
approximately $23.2 million in 1999 from approximately $17.7 million in 1998.
These changes are the result of having a larger installed customer base and the
impact of the 1998 Acquisitions.  As a percentage of total revenues, revenues
from technical support services increased to 23.9% in 2000 from 19.5% in 1999
and 18.0% in 1997.

     Cost of Revenues. Cost of product revenues as a percentage of total
revenues increased to 2.0% in 2000 from 1.9% in 1999 and decreased to 1.9% in
1999 from 2.1% in 1998. The increase as a percentage of revenues in 2000
reflects the effect of fixed shipping costs and decreased product revenues. The
decrease as a percentage of revenues in 1999 from 1998 principally reflects
decreased costs associated with printing and replication of the Company's
software products, and volume discounts realized on shipping costs.

     Cost of professional services increased as a percentage of total revenues
to 34.1% in 2000 from 29.2% in 1999 and 22.7% in 1998. The increase as a
percentage of revenues in 2000 from 1999 and 1998 was due primarily to decreased
revenues in 2000, lower utilization rates, and increased costs for iProcure.

     Cost of technical support services as a percentage of total revenues was
7.1%, 4.6%, and 4.8% in 2000, 1999 and 1998, respectively. The increase from
1999 to 2000 as a percentage of revenues reflects decreased revenues and costs
incurred for the establishment of a European technical center during 2000.  The
decrease from 1998 to 1999 as a percentage of revenues reflects savings realized
upon increased consolidation of worldwide support activities during 1998 and
early 1999.

     Amortization and write off of capitalized software includes approximately
$4.1 million of amortization of capitalized software for 1999. Capitalized
software costs were fully amortized at the end of 1999, therefore there was no
amortization of capitalized software in 2000.

     Sales and Marketing Expenses.  Sales and marketing expenses for 2000
increased 31.8% to approximately $44.4 million from approximately $33.7 million
in 1999, and increased 32.7% to approximately $33.7 million from

                                      -12-
<PAGE>

approximately $25.4 million in 1998. As a percentage of total revenues, these
expenses were 45.6% in 2000, 28.4% in 1999 and 25.8% in 1998. The increase as a
percentage of revenues in 2000 from 1999 and 1998 was due primarily to increased
number of sales people and increased marketing expenditures for new products,
especially iProcure.

     Product Development Expenses. Total expenditures on product development,
including capitalized expenses, increased to approximately $15.9 million in 2000
from approximately $15.5 million in 1999 and from approximately $11.8 million in
1998. The increases were primarily due to the hiring of additional employees and
third party consultants to work on the Company's Internet-based products, MP2i,
MP5i, and iProcure. The Company capitalized software expense of approximately
$1.0 million and $3.7 million, respectively, in 1999 and 1998, which represented
6.2% and 30.9% of total expenditures for product development in the respective
periods. There were no capitalized software expenses in 2000. Net product
development expenditures were approximately $15.9 million, $14.5 million and
$8.2 million in 2000, 1999 and 1998, respectively. Net product development
expenses as a percentage of revenues were 16.3%, 12.2% and 8.3% in 2000, 1999
and 1998, respectively. Amortization of capitalized product development costs is
charged to cost of product sales and totaled approximately $4.1 million and $1.6
million in 1999 and 1998, respectively. Capitalized software costs were fully
amortized at the end of 1999, therefore there was no amortization of capitalized
software in 2000.

     General and Administrative Expenses.  General and administrative expenses
include the cost of the Company's finance, human resources and information
services. General and administrative expenses increased 19.6% to approximately
$13.0 million in 2000 from approximately $10.8 million in 1999, and 41.7% to
approximately $10.8 million in 1999 from approximately $7.6 million in 1998.
The 2000 increase was due primarily to costs associated with the iProcure
product and increased international infrastructure costs.  The 1999 increase was
due primarily to the 1998 Acquisitions. As a percentage of total revenues,
general and administrative expenses were 13.3% in 2000, 9.1% in 1999 and 7.7% in
1998.

     Goodwill Amortization. Goodwill amortization decreased 1.1% to
approximately $3.0 million in 2000 from approximately $3.1 million in 1999, and
increased 49.5% to approximately $3.1 million in 1999 from approximately $2.0
million in 1998. The 2000 decrease was due to adjustments to goodwill balances
in 1999. The 1999 increase was due to the 1998 Acquisitions resulting in higher
goodwill balances. As a percentage of total revenues, goodwill amortization was
3.1% in 2000, 2.6% in 1999 and 2.1% in 1998.

     In-Process Research and Development Costs, Restructuring and Other. In
1998, the Company expensed $3.5 million of in-process research and development
acquired as part of the 1998 Acquisitions. In July 1998, the Company withdrew
its proposed offering of Common Stock and wrote off the related capitalized
costs of $231,000, which is included with the other charges. The Company
expensed $2.2 million in 1998 related to the discontinuance of the Company's
indirect sales model. The Company also adopted a restructuring plan in December
1998 pursuant to which it aggressively developed Internet-based software
products, consolidated product development, customer support and administrative
services and eliminated redundancies in its acquired international subsidiaries.
As a result, the Company expensed approximately $4.0 million related to the
restructuring in the fourth quarter of 1998. In 1999, the Company completed its
restructuring plan utilizing approximately $3.7 million of the $4.0 million of
reserves established at December 31, 1998. Approximately $300,000 of unutilized
restructuring related reserves were written off at December 31, 1999. There were
no related costs in 2000.

     Other Income/Expense. Other income/expense decreased to approximately
($4.0) million of expense in 2000 from approximately $1.5 million of income in
1999 and increased to approximately $1.5 million of income in 1999 from
approximately $0.5 million of income in 1998. The decrease from 1999 to 2000 was
due to costs incurred to settle the Company's class action lawsuit and to settle
the escrow claims dispute with the former shareholders of SQL Systems, see
footnote 16 to the consolidated financial statements. The increase from 1998 to
1999 is primarily due to a gain recognized on the sale of equity securities the
Company acquired through the disposition of an investment in an unrelated
software company.

     Income Taxes. The Company's effective income tax rate decreased to 32.5% in
2000 from 37.2% in 1999 and 57.6% in 1998. The decrease in the effective tax
rate from 1999 to 2000 is a result of impact of the Company's permanent book/tax
differences when considering the operating losses in 2000. The decrease in the
effective tax rate from 1998 to 1999 is a result of the absence of non-
deductible in process research and development, higher

                                      -13-
<PAGE>

amortization of non-deductible goodwill and the benefit of a reduction in the
liability to properly reflect the Company's exposure for tax related
contingencies.

     Net Income(Loss).  The Company's net income decreased in 2000 to a loss of
approximately ($16.8) million or ($.84) basic loss per share (($.84) diluted
loss per share) from a profit of approximately $7.4 million in 1999 or $.39
basic earnings per share ($.37 diluted earnings per share), and increased 58.2%
in 1999 to approximately $7.4 million or $.39 basic earnings per share ($.37
diluted earnings per share) from a profit of approximately $4.7 million in 1998
or $.25 basic earnings per share ($.23 diluted earnings per share).  The 2000
decrease in net income is attributed to the decrease in license sales, increased
costs related to new products, including iProcure, and the impact of the
expenditures related to legal settlements.  The 1999 increase in net income is
due to the impact of the write-offs incurred upon the 1998 Acquisitions, offset
by increased cost of sales, amortization expense and iProcure division expenses.


Quarterly Results

     General. The Company believes that its future results of operations may be
subject to quarterly variations. Longer sales cycles and the Company's
international acquisitions have exposed the Company to seasonal revenue
fluctuations in Europe, Asia and Latin America, principally consisting of slower
business conditions in the first and third quarters of the year.

     The following table presents certain unaudited quarterly financial
information for each of the eight quarters through the quarter ended December
31, 2000. In the opinion of management, this information has been prepared on
the same basis as the audited financial statements appearing elsewhere in this
Annual Report and all necessary adjustments (consisting only of normal recurring
adjustments) have been included in the amounts stated below to present fairly
the unaudited quarterly results when read in conjunction with the audited
financial statements of the Company and notes thereto. The Company's quarterly
results have in the past been subject to fluctuations, and thus the operating
results for any quarter are not necessarily indicative of results for any future
period. All amounts shown (except per share amounts) are expressed in thousands.

<TABLE>
<CAPTION>
                                                                             Quarter Ended
                                           ---------------------------------------------------------------------------------
                                                           1999                                       2000
                                           -----------------------------------     -----------------------------------------
                                             March     June    Sept.      Dec.        March       June      Sept.       Dec.
                                               31,      30,      30,       31,          31,        30,        30,        31,

<S>                                        <C>      <C>      <C>       <C>         <C>        <C>        <C>        <C>
Revenues:
   Product............................     $10,422  $10,596  $ 8,420   $ 9,830     $  7,553   $  5,574   $  7,746   $  8,498
   Professional services..............      13,175   14,180   14,958    14,021       11,667     11,574     11,054     10,415
   Support............................       5,202    5,768    5,857     6,347        6,031      5,863      5,617      5,776
                                           -------  -------  -------   -------     --------   --------   --------   --------
      Total revenues..................      28,799   30,544   29,235    30,198       25,251     23,011     24,417     24,689
Cost of revenues:
   Cost of product revenues...........         535      531      495       759          462        568        549        403
   Cost of professional services
      revenues........................       6,690    8,182    9,588    10,258        8,955      8,990      7,805      7,423
   Cost of support revenues...........       1,318    1,281    1,394     1,413        1,614      1,765      1,673      1,816
   Amortization and write off of
           capitalized software.......         583      765    1,440     1,313            -          -          -          -
                                           -------  -------  -------   -------     --------   --------   --------   --------
   Total cost of revenues.............       9,126   10,759   12,917    13,743       11,031     11,323     10,027      9,642
                                           -------  -------  -------   -------     --------   --------   --------   --------
Gross profit..........................      19,673   19,785   16,318    16,455       14,220     11,688     14,390     15,047
Operating expenses:
   Sales and marketing................       7,656    7,973    8,676     9,390       11,476     12,408     10,375     10,146
   Product development................       2,897    3,945    3,913     3,800        4,227      4,745      3,734      3,181
   General and administrative.........       2,643    2,463    3,061     2,666        3,007      3,428      3,385      3,134
   Goodwill amortization..............         764      764      764       764          755        756        755        756
   In-process research and
      development, restructuring
      and other.......................          --       --       --      (294)          --         --         --         --
                                           -------  -------  -------   -------     --------   --------   --------   --------
Total operating expenses..............      13,960   15,145   16,414    16,326       19,465     21,337     18,249     17,217
                                           -------  -------  -------   -------     --------   --------   --------   --------
Operating income (loss)...............       5,713    4,640      (96)      129       (5,245)    (9,649)    (3,859)    (2,170)
</TABLE>

                                      -14-
<PAGE>

<TABLE>
<S>                                        <C>      <C>      <C>       <C>         <C>        <C>        <C>        <C>
Net other income (expense)............         122      138      102     1,099          130        302     (4,560)       107
                                           -------  -------  -------   -------     --------   --------   --------   --------
Income (loss) before income
      taxes...........................       5,835    4,778        6     1,228       (5,115)    (9,347)    (8,419)    (2,063)
Income tax expense (benefit)..........       2,188    1,768        2       454       (2,048)    (3,087)    (2,651)      (315)
                                           -------  -------  -------   -------     --------   --------   --------   --------

Net income (loss).....................     $ 3,647  $ 3,010  $     4   $   774      ($3,067)   ($6,260)   ($5,768)   ($1,748)
                                           =======  =======  =======   =======     ========   ========   ========   ========

Basic net income (loss)
      per share.......................     $   .19  $   .16  $   .00   $   .04     $   (.16)  $   (.31)  $   (.29)  $   (.09)
                                           =======  =======  =======   =======     ========   ========   ========   ========

Diluted net income (loss)
      per share.......................     $   .18  $   .15  $   .00   $   .04     $   (.16)  $   (.31)  $   (.29)  $   (.09)
                                           =======  =======  =======   =======     ========   ========   ========   ========
</TABLE>

   The table below sets forth the percentage relationship of certain items to
total revenues with regard to the Company's results of operations for each of
the eight quarters through the quarter ended December 31, 2000.

<TABLE>
<CAPTION>
                                                                    Quarter Ended
                                         ------------------------------------------------------------------
                                                      1999                               2000
                                         -----------------------------     --------------------------------
                                         March    June   Sept.    Dec.     March     June    Sept.     Dec.
                                           31,     30,     30,     31,       31,      30,      30,      31,
<S>                                      <C>     <C>     <C>     <C>       <C>      <C>      <C>      <C>
Revenues:
   Product..........................      36.2%   34.7%   28.8%   32.6%     29.9%    24.2%    31.7%    34.4%
   Professional services............      45.7    46.4    51.2    46.4      46.2     50.3     45.3     42.2
   Support..........................      18.1    18.9    20.0    21.0      23.9     25.5     23.0     23.4
                                         -----   -----   -----   -----     -----    -----    -----    -----
      Total revenues................     100.0   100.0   100.0   100.0     100.0    100.0    100.0    100.0
Cost of revenues:
   Cost of product revenues.........       1.9     1.7     1.7     2.5       1.8      2.5      2.2      1.6
   Cost of professional
       services revenues............      23.2    26.8    32.8    34.0      35.5     39.1     32.0     30.1
   Cost of support revenues.........       4.6     4.2     4.8     4.7       6.4      7.7      6.8      7.4
   Amortization and writeoff of
                                           2.0     2.5     4.9     4.3        --       --       --       --
      capitalized software..........     -----   -----   -----   -----     -----    -----    -----    -----
   Total cost of revenues...........      31.7    35.2    44.2    45.5      43.7     49.3     41.0     39.1
                                         -----   -----   -----   -----     -----    -----    -----    -----
Gross profit........................      68.3    64.8    55.8    54.5      56.3     50.7     59.0     60.9
Operating expenses:
   Sales and marketing..............      26.6    26.1    29.7    31.1      45.4     53.9     42.5     41.1
   Product development..............      10.1    12.9    13.3    12.6      16.7     20.6     15.3     12.9
   General and administrative.......       9.1     8.1    10.5     8.8      11.9     14.9     13.9     12.7
   Goodwill amortization............       2.6     2.5     2.6     2.5       3.0      3.3      3.1      3.1
   In-process research and
      development, restructuring
        and other...................        --      --      --    (0.9)       --       --       --       --
                                         -----   -----   -----   -----     -----    -----    -----    -----
Total operating expenses............      48.4    49.6    56.1    54.1      77.0     92.7     74.8     69.8
                                         -----   -----   -----   -----     -----    -----    -----    -----
Operating income (loss).............      19.9    15.2    (0.3)    0.4     (20.8)   (42.0)   (15.8)    (8.9)
Net other income (expense)..........       0.4     0.5     0.3     3.7       0.5      1.3    (18.7)     0.4
                                         -----   -----   -----   -----     -----    -----    -----    -----
Income (loss) before income
      taxes.........................      20.3    15.7     0.0     4.1     (20.2)   (40.7)   (34.5)    (8.5)
Income tax expense (benefit)........       7.6     5.8     0.0     1.5      (8.1)   (13.4)   (10.9)    (1.3)
                                         -----   -----   -----   -----     -----    -----    -----    -----

Net income (loss)...................      12.7%    9.9%    0.0%    2.6%    (12.1%)  (27.3%)  (23.6%)   (7.2%)
                                         =====   =====   =====   =====     =====    =====    =====    =====
</TABLE>

Liquidity and Capital Resources

   In 2000, the Company funded its operating activities primarily from cash
generated from operations in 1999.  The Company ended 2000 with $15.5 million in
cash and cash equivalents, defined as securities maturing in less than 90 days.
The Company intends to reinvest the proceeds of maturing U.S. Government
securities in similar U.S. Government securities.

                                      -15-
<PAGE>

     In July 1997, the Company made a $2.0 million investment in Distinction
Software, Inc. ("Distinction"). This investment represents less than 20% of the
outstanding capital stock of Distinction. In November 1998, Distinction and
Peoplesoft entered into an agreement whereby, pursuant to the satisfactory
delivery of interim software development and revenue targets, Peoplesoft agreed
to purchase Distinction. In 1999, the purchase of Distinction by Peoplesoft was
completed. The Company received 161,767 shares of Peoplesoft common stock in
exchange for its investment in Distinction. During the fourth quarter of 1999,
the Company sold 150,000 shares of Peoplesoft common stock for approximately
$3.1 million. During 2000, the Company sold the remaining 11,767 shares of
Peoplesoft common stock for approximately $250,000.

     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. This investment represents less than 20% of
the outstanding capital stock of Dovebid.

     The Company maintains a multicurrency line of credit that provides for
borrowings of 70% of accounts receivable less than 60 days aged up to
$5,000,000. There were 1,200,000 German Marks ($618,000) outstanding under the
line at December 31, 1999. There was no outstanding balance under the line at
December 31, 2000.

     In addition the Company maintains lines of credit or overdraft facilities
in certain locations including a Dutch guilder line for Dfl 1 million
(approximately $420,000) which bears interest at a pre-agreed percentage spread
from AIBOR (Amsterdam Interbank Rate), a Singapore dollar line for Sgd 1,712,500
(approximately $990,000) which bears interest at 1% over the Singapore dollar
prime lending rate and an Argentina peso line for 500,000 (approximately
$500,000) which bears interest at 16%.

     The Company's principal commitments as of December 31, 2000, consisted
primarily of long term debt associated with its building in Dessau, Germany, and
there were no material commitments for capital expenditures. The Company
believes that its current cash balances, availability under its lines of credit,
cash flow from operations and investments available for sale will be sufficient
to meet its working capital and capital expenditure needs for at least the next
12 months.

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). 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. In June 2000 the FASB issued Statement of Financial Accounting Standards
No. 138. "Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment to SFAS 133" (Statement No. 138). Statement No. 133 and
No. 138 require that all derivative instruments be recorded on the balance sheet
at their respective fair values. The Company is required to adopt Statement No.
133 and No. 138 in the first quarter of 2001. There is no material impact on the
Company of adopting Statement No. 133 and No. 138.

     In December 1999, the staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements." SAB 101, as amended, summarizes some of
the staff's interpretations of the application of generally accepted accounting
practices to revenue recognition. The Company adopted SAB 101 in fiscal year
2000 and there was no material effect on the financial position, results of
operations or cash flows.

New European Currency

     On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing currencies and
the Euro, a new European currency, and adopted the Euro as their common legal
currency (the "Euro Conversion"). Either the Euro or a participating country's
present currency will be accepted as legal tender from January 1, 1999 to
January 1, 2002, from which date forward only the Euro will be accepted.

                                      -16-
<PAGE>

     The Company has a significant number of customers located in European Union
countries participating in the Euro Conversion. Such customers will likely have
to upgrade or modify their computer systems and software to comply with Euro
requirements. The amount of money the Company anticipates spending in connection
with product development related to the Euro Conversion is not expected to have
a material adverse effect on the Company's results of operations or financial
condition. The Euro Conversion may also have competitive implications for the
Company's pricing and marketing strategies, which could be material in nature
and negative in impact; however, any such impact is not known at this time.

     The Company has also begun to analyze which of its internal systems (such
as payroll, accounting and financial reporting) will need to be modified to deal
with the Euro Conversion. The Company does not currently expect the cost of such
modifications to have a material effect on the Company's results of operations
or financial condition. There is no assurance, however, that all problems
related to the Euro Conversion will be foreseen and corrected, or that no
material disruptions of the Company's business will occur.

Risk Factors

     From time to time we make oral and written statements that constitute
"forward looking statements" (rather than historical facts) as defined in the
Private Securities Litigation Reform Act of 1995 or by the SEC in its rules,
regulations and releases, including Section 27A of the Securities Act and
Section 21E of the Exchange Act. We desire to take advantage of the "safe
harbor" provisions in the Private Securities Litigation Reform Act of 1995 for
forward looking statements made from time to time including, but not limited to,
the forward looking statements made in this Annual Report, as well as those made
in other filings with the SEC.

     The following is a summary of certain risks and uncertainties identified by
us in the conduct of our business and is not meant to be exhaustive. These Risk
Factors should also be read in conjunction with other cautionary statements that
we make in this Annual Report as well as other risks and uncertainties
identified from time to time in our other SEC reports, registrations statements
and public announcements. See also " 'Safe Harbor' Statement under the Private
Securities Litigation Reform Act of 1995" at the beginning of this Annual
Report.

The market for asset maintenance continues to be highly competitive.

     The current market for asset lifecycle management is highly competitive. We
expect competition to intensify as new companies enter the market and existing
ones, including Enterprise Resource Planning, or ERP, companies, expand their
product lines. Certain competitors, including ERP companies, have greater
financial, marketing, technical, service and support resources than we do. In
addition, many prospective customers have already made significant commitments
to ERP competitors, which could materially and adversely affect our ability to
succeed in our market. Further, the U.S. and world economies have recently shown
indications of slowing, which could result in a decrease in spending by
corporations on information technology and software. This could lead to even
greater competition in our markets. We cannot assure you that we will be able to
successfully compete against current and future competitors, especially if
customers or prospective customers decrease their level of spending on asset
lifecycle management products in a slowing economy. If we fail to compete
successfully, our results of operations would be materially and adversely
affected.

If we do not keep pace with rapid technological changes and demands in our
markets, we will not remain competitive and our results of operations will
suffer.

     Our business is characterized by rapidly changing technology, evolving
industry standards, changes in customer requirements and frequent new product
introductions. Our future success depends greatly on our ability to enhance
certain of our existing products. Our success also depends on our ability to
develop and introduce, on a timely and cost-effective basis, new products and
product features to meet our customers' changing needs, particularly involving
the Internet. Industry requirements for product development in the asset
lifecycle management market are still evolving. Our ability to successfully
develop products that meet these evolving requirements will require high levels
of innovation, as well as an accurate anticipation of technological and market
trends. We cannot assure you that we will be able to successfully identify,
develop, and market new products or product enhancements that comply with
evolving industry requirements or achieve market acceptance. If we do not
successfully identify,

                                      -17-
<PAGE>

develop, and market new products or product enhancements, it could have a
material and adverse effect on our results of operations.

Increasing sales cycles and other factors may result in volatility of our
quarterly results.

     Traditionally, a significant portion of our revenues in any quarter had
been the result of a large number of relatively small orders received during the
period. However, we expect the average size of our license sales to increase in
the coming years. An increase in average deal size typically increases the
length of an average sales cycle. Potential customers spend significant time and
resources determining which software to purchase, which requires us to spend
substantial time, effort and money educating and convincing prospective
customers to purchase our software over our competitors. A customer's decision
to license our software generally involves evaluation by a number of the
customer's personnel in various functional and geographic areas. Due to these
and other factors, our sales cycle may be extended. Since the sales cycle can be
unpredictable, we cannot always forecast the timing or amount of specific sales,
and sales vary from quarter to quarter. Further, the Company typically realizes
a significant portion of its revenue from sales of software licenses in the last
month of a quarter, frequently even in the last days of a quarter. Failure to
close a small number of large software license contracts may have a significant
impact on revenues for any quarter and could, therefore, result in significant
fluctuations in quarterly revenues and operating results.

     Other factors which could contribute to a fluctuation in our quarterly
results include but are not limited to the following:

     .    changes in demand for our products and services and market acceptance
          of new products;
     .    competitive conditions in the industry;
     .    changes in pricing policies of the Company or its competitors;
     .    changes in customer budgets;
     .    the introduction of new products or product enhancements by our
          Company and our competitors;
     .    product life cycles and rotations;
     .    technological changes in computer systems and environments;
     .    variability in new licenses obtained;
     .    loss of a customer;
     .    changes in the proportion of revenues attributable to licensing fees
          versus services;
     .    changes in the level of operating expenses;
     .    delay or deferral of customer implementations of their software;
     .    foreign currency exchange rates; and
     .    other economic conditions generally or in our particular industry.

   Due to these factors, our operating results could fail to meet the
expectations of securities analysts or investors.  If that happens, the price of
our common stock could decline materially.

Our application service provider, or ASP, product strategy may reduce revenues
and profits.

     Our traditional business model charges an up-front licensing fee for access
to our software applications. In contrast, our newly introduced ASP business
model charges a significantly lower monthly fee for rights to the same
application. Certain customers may choose a monthly revenue model as opposed to
an up-front licensing fee. As a result, this new model could significantly lower
revenue and profits in the near term. In addition, we cannot assure you that ASP
customers will remain customers over a sustained period of time.

Our iProcure product strategy may not generate revenue and profits.

     Our iProcure product enables our customers to direct maintenance, repair
and operations, or MRO, procurement to a select group of MRO suppliers via the
Internet. The market for products comparable to iProcure is highly competitive
and there can be no assurances that we will successfully generate license and
service revenue from this initiative. Also, we charge MRO suppliers a
transaction fee for each transaction executed through iProcure. There can be no
assurances that this transaction fee model will be profitable or sustainable.

The success of our iProcure initiative will also depend on:

                                      -18-
<PAGE>

     .    our ability to introduce and install the iProcure product effectively
          throughout our customer base;
     .    our ability to attract and retain high quality national and
          international MRO suppliers that cover comprehensively our customers'
          MRO procurement needs;
     .    our ability to successfully identify and resolve bottleneck issues in
          the MRO supply chain; and
     .    our ability to compete effectively with both traditional and Internet-
          based MRO procurement alternatives now available or that may become
          available to our customers in the future.

If we are not successful in any of these areas, it could have a material adverse
affect on our results of operations.

Significant delays in product development would harm our reputation and result
in a decrease in our revenues.

     If we experience significant product development delays, our position in
the market would be harmed, and our revenues could be substantially reduced,
which would adversely affect our operating results. Historically, we have issued
significant new releases of our software products periodically, with minor
interim releases issued more frequently. As a result of the complexities
inherent in our software, major new product enhancements and new products often
require long development and test periods before they are released. On occasion,
we have experienced delays in the scheduled release date of new or enhanced
products, and we cannot assure you that these delays will not occur in the
future. Delays may occur for many reasons, including an inability to hire a
sufficient number of developers, discovery of bugs and errors, or a failure of
our current or future products to conform to industry requirements. Any such
delay, or the failure of new products or enhancements in achieving market
acceptance, could materially impact our business and reputation and result in a
decrease in our revenues.

Our success is substantially dependent on third party relationships.

     A principal element of our strategy is to establish and maintain alliances
with other companies, such as system integrators, consultants, and spare parts
suppliers. These relationships enhance our status in the marketplace, which
generates new business opportunities and, in certain cases, additional revenue
and profitability. Our inability to establish and maintain alliances with other
companies could impact our success in the marketplace, which could materially
and adversely impact our results of operations.

     The success of iProcure is substantially dependent upon our strategic
relationships with certain spare parts suppliers who pay a transaction fee for
orders placed through iProcure. We have several strategic supplier agreements,
none of which represent significant revenues. We view these strategic
relationships as a key factor in our overall business strategy. However, our
supplier affiliates may not view their relationships with us as significant to
their own business, and they may reassess their commitment to, or decide to
compete directly with us for our customers' procurement in the future.
Therefore, we cannot assure you that any of these relationships will be
successful. We also cannot assure you that we will be able to establish new
agreements or that these agreements can be renewed on commercially acceptable
terms or that any relationships, if established, will be commercially
successful.

     The ASP business model depends heavily on hosting services provided by a
third party. To be successful, the hosted application must be accessible to
customers continually, without any disruptions. If our third party service
provider fails to provide consistent access of the application to our customers,
it would have a material adverse effect on our business. We cannot assure you
that there will not be disruptions in Internet services beyond our control or
that of our third party hosting provider. Further, we cannot assure you that the
infrastructure of the Internet, or the complementary services necessary to
provide these continual and expanding services will be adequate to meet our
needs in providing our ASP service on a competitive basis.

Our future success is substantially dependent on third party technologies.

     We rely heavily on third parties that supply us with certain technology
that is crucial to our success. In particular, our recent line of Internet-based
applications is highly dependent on Oracle technology, including Oracle database
technology and development tools. If such technology does not achieve continued
market acceptance or if

                                      -19-
<PAGE>

Oracle were to develop application software that successfully competed with our
application software, it could have a material adverse effect on the acceptance
of the Company's products, and thus our results of operations.

     We also expect to increasingly depend on third party technology that
facilitates the integration of our products with other systems of our clients.
This integration is crucial to our asset lifecycle management solution. We
cannot assure you that third parties will continue to develop new versions of
products that successfully facilitate this integration. We also cannot assure
you that that third party technology licenses will continue to be available to
us on commercially reasonable terms, if at all. As we continue to introduce new
products that incorporate new technologies, we may license additional technology
from additional third parties. Any failure to obtain any of these technology
upgrades or licenses could result in delays or reductions in the introduction of
new products, features or functions, which could materially and adversely impact
our results of operations.

Our past growth rates resulted in significant strains on management and
operational resources.

     Our business has grown significantly in the last five years. This growth
rate has strained, and may continue to strain, our management and resources. Our
future operating results depend in part on the ability of our key employees to
continue to improve our operational and financial controls, to manage our
employees effectively, to successfully integrate and grow our acquired
businesses, and to successfully develop new products and enhancements to
existing products. If we fail to successfully manage our resources, our results
of operations would be materially and adversely affected.

Our business could be substantially harmed if we have to correct or delay the
release of products due to software bugs or errors.

     Our software products may contain undetected errors or bugs when first
introduced or as new versions are released. Our software products may also
contain undetected viruses. Further, software we license from third parties and
incorporate into our products may contain errors, bugs or viruses. Errors, bugs
or viruses may cause a loss of or delay in market acceptance, recalls of
hardware products incorporating the software or loss of data. Any such defects
and errors could result in any of the following:

     .    adverse customer reactions;
     .    negative publicity regarding our business and our products;
     .    harm to our reputation;
     .    loss of or delay in market acceptance;
     .    loss of revenue or required product changes;
     .    diversion of development resources and increased development expenses;
     .    increased service and warranty costs;
     .    legal action by our customers; and
     .    increased insurance costs.

If we fail to manage our international operations, our business could be
adversely affected.

     Our business, and our ability to maintain and expand our operations
internationally, are subject to the risks inherent in international business
activities, including, in particular:

     .    difficulty in staffing and managing an organization spread over
          various countries;
     .    greater difficulty in safeguarding our intellectual property;
     .    general economic and political conditions in each country;
     .    foreign currency exchange rate fluctuations;
     .    increased trade restrictions;
     .    foreign currency exchange rate fluctuations;
     .    changes in tariff rates;
     .    longer accounts receivable payment cycles in certain countries;
     .    product compliance with local language and business customs;
     .    unexpected changes in regulatory requirements; and
     .    compliance with a variety of foreign laws and regulations.

                                      -20-
<PAGE>

     Any of the foregoing factors could have a material adverse effect on our
ability to expand internationally, which could materially and adversely affect
our results of operations.

     In the past, we acquired several international businesses. Our inability to
successfully grow these international acquisitions could result in goodwill
impairment, which would have a material and adverse affect on the results of
operations. In addition, as a result of these acquisitions, we are more deeply
involved with international markets that are less familiar. We cannot assure you
that we will successfully compete in these international markets.

     Further, we conduct virtually all of our business in US dollars, European
Euros, Dutch guilders, French francs, German marks, British pounds, Singapore
dollars and Argentinean Pesos. We hedge exchange rate movements on either side
of a locked-in spot rate for movements within a defined range on the dollar-Euro
rate. Changes in the value of these currencies relative to the dollar beyond the
ranges we hedge could affect our financial condition and results of operations,
and gains and losses on currency translations could contribute to fluctuations
in our results of operations.

Our product strategy depends on the continued acceptance of the Internet for
business transactions.

     The development of the Internet as a medium for business transactions is in
a relatively formative stage. As we continue to develop and market Internet-
based products, our success will increasingly depend on the continued use and
development of the Internet as a tool for the transaction of business. We cannot
assure you that the infrastructure or complementary services necessary to
maintain the Internet will be developed or maintained. If the Internet fails as
a medium for business transactions, it would have a material adverse affect on
our results of operations.

We must retain key employees and recruit qualified technical and sales personnel
in order to remain successful.

     Our continued success depends on the services of several of our key
executive, sales and marketing and technical employees. The loss of the services
of these personnel, particularly those of Larry G. Blackwell, our founder,
Chairman, Chief Executive Officer and President, or our inability to attract and
retain other qualified management, sales and marketing and technical employees,
could have a material adverse effect on our business and results of operations.
We do not maintain any key-man life insurance policy with respect to Mr.
Blackwell.

     Our success also depends in part on our ability to attract, hire, train,
retain and motivate qualified technical and sales personnel, with appropriate
levels of managerial and technical capabilities. Our business generally requires
a significant level of expertise to effectively develop and market our products
and services. We have at times experienced, and continue to experience,
difficulty in recruiting qualified personnel. We believe that the pool of
potential applicants with such requisite expertise is limited. Recruiting
qualified personnel is an intensely competitive and time-consuming process. Such
competition has resulted in demands for increased compensation from qualified
applicants. Due to such competition, we have experienced, and expect to continue
to experience, turnover in personnel. We cannot assure you that we will be
successful in attracting and retaining the personnel required to continue to
conduct and expand our operations successfully. Our business, financial
condition and results of operations could be materially and adversely affected
if we were unable to attract, hire, train, retain and motivate qualified
personnel.

If we fail to adequately protect our proprietary rights, it could harm our
competitive position and decrease our revenues.

     Our success and ability to compete is dependent in part on our proprietary
technology. We rely on a combination of trade secret, copyright and trademark
laws, software licenses, nondisclosure agreements and technical measures to
establish and protect our proprietary technology. We generally enter into
confidentiality and/or license agreements with our key employees, consultants,
distributors and strategic affiliates as well as with our customers and
potential customers seeking proprietary information. We also limit access to and
distribution of our software, documentation and other proprietary information.
We cannot assure you that the steps we have taken in this regard, however, will
be adequate to deter misappropriation or independent third party development of
our technology. Further, we cannot assure you that third parties will not assert
infringement or misappropriation claims

                                      -21-
<PAGE>

against us in the future with respect to our current or future products. Any
claims or litigation, with or without merit, could be time consuming, result in
costly litigation, diversion of management's attention and cause product
shipment delays or require us to enter into royalty or licensing arrangements.
Such royalty or licensing arrangements, if required, may not be available on
terms acceptable to us, if at all, which could have a material adverse effect on
our business, financial condition and results of operations. Adverse
determinations in such claims or litigation also could have a material adverse
effect on our business, financial condition and results of operations.
Litigation to defend and enforce our intellectual property rights could result
in substantial costs and diversion of resources and could have a material
adverse effect on our business, financial condition and results of operations,
regardless of the final outcome of such litigation. We may be subject to
additional risks as we enter into transactions in countries where intellectual
property laws are not well developed or are poorly enforced. Legal protections
of our rights may be ineffective in such countries, which could have a material
adverse effect on our results of operations.

Security risks and concerns may deter the use of the Internet for conducting
electronic commerce.

     A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Advances
in computer capabilities, new discoveries in the field of cryptography or other
events or developments could result in compromises or breaches of our security
systems or those of other web sites to protect proprietary information. If any
well-publicized compromises of security were to occur, it could have the effect
of substantially reducing the use of the Internet for commerce and
communications. Anyone who circumvents our security measures could
misappropriate proprietary information or cause interruptions in our services or
operations. The Internet is a public network, and data is sent over this network
from many sources. In the past, computer viruses, software programs that disable
or impair computers, have been distributed and have rapidly spread over the
Internet. Computer viruses could be introduced into our systems or those of our
customers or suppliers, which could disrupt iProcure or make it inaccessible to
customers or suppliers. We may be required to expend significant capital and
other resources to protect against the threat of security breaches or to
alleviate problems caused by breaches. To the extent that our activities may
involve the storage and transmission of proprietary information, such as credit
card numbers, security breaches could expose us to a risk of loss or litigation
and possible liability. Our security measures may be inadequate to prevent
security breaches, and our business would be harmed if we do not prevent them.

Our stock price has fluctuated substantially since our initial public offering
and may continue to do so.

     The market price of our Common Stock has fluctuated substantially since our
initial public offering in April 1995. The Common Stock is quoted on the Nasdaq
National Market, which has experienced and is likely to experience significant
price and volume fluctuations, which could adversely affect the market price of
the Common Stock without regard to our operating performance. In addition, we
believe that factors such as quarterly fluctuations in our financial results,
the overall economy and the condition of the financial markets could cause the
price of our Common Stock to fluctuate substantially.

We may face certain risks in connection with the conversion to the Euro.

     On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted the Euro as their common legal currency and established fixed
conversion rates between their existing sovereign currencies and the Euro.
Either the Euro or a participating country's present currency will be accepted
as legal tender from January 1, 1999 to January 1, 2002, from which date forward
only the Euro will be accepted. The Company has a significant number of
customers located in European Union countries participating in the conversion to
the Euro. Such customers will likely have to upgrade or modify their computer
systems and software to comply with Euro requirements. The Euro conversion may
also have competitive implications for our pricing and marketing strategies,
which could be material in nature. However, we cannot accurately predict any
such impact at this time. We have also begun to analyze which of our internal
systems (such as payroll, accounting and financial reporting) will need to be
modified to deal with the Euro conversion.

     Although we do not currently expect the cost of product development and
modifications necessitated by the Euro conversion to have a material effect on
our results of operations or financial condition, we cannot assure you that we
will be able to foresee and correct all potential problems related to the Euro
conversion, or that we will not experience a material disruption in our business
due to the conversion to the Euro.

                                      -22-
<PAGE>

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

     The Company is exposed to market risk primarily from changes in foreign
currency exchange rates and, to a lesser extent, from interest rates. The
following describes the nature of such risks.

     Foreign currency exchange rate risk. In 2000, revenue generated outside the
United States accounted for approximately 36% of total revenue. Significant
revenues (i.e., greater than 5% of total revenues) were derived in France, The
Netherlands and the United Kingdom, with the balance derived primarily from the
eight remaining countries (Argentina, Australia, Brazil, China, Germany, Japan,
Mexico, and Singapore) in which the Company maintains subsidiary or branch
operations. Virtually all of the Company's foreign sales were denominated in the
currencies of the local country. As such, the Company's reported profits and
cash flows are exposed to changing exchange rates. Historically, exchange rate
exposure has been minimal, however, management believes it is prudent to reduce
the risk associated with fluctuations in the value of the US dollar in the
foreign exchange markets.

     In 2000, the Company deployed an average rate range forward or "collared"
hedge to protect against major fluctuations in the European "Euro". Under this
contract, the Company absorbed the risk of currency gains or losses within a
range of movement approximately 5% up or down from a fixed spot price, but was
protected against currency losses greater than 5% by a hedge derivative obtained
through First Union National Bank. Currency gains greater than 5% were remitted
to First Union. Gains and losses under this contract were immaterial in 2000.

     The balance of the currencies in which the Company generates foreign
denominated sales are geographically widespread and individually represent
relatively low dollar exposure. Local currency revenues generated by the
Company's foreign subsidiaries are used to pay local currency expenses. At any
point in time, the Company's foreign operations hold financial assets and
liabilities that are denominated in the local currency. These financial assets
and liabilities consist primarily of short-term, third party and intercompany
receivables and payables. For the most part, gains or loses arise from
translation and as such do not significantly affect net income. At December 31,
2000, cash denominated in foreign currencies was $6.1 million.

     Interest rate risk. The Company is subject to market risk exposure related
to changes in interest rates. The Company has in place four revolving bank
credit facilities, one for $5 million which bears interest at a pre-agreed
percentage spread from LIBOR (London Interbank Rate), the second for Dfl 1
million which bears interest at a pre-agreed spread from AIBOR (Amsterdam
Interbank Rate), the third for SGD 1.7 million which bears interest at a pre-
agreed spread from the Singapore prime lending rate and the fourth for ARS
500,000 which bears interest at 16%. The interest rate risk posed by borrowings
under these facilities is low because the amount of debt historically has been
small in relation to annual cash flow. While changes in the interbank rates
would affect the cost of funds borrowed in the future, the Company believes the
effect of changes in interest rates on the Company's consolidated financial
position, results of operations or cash flows would not be material.

Item 8.  Financial Statements and Supplementary Data.

     The financial statements required by this item are filed as part of this
Annual Report on pages F-1 through F-29 immediately preceding the signature page
to this Annual Report. The supplementary financial information required by this
item are filed as part of this Annual Report under the section titled "Quarterly
Results" in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and on pages S-1 through S-2 immediately preceding the
signature page to this Annual Report.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

     Not applicable.

                                      -23-
<PAGE>

                                   PART III.


Item 10.    Directors and Executive Officers of the Registrant.

     The executive officers and directors of the Company and their ages as of
March 16, 2001, are as follows:

<TABLE>
<CAPTION>
          Name                               Age       Position
          ----                               ---       --------
<S>                                          <C>       <C>
Larry G. Blackwell................           60        Chairman of the Board, President and Chief Executive Officer
Ralph T. Carter...................           38        Chief Operating Officer
C. Alex Estevez...................           30        Chief Financial Officer and Corporate Secretary
W. Scott Millwood.................           37        Executive Vice President, Sales and Marketing
John M. Sterling, III.............           39        Executive Vice President, Business Development
Richard T. Brock/(1)(2)/..........           53        Director
Ira D. Cohen/(2)/.................           49        Director
John M. Sterling, Jr. /(1)/.......           63        Director
James R. Talton, Jr./(1)(2)/......           58        Director
Kenneth D. Tracy..................           58        Director
</TABLE>

______________________
/(1)/   Member of 2001 Compensation Committee.
/(2)/   Member of 2001 Audit Committee.

Director Nominees Biographical Information

     Set forth below is certain biographical information furnished to the
Company by its directors, including Richard T. Brock and Ira D. Cohen, the
director nominees for the Company's Class II directorships. Messrs. Brock and
Cohen are proposed for election at the Company's 2001 Annual Meeting of
Stockholders (presently scheduled to be held June 8, 2001) to serve a term
expiring in the year 2004. Messrs. Brock and Cohen currently serve as directors
of the Company.

RICHARD T. BROCK
Age:  53
Class II Director - Term Expires 2001

     Mr. Brock has served as a director of the Company since August 1993. In
1984, Mr. Brock founded the predecessor of Firstwave Technologies, Inc., a
publicly-held provider of sales and marketing automation software, for which he
has served in various capacities, including Chief Executive Officer and
President, since 1984. He currently serves as President and Chief Executive
Officer and as a director of Firstwave Technologies. He is also the founding
partner of Brock Capital Partners, a privately-held venture capital fund. He
also founded and formerly served as Chief Executive Officer of Management
Control Systems, Inc. Mr. Brock is a nationally-recognized developer, author and
speaker on sales, marketing and service automation and business development
strategy. Mr. Brock received a Bachelor of Science degree in Accounting from
Spring Hill College and a Masters in Business Administration from Louisiana
State University. He is also a certified public accountant.

IRA D. COHEN
Age:  49
Class II Director - Term Expires 2001

     Mr. Cohen has been a director of the Company since February 1995. Since
1988, Mr. Cohen has served as a Managing Director of Updata Capital, Inc., an
investment banking firm he co-founded which focuses on mergers and acquisitions
in the information technology industry. Mr. Cohen also co-founded Updata
Software, Inc., and from 1986 to 1988 served as that company's Chief Financial
Officer. In addition, Mr. Cohen is a Principal with two related venture funds:
Fallen Angel Equity and Updata Venture Fund. Mr. Cohen is also a director of
Alphanet Solutions, Inc. and several privately held companies. He holds a
Bachelor of Science degree in Accounting from City University of New York,
Herbert H. Lehman College, and he is a registered certified public accountant in
New York and New Jersey.

                                      -24-
<PAGE>

Biographical Information Concerning Other Directors

LARRY G. BLACKWELL
Age:  60
Class III Director - Term Expires 2002

     Dr. Blackwell, the founder of the Company, has served as Chairman of the
Board, Chief Executive Officer and President of the Company from its inception
in 1986. Prior to founding the Company, he was President of the Datastream
Systems Division of a subsidiary of Wisconsin Power & Light. He also co-founded
and formerly served as Chairman of the Board of EDI Technology Companies, an
environmental process engineering consulting company. Dr. Blackwell holds a
Bachelor of Science degree in Engineering from the University of Mississippi, a
Master of Science degree from the Georgia Institute of Technology and a Ph.D. in
Environmental Systems Engineering from Clemson University. Dr. Blackwell is a
registered Professional Engineer in Illinois, Pennsylvania and South Carolina
and was named Inc. magazine's 1994 "Entrepreneur of the Year" in the Master
Entrepreneur category for the State of South Carolina. Dr. Blackwell is the
father-in-law of W. Scott Millwood, an executive officer of the Company.

JOHN M. STERLING, JR.
Age:  63
Class III Director - Term Expires 2002

     Mr. Sterling has served as a director of the Company since February 1986.
He has also served as the Chairman of the Board of Directors of HomeGold
Financial, Inc. (formerly Emergent Group, Inc.) since December 1990. He served
as President of HomeGold from December 1990 to August 1996 and as its Chief
Executive Officer from December 1990 until May 2000. Mr. Sterling also served as
President of Palmetto Seed Capital Corp. from September 1993 to October 1998 and
served as a General Partner of Reedy River Ventures Limited Partnership from
1981 until August 1995. Reedy River provided venture capital financing to the
Company to fund its early development, and Mr. Sterling originally served on the
Board of Directors of the Company pursuant to that relationship. Mr. Sterling is
the father of John M. Sterling, III, an executive officer of the Company. Mr.
Sterling holds a Bachelor of Science degree in Civil Engineering from The
Citadel and an Masters in Business Administration from The Darden Graduate
School of Business, University of Virginia.

JAMES R. TALTON, JR.
Age: 58
Class I Director- Term expires 2003

     Mr. Talton has served as a director of the Company since March 2001. He
currently serves as Chairman of the Board of Directors for Impact Design Build,
Inc., a real estate development company, and has served in that capacity since
January 2000. From July 1999 to January 2000, Mr. Talton server as a Vice
President for Impact. From July 1986 until July 1999, Mr. Talton served as the
Managing Partner of KPMG LLP's Raleigh, North Carolina office. KPMG LLP is an
international accounting and consulting firm. From October 1979 until June 1986,
he served as Managing Partner of KPMG's Greenville, South Carolina office. Mr.
Talton received a Bachelor of Science degree in Accounting from East Carolina
University.

                                      -25-
<PAGE>

KENNETH D. TRACY
Age: 58
Class I Director - Term Expires 2003

     Dr. Tracy has served as a director of the Company since 1990. He retired
from Warner-Lambert in September 2000, where he served as Vice President of
Environmental Technology, a position he held since February 1991. From 1984 to
1991, he held positions of increasing responsibility with Air Products and
Chemicals, Inc., including Director of Research from January 1990 to February
1991. Prior to joining Air Products, Dr. Tracy was a principal in EDI Technology
Companies, where he was involved with process engineering consulting as well as
software design and sales. Dr. Tracy holds Bachelor of Science and Master of
Science degrees in Engineering from Pennsylvania State University and a Ph.D. in
Environmental Systems from Clemson University.


Additional Information Concerning The Board Of Directors

     On March 16, 2001, the board of directors voted to increase the number of
the Company's directors from five (5) to six (6), which created a vacancy in
Class I of the Company's three classes of directors. On the same date, the Board
of Directors appointed Mr. James R. Talton, Jr. to fill the vacancy on the Board
of Directors.

     The Company's Board of Directors held 4 meetings during fiscal 2000. During
fiscal 2000, the Board had an Audit Committee and a Compensation Committee, but
did not have a Nominating Committee. No director attended less than 75% of the
aggregate number of meetings of the Board and the committees of the Board on
which he served that were held during his term as a director of the Company.

     Committees of the Board of Directors. In connection with its initial public
offering in March 1995, the Company established an Audit Committee and a
Compensation Committee. The Audit Committee reviews and makes recommendations
regarding the Company's employment of independent auditors, the annual audit of
the Company's financial statements and the Company's internal accounting
practices and policies. In fiscal 2000, the Audit Committee consisted of Messrs.
Brock, Cohen (Chairman) and Tracy. In fiscal 2000, the Audit Committee held 4
meetings. For fiscal 2001, the Audit Committee consists of Messrs. Brock, Cohen
(Chairman) and Talton.

     The Compensation Committee makes recommendations to the Board of Directors
regarding compensation arrangements for senior management of the Company
(including annual bonus compensation), recommendations concerning the adoption
of any compensation plans in which management is eligible to participate and
grants of stock options or other benefits under such plans. In fiscal 2000, the
Compensation Committee consisted of Messrs. Brock (Chairman), Sterling (Jr.) and
Tracy. The Compensation Committee held one meeting in fiscal 2000. For fiscal
2001, the Compensation Committee consists of Messrs. Brock (Chairman), Sterling
(Jr.) and Talton.

     Compensation of Directors. The Company's Board of Directors is currently
comprised of six members. In fiscal 2000, non-management directors received an
annual retainer of $7,000 and were reimbursed for expenses incurred in
connection with attendance at meetings of the Board of Directors or committees
thereof. The Company has also adopted a Stock Option Plan for Directors, which
provides for a grant of an option to purchase 9,000 shares of Common Stock to
non-management directors when they join the board and then an annual grant of
options to purchase 2,000 shares of Common Stock to such directors thereafter.

Executive Officers

     The executive officers of the Company serve at the discretion of the Board
of Directors and presently include Dr. Blackwell, Ralph T. Carter, C. Alex
Estevez, W. Scott Millwood, and John M. Sterling, III. See "Biographical
Information Concerning Other Directors" for information about Dr. Blackwell.

                                      -26-
<PAGE>

RALPH T. CARTER
Chief Operating Officer
Age: 38

     Mr. Carter joined the Company as its Chief Operating Officer in August
2000. Prior to joining the Company, Mr. Carter served as Vice President - North
American Sales for Honeywell International from October 1999 until July 2000.
From August 1998 until October 1999 he served as Vice President - Americas Field
Operations for Honeywell-Measurex and from December 1997 until August 1998 he
served as its Director-North American Field Operations. From 1994 to 1997, Mr.
Carter served as Regional Manager-Northeast for Measurex Corporation. Mr. Carter
holds a Bachelor of Science degree in Chemical Engineering from the University
of Maine.

C. ALEX ESTEVEZ
Chief Financial Officer
Age: 30

     Mr. Estevez was named Chief Financial Officer of the Company in April 1999.
Prior to that time, he served as the Company's Vice President of Corporate
Development from June 1998 until April 1999 and as the Director of Planning from
June 1997 to June 1998. Prior to joining the Company, Mr. Estevez worked in the
investment banking technology group at Raymond James & Associates from September
1992 through June 1995, where he focused on technology-based mergers and
acquisitions and equity offerings, including the Company's initial public
offering. From June to August 1996, he was an associate with Deloitte & Touche
LLP. Mr. Estevez holds an A.B. degree from Harvard College and attended the J.L.
Kellogg Graduate School of Management, Northwestern University from September
1995 through May 1997, where he received a Masters of Management (M.B.A.) in
Finance and Strategy.

W. SCOTT MILLWOOD
Executive Vice President, Sales and Marketing
Age: 37

     Mr. Millwood has served as Executive Vice President, Sales and Marketing
since January of 2000. Prior to that time, Mr. Millwood served as the Company's
Vice President of Operations from October of 1998 to January 2000. Prior to
becoming Vice President of Operations, Mr. Millwood served as the Company's Vice
President of Corporate Sales from August 1995 to October 1998. Prior to joining
the Company in 1995, Mr. Millwood served as regional manager for PowerCerv
Corporation, a manufacturing ERP company and as a vertical market manager for
Peregrine Systems, Inc. (formerly Harbinger Corporation.) Mr. Millwood holds a
Bachelor of Science in Economics from Clemson University and a Masters in
Business Administration from Georgia State University. Mr. Millwood is the son-
in-law of Larry G. Blackwell, Chairman of the Board, Chief Executive Officer and
President of the Company.

JOHN M. STERLING, III
Executive Vice President, Business Development
Age: 39

     Mr. Sterling has served as Executive Vice President, Business Development
since October 2000. Prior to that time, he served as the President of iProcure,
a division of the Company, from January 2000 until October 2000. Prior to being
named President of iProcure, he served as the Company's Vice President of
Electronic Commerce from February 1999 to December 1999. Before being named Vice
President of Electronic Commerce, Mr. Sterling served as the Company's Vice
President of International from September 1997 to January 1999, overseeing the
Company's international operations. Prior to holding such position, Mr. Sterling
served as the Company's Managing Director of European Operations from February
through August 1997. Mr. Sterling also served as the Company's Vice President of
Sales from 1986 to January 1997. Prior to joining Datastream, Mr. Sterling was a
Regional Sales Manager for Silicon Valley Products in San Mateo, California. Mr.
Sterling holds a Bachelor of Science degree in Political Science from The
Citadel. Mr. Sterling is the son of John M. Sterling, Jr., one of the Company's
directors.

                                      -27-
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

   Section 16(a) of the Exchange Act requires the Company's directors, executive
officers and persons who own beneficially more than 10% of the Company's Common
Stock to file reports of ownership and changes in ownership of such stock with
the SEC and the National Association of Securities Dealers, Inc. Directors,
executive officers and greater than 10% stockholders are required by SEC
regulations to furnish the Company with copies of all such forms they file. To
the Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, its directors, executive officers and greater than 10% stockholders
complied during fiscal 2000 with all applicable Section 16(a) filing
requirements.

                                      -28-
<PAGE>

Item 11.  Executive Compensation

Compensation Committee Interlocks and Insider Participation

     The Compensation Committee of the Board of Directors in 2000 comprised of
Messrs. Brock, Sterling (Jr.), and Dr. Tracy. In 2001, the Compensation
Committee of the Board of Directors consists of Messrs. Brock, Sterling (Jr.),
and Talton. During fiscal 2000, the Compensation Committee did not include any
member of the Board of Directors who at that time served as an officer or
employee of, or a consultant to, the Company. The Company's Chief Executive
Officer, Dr. Blackwell, is not a member of the Compensation Committee, but
typically participates in its deliberations by making recommendations to the
Compensation Committee concerning the performance of the Company's executive
officers and recommendations concerning proposed adjustments to their
compensation.

                                      -29-
<PAGE>

Executive Compensation Tables

                     Table I - Summary Compensation Table

   The following table presents certain information required by the SEC relating
to various forms of compensation awarded to, earned by or paid to the Company's
(i) Chief Executive Officer, (ii) Chief Operating Officer, (iii) Chief Financial
Officer, (iv) Executive Vice President, Sales and Marketing and (v) Executive
Vice President, Business Development during fiscal 2000 (the "Named Executive
Officers").

<TABLE>
<CAPTION>
                                                                                                Long-Term
                                                           Annual                             Compensation
                                                        Compensation                         --------------
                                             ------------------------------------------        Securities
                                                                             Other Ann.        Underlying            All Other
Name and Principal Position(s)     Year      Salary              Bonus          Comp.     Options (# of Shares)    Compensation
-----------------------------      ----      ------              -----       ---------    --------------------     ------------
<S>                               <C>       <C>                 <C>          <C>              <C>                   <C>
Larry G. Blackwell                 2000      $221,616/(1)/       $17,000          ---           20,000               $5,250/(2)/
    Chairman, President and        1999      $233,280/(1)/       $ 6,000          ---           30,000               $5,000/(2)/
    Chief Executive Officer        1998      $173,004/(1)/           ---          ---           26,000               $5,000/(2)/

Ralph T. Carter                    2000      $ 71,489/(3)/       $50,000      $56,696/(4)/     130,000                  ---
    Chief Operating Officer        1999           ---                ---          ---              ---                  ---
                                   1998           ---                ---          ---              ---                  ---

C. Alex Estevez                    2000      $126,573/(5)/       $14,000          ---           45,000               $2,151/(2)/
    Chief Financial Officer and    1999      $ 99,996/(5)/       $ 3,000          ---           30,000               $2,090/(2)/
    Corporate Secretary            1998      $ 92,833/(5)/           ---          ---           15,600               $1,205/(2)/

W. Scott Millwood                  2000      $144,729/(6)/           ---          ---          115,000              $2,523/(2)/
    Executive Vice President,      1999      $126,329/(6)/       $ 3,000          ---           30,000              $2,381/(2)/
    Sales and Marketing            1998      $134,329/(6)/           ---          ---           25,500              $2,593/(2)/

John M. Sterling, III              2000      $160,623/(7)/       $14,000          ---           40,000              $3,944/(2)/
    Executive Vice President,      1999      $135,000/(7)/           ---          ---           30,000              $3,750/(2)/
    Business Development           1998      $ 97,840/(7)/           ---          ---           23,432              $2,935/(2)/

--------------------------------------
</TABLE>

/(1)/  Includes $10,500 in 2000 (1999: $10,000; 1998: $10,000) deferred at the
       election of Dr. Blackwell pursuant to the Company's 401(k) plan.
/(2)/  Reflects matching contributions to the Company's 401(k) plan paid by the
       Company on behalf of the executive officer.
/(3)/  Includes $2,008 deferred at the election of Mr. Carter pursuant to the
       Company's 401(k) plan. Mr. Carter joined the Company on July 30, 2000.
       His annualized salary for 2000 would have been $170,004.
/(4)/  Represents reimbursement by Company for moving expenses incurred in 2000;
       reimbursement paid in January 2001.
/(5)/  Includes $10,500 in 2000 (1999: $10,000; 1998:  $3,675) deferred at the
       election of Mr. Estevez pursuant to the Company's 401(k) plan.
/(6)/  Includes $10,500 in 2000 (1999: $10,000; 1998: $10,000) deferred at the
       election of Mr. Millwood pursuant to the Company's 401(k) plan.
/(7)/  Includes $10,500 in 2000 (1999: $10,000; 1998: $7,827) deferred at the
       election of Mr. Sterling pursuant to the Company's 401(k) plan.

                                      -30-
<PAGE>

                  TABLE II - Option/SAR Grants in Fiscal 2000


This table presents information regarding options granted to the Company's Named
Executive Officers during fiscal 2000 to purchase shares of the Company's Common
Stock.  The Company has no outstanding stock appreciation rights (SARs) and
granted no SARs during fiscal 2000.  In accordance with SEC rules, the table
shows the hypothetical gains or option spreads that would exist for the
respective options based on assumed rates of annual compound stock price growth
of 5% and 10% from the date the options were granted over the full option term.

<TABLE>
<CAPTION>
                              Individual Grants
                         ----------------------------
                                          % of Total
                            Number of       Options                                        Potential Realizable
                            Securities    Granted to                                         Value at Assumed
                            Underlying     Employees    Exercise or Base                  Annual Rates of Stock
                             Options       in Fiscal          Price         Expiration      Price Appreciation
     Name                  Granted (#)       Year           ($/Share)          Date      For the Option Term/(1)/
-----------------------  --------------  ------------   -----------------   ----------   ------------------------
                                                                                             5%            10%
                                                                                         ---------     ----------
<S>                      <C>             <C>            <C>                 <C>          <C>           <C>
Dr. Blackwell..........     13,332/(2)/         0.75%               $7.44     12/20/10    $ 62,363     $  158,041
                             6,668/(2)/         0.38%               $8.18     12/20/05    $ 26,243     $   74,097
                          --------              ----
                            20,000              1.13%

Mr. Carter.............    120,000/(3)/         6.77%               $8.50       8/2/10    $641,473     $1,625,617
                            10,000/(2)/         0.56%               $7.44     12/20/10    $ 46,777     $  118,543
                          --------              ----
                           130,000              7.33%

Mr. Estevez............     25,000/(3)/         1.41%               $8.50       8/2/10    $133,640     $  338,670
                            20,000/(2)/         1.13%               $7.44     12/20/10    $ 93,554     $  237,085
                          --------              ----
                            45,000              2.54%

Mr. Millwood...........    100,000/(3)/         5.64%               $8.50       8/2/10    $534,560     $1,354,681
                            15,000/(2)/         0.85%               $7.44     12/20/10    $ 70,166     $  177,814
                          --------              ----
                           115,000              6.49%

Mr. Sterling...........     25,000/(3)/         1.41%               $8.50       8/2/10    $133,640     $  338,670
                            15,000/(2)/         0.85%               $7.44     12/20/10    $ 70,166     $  177,814
                          --------              ----
                            40,000              2.26%
</TABLE>

---------------------------------
/(1)/ Potential realizable value is based on the assumption that the price of
      the Common Stock appreciates at the rate shown (compounded annually) from
      the date of grant to the expiration date. These numbers are presented in
      accordance with the requirements of the SEC and do not reflect the
      Company's estimate of future stock price performance.


/(2)/ Option vests in 33% increments on the first, second and third
      anniversaries of the date of grant (December 20, 2001, 2002, and 2003).


/(3)/ Option vests in 33% increments on the first, second and third
      anniversaries of the date of grant (August 2, 2001, 2002 and 2003)

                                      -31-
<PAGE>

                  TABLE III - Option Exercises in Fiscal 2000
                    and Fiscal 2000 Year-End Option Values

The following table shows the number of options exercised during fiscal 2000 and
the number of shares of Common Stock subject to exercisable and unexercisable
stock options held by the Company's Named Executive Officers as of December 31,
2000.  The table also reflects the values of such options based on the positive
spread between the exercise price of such options and $9.75, which was the
closing sales price of a share of Common Stock reported on the Nasdaq National
Market as of December 29, 2000 (the last trading day of the Company's fiscal
year).

<TABLE>
<CAPTION>
                                                          Number of Securities              Value of Unexercised
                                                         Underlying Unexercised             In-the-Money Options
                          Shares                         Options at Year-End (#)              at Year-End/(2)/
                       Acquired on       Value      ---------------------------------  -------------------------------
      Name             Exercise (#)  Realized/(1)/  Exercisable         Unexercisable  Exercisable       Unexercisable
    --------           ------------  -------------  -----------         -------------  -----------       -------------
<S>                    <C>           <C>            <C>               <C>              <C>              <C>
Dr. Blackwell            100,000      $1,368,250       64,465               51,111       $ 49,417          $ 41,292

Mr. Carter                    --              --            0              130,000       $      0          $173,120

Mr. Estevez                   --              --       60,600               85,000       $ 87,200          $110,190

Mr. Millwood                  --              --       81,166              143,334       $ 60,080          $159,680

Mr. Sterling                  --              --      160,765               66,667       $544,260          $ 65,930
</TABLE>

(1)  These values have been calculated by subtracting the option exercise price
     from the market price of the Common Stock on the date of exercise and
     multiplying that figure by the total number of options exercised. For
     presentation purposes only, the calculation assumes that all shares
     acquired on exercise were sold in the open market on the date of exercise.
     However, Dr. Blackwell did not sell the shares acquired upon exercising
     these options in 2000, although he made a gift of 5,500 of such shares
     later in fiscal 2000.

(2)  The value of unexercised in-the-money options at December 31, 2000 is
     calculated as follows:  [(Per Share Closing Sales Price on December 29,
     2000) - (Per Share Exercise Price)]  X  Number of Shares Subject to
     Unexercised Options.  The closing sales price reported by the Nasdaq
     National Market of the Company's Common Stock for December 29, 2000 was
     $9.75 per share.

                                      -32-
<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Beneficial Ownership Of Common Stock

     The following table sets forth information concerning (i) those persons
known by management of the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) the directors of the Company, (iii) the
executive officers of the Company named in the Summary Compensation Table
included elsewhere herein and (iv) all directors and executive officers of the
Company as a group. Such information is provided as of March 16, 2001. According
to rules adopted by the SEC, a person is the "beneficial owner" of securities if
he or she has or shares the power to vote them or to direct their investment or
has the right to acquire beneficial ownership of such securities within 60 days
through the exercise of an option, warrant or right, the conversion of a
security or otherwise. Except as otherwise noted, the indicated owners have sole
voting and investment power with respect to shares beneficially owned. An
asterisk in the percent of class column indicates beneficial ownership of less
than 1% of the outstanding Common Stock.


<TABLE>
<CAPTION>
                                                       Amount and Nature          Percent
          Name of Beneficial Owner                  of Beneficial Ownership       of Class
          -----------------------                   -----------------------       --------
          <S>                                       <C>                           <C>
          Larry G. Blackwell...................           3,572,509 /(1)/          17.3%
          Ralph T. Carter......................                   0                  *
          C. Alex Estevez......................              75,776 /(2)/            *
          W. Scott Millwood....................              94,700 /(3)/            *
          John M. Sterling, III................             540,668 /(4)/           2.6%
          Richard T. Brock.....................              22,000 /(5)/            *
          Ira D. Cohen.........................               9,000 /(6)/            *
          John M. Sterling, Jr.................             147,072 /(7)/            *
          James R. Talton, Jr. ................                 915 /(8)/            *
          Kenneth D. Tracy.....................              20,000 /(9)/            *
          All current directors and
           executive officers as a
           group (10 persons)..................           4,482,640 /(10)/         21.4%

          Other Stockholders

          Brown Capital Management, Inc./(11)/            2,316,300                11.3%

          Eagle Asset Management, Inc./(12)/              1,339,370                 6.5%

          Lord, Abbett & Co./(13)/                        2,052,283                10.0%
</TABLE>


 -----------------------
/(1)/  Includes 64,465 shares of Common Stock subject to options exercisable on
       or within 60 days after March 16, 2001. Dr. Blackwell's address is that
       of the Company.
/(2)/  Includes 75,600 shares of Common Stock subject to options exercisable on
       or within 60 days after March 16, 2001.
/(3)/  Includes 84,500 shares of Common Stock subject to options exercisable on
       or within 60 days after March 16, 2001, 7,220 shares held in joint
       ownership with his spouse, 1,000 shares held by his spouse individually
       and 1,980 shares held by his minor son. Mr. Millwood disclaims beneficial
       ownership of the securities held by his spouse individually and held by
       his son.
/(4)/  Includes 160,765 shares of Common Stock subject to options exercisable on
       or within 60 days after March 16, 2001.
/(5)/  Includes 18,000 shares of Common Stock subject to options exercisable on
       or within 60 days after March 16, 2001.

                                      -33-

<PAGE>

/(6)/  Represents 9,000 shares of Common Stock subject to options exercisable on
       or within 60 days after March 16, 2001.
/(7)/  Represents 18,000 shares of Common Stock subject to options exercisable
       on or within 60 days after March 16, 2001, and 129,072 shares of Common
       Stock held by Mr. Sterling's spouse.
/(8)/  Includes 300 shares held individually by his spouse, of which Mr. Talton
       disclaims beneficial ownership.
/(9)/  Includes 18,000 shares of Common Stock subject to options exercisable on
       or within 60 days after March 16, 2001, and 2,000 shares of Common Stock
       to which Dr. Tracy shares voting and investment power with his spouse.
/(10)/ Includes 448,330 shares of Common Stock subject to options exercisable on
       or within 60 days after March 16, 2001.
/(11)/ The business address of Brown Capital Management, Inc. is 1201 N. Calvert
       Street, Baltimore, Maryland 21202. The numbers reported were derived from
       a Schedule 13G executed by Brown Capital Management on February 14 , 2001
       and filed with the Securities and Exchange Commission on February 15,
       2001. According to the Schedule 13G, all of the shares of the Common
       Stock are owned by various investment advisory clients of Brown Capital
       Management, Inc. Brown Capital Management, Inc. has both investment and
       voting power over such shares. No individual client of Brown Capital
       Management holds more than five percent of the class.
/(12)/ The business address of Eagle Asset Management, Inc. is 880 Carillon
       Parkway, St. Petersburg, Florida 33716. The numbers reported were derived
       from a Schedule 13G executed by Eagle Asset Management on January 5, 2001
       and filed with the Securities and Exchange Commission on January 10,
       2001.
/(13)/ The business address of Lord, Abbett & Co. is 90 Hudson Street, Jersey
       City, New Jersey 07302. The numbers reported were derived from a Schedule
       13G executed by Lord, Abbett & Co. and filed with the Securities and
       Exchange Commission on January 19, 2001.

                                      -34-
<PAGE>

Item 13.  Certain Relationships and Related Transactions.

     None.

                                      -35-
<PAGE>

                                    PART IV

Item  14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     (a)  The following documents are filed as part of this Report:

     1.   Financial Statements

          .    Independent Auditors' Report.
          .    Consolidated Balance Sheets as of December 31, 1999 and 2000.
          .    Consolidated Statements of Operations for the Years Ended
               December 31, 1998, 1999 and 2000
          .    Consolidated Statements of Stockholders' Equity and Comprehensive
               Income (Loss) for the Years Ended December 31, 1998, 1999 and
               2000.
          .    Consolidated Statements of Cash Flows for the Years Ended
               December 31, 1998, 1999 and 2000.
          .    Notes to Consolidated Financial Statements.

     2.   Financial Statement Schedules:

          .    Allowance for Doubtful Accounts Receivable.

               All other schedules for which provision is made in the applicable
               accounting regulations of the Securities and Exchange Commission
               are not required under the related instructions or are
               inapplicable and therefore have been omitted.

     3.   Exhibits:

          Exhibit
          Number         Description

          3.1*           Amended and Restated Certificate of Incorporation.

          3.1(a)**       Amendment to Amended and Restated Certificate of
                         Incorporation, dated January 12, 1998.

          3.2*           Bylaws.

          3.2(a)         Amendment to Bylaws, dated March 16, 2001.

          4.1            See Exhibits 3.1 and 3.2 for provisions of the Amended
                         and Restated Certificate of Incorporation and By-Laws
                         of the Company defining rights of holders of Common
                         Stock of the Company.

          4.2*           Specimen Stock Certificate.

          10.1***        The Datastream Systems, Inc. 1995 Stock Option Plan (as
                         amended and restated through May 7, 1997)./(1)/

          10.1(a)**      First Amendment to the Datastream Systems, Inc. 1995
                         Stock Option Plan (as amended and restated through May
                         7, 1997), dated March 14, 1998./(1)/

          10.1(b)****    Second Amendment to the Datastream Systems, Inc. 1995
                         Stock Option Plan (as amended and restated through May
                         7, 1997), dated May 8, 1998./(1)/

          10.1(c)****    Third Amendment to the Datastream Systems, Inc. 1995
                         Stock Option Plan (as amended and restated May 7,
                         1997), dated March 12, 1999./(1)/

                                      -36-
<PAGE>

          10.2+          The Datastream Systems, Inc. Stock Option Plan for
                         Directors (as amended and restated as of April 12,
                         1996)./(1)/

          10.2(a)**      First Amendment to Datastream Systems, Inc. Stock
                         Option Plan for Directors (as amended and restated as
                         of April 12, 1996), dated March 13, 1998./(1)/

          10.2(b)****    Second Amendment to the Datastream Systems, Inc. Stock
                         Option Plan for Directors (as amended and restated as
                         of April 12, 1996), dated March 12, 1999./(1)/

          10.3++         The Datastream Systems, Inc. 1998 Stock Option
                         Plan./(1)/

          10.3(a)****    First Amendment to the Datastream Systems, Inc. 1998
                         Stock Option Plan, dated March 12, 1999./(1)/

          21             Subsidiaries of the Company.

          23             Consent of KPMG LLP.

          24             Power of Attorney (included on signature page hereto).
___________

*        Incorporated herein by reference to exhibit of the same number in the
         from S-1 Registration Statement of the Company's Registration Statement
         on Form S-1 (File No. 33-89498).

**       Incorporated herein by reference to exhibit of the same number in
         Company's Annual Report on Form 10-K for the fiscal year ended December
         31, 1997 (File No. 000-25590).

***      Incorporated herein by reference to Appendix A to the Company's
         definitive Proxy Statement for the Company's 1997 Annual Meeting of
         Stockholders, filed May 12, 1997 (File No. 000-25590).

****     Incorporated herein by reference to exhibit of the same number in
         Company's Annual Report on Form 10-K for the fiscal year ended December
         31, 1998 (File No. 000-25590).

+        Incorporated herein by reference to Appendix C to the Company's
         definitive Proxy Statement for the Company's 1996 Annual Meeting of
         Stockholders, filed April 23, 1996 (File No. 000-25590).

++       Incorporated herein by reference to Appendix A to the Company's
         definitive Proxy Statement for the Company's 1998 Annual Meeting of
         Stockholders, filed May 12, 1998 (File No. 000-25590).

/(1)/    Management contract or compensatory plan or arrangement required to be
         filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this
         report.

(b)      Reports on Form 8-K.

         The Company did not file any Current Reports on Form 8-K during the
         fiscal quarter ended December 31, 2000.

                                      -37-
<PAGE>

                         Independent Auditors' Report

The Board of Directors
Datastream Systems, Inc.:

We have audited the accompanying consolidated balance sheets of Datastream
Systems, Inc. and subsidiaries as of December 31, 1999 and 2000, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income (loss), and cash flows for each of the years in the three-year period
ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Datastream Systems,
Inc. and subsidiaries, as of December 31, 1999 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.


                                                        /s/ KPMG LLP
Greenville, South Carolina
February 2, 2001






                                      F-1






<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                          Consolidated Balance Sheets

                          December 31, 1999 and 2000

<TABLE>
<CAPTION>
           Assets                                                                   1999                  2000
           ------                                                            ------------------     ----------------
<S>                                                                          <C>                    <C>
Current assets:
    Cash and cash equivalents                                                    $ 17,912,797          $ 15,487,515
    Accounts receivable, net of allowance for doubtful accounts
      of $3,388,719 and $3,183,453 in 1999 and 2000, respectively                  30,221,995            22,939,649
    Unbilled revenue, net of allowance of $174,500 and $156,000 in
      1999 and 2000, respectively                                                   2,311,247             2,065,745
    Income taxes receivable                                                                --             9,504,889
    Investments                                                                       250,790                   160
    Prepaid expenses                                                                1,392,028             1,615,325
    Inventories                                                                       109,453               125,059
    Deferred income taxes                                                           1,410,000             3,665,000
    Other assets                                                                    1,710,019             1,358,525
                                                                                 ------------          ------------
         Total current assets                                                      55,318,329            56,761,867

Investments                                                                         4,200,000             2,000,000
Property and equipment, net                                                        13,583,471            14,125,640
Goodwill, net of accumulated amortization of $6,191,464 and $9,213,126
    in 1999 and 2000, respectively                                                 15,073,239            12,051,577
Other intangible asset, net of accumulated amortization of $0 and
    $206,250 in 1999 and 2000, respectively                                                --               343,750
                                                                                 ------------          ------------

         Total assets                                                            $ 88,175,039          $ 85,282,834
                                                                                 ============          ============

    Liabilities and Stockholders' Equity
    ------------------------------------

Current liabilities:
    Accounts payable                                                                3,919,404             3,464,121
    Other accrued liabilities                                                       7,387,417            10,824,994
    Income taxes payable                                                              120,928                  --
    Current portion of long-term debt                                                 650,578               213,642
    Unearned revenue                                                                8,587,980            10,174,327
                                                                                 ------------          ------------
         Total current liabilities                                                 20,666,307            24,677,084

Long-term debt, less current portion                                                  224,285                 8,116
                                                                                 ------------          ------------
         Total liabilities                                                         20,890,592            24,685,200
                                                                                 ------------          ------------
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 and 20,730,644 shares issued and outstanding at
      December 31, 1999 and 2000, respectively                                        196,742               207,306
    Additional paid-in capital                                                     70,533,683            80,985,427
    Retained earnings (accumulated deficit)                                           760,050           (16,083,208)
    Other accumulated comprehensive loss                                             (153,265)             (459,128)
    Treasury stock, 405,000 shares at December 31, 1999 and 2000                   (4,052,763)           (4,052,763)
                                                                                 ------------          ------------
         Total stockholders' equity                                                67,284,447            60,597,634
                                                                                 ------------          ------------

         Total liabilities and stockholders' equity                              $ 88,175,039          $ 85,282,834
                                                                                 ============          ============
</TABLE>

See accompanying notes to consolidated financial statements

                                      F-2
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                     Consolidated Statements of Operations

                 Years Ended December 31, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                                            1998                1999                2000
                                                                    -----------------    -----------------    ----------------
<S>                                                                    <C>                 <C>                <C>
Revenues:
    Product                                                            $  38,226,287       $  39,267,761       $  29,371,329
    Professional services                                                 42,621,294          56,333,517          44,710,090
    Support                                                               17,707,276          23,174,800          23,286,808
                                                                       -------------       -------------       -------------

      Total revenues                                                      98,554,857         118,776,078          97,368,227
                                                                       -------------       -------------       -------------

Cost of revenues:
    Cost of product revenues                                               2,109,357           2,319,732           1,981,578
    Cost of professional services revenue                                 22,401,797          34,718,039          33,173,411
    Cost of support revenues                                               4,730,756           5,405,844           6,868,246
    Amortization and write off of capitalized software                     5,513,794           4,101,785                  --
                                                                       -------------       -------------       -------------

         Total cost of revenues                                           34,755,704          46,545,400          42,023,235
                                                                       -------------       -------------       -------------

      Gross profit                                                        63,799,153          72,230,678          55,344,992

Operating expenses:
    Sales and marketing                                                   25,397,349          33,694,598          44,405,152
    Product development                                                    8,174,226          14,554,565          15,887,136
    General and administrative                                             7,644,882          10,833,236          12,954,302
    Goodwill amortization                                                  2,044,001           3,056,460           3,021,662
    In-process research and development,
      restructuring and other                                              9,990,256            (294,201)                 --
                                                                       -------------       -------------       -------------

      Total operating expenses                                            53,250,714          61,844,658          76,268,252
                                                                       -------------       -------------       -------------

      Operating income (loss)                                             10,548,439          10,386,020         (20,923,260)

Other income (expense):
    Interest and other income                                                668,097           1,643,668             768,200
    Interest expense                                                        (131,833)           (182,323)            (85,347)
    Other expense (note 16)                                                       --                  --          (4,703,423)
                                                                       -------------       -------------       -------------

      Net other income (loss)                                                536,264           1,461,345          (4,020,570)
                                                                       -------------       -------------       -------------

      Income (loss) before income taxes                                   11,084,703          11,847,365         (24,943,830)

Income tax expense (benefit)                                               6,384,198           4,412,219          (8,100,572)
                                                                       -------------       -------------       -------------

      Net income (loss)                                                $   4,700,505       $   7,435,146       $ (16,843,258)
                                                                       =============       =============       =============

      Basic net income (loss) per share                                $        0.25       $        0.39       $       (0.84)
                                                                       =============       =============       =============

      Diluted net income (loss) per share                              $        0.23       $        0.37       $       (0.84)
                                                                       =============       =============       =============

      Basic weighted average number of common
         and potential common shares outstanding                          18,935,092          19,118,535          20,008,710
                                                                       =============       =============       =============

      Diluted weighted average number of common
         and potential common shares outstanding                          20,279,434          20,098,519          20,008,710
                                                                       =============       =============       =============
</TABLE>

See accompanying notes to consolidated financial statements



                                      F-3
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)

                 Years Ended December 31, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                                                                Other
                                                                                             Accumulated
                                                                    Additional    Retained  Comprehensive                   Total
                                                          Common     Paid-in      Earnings      Income      Treasury   Stockholders'
                                                          Stock      Capital      (Deficit)     (Loss)       Stock        Equity
                                                       --------  -----------  ------------  -----------  ------------  -------------
<S>                                                    <C>       <C>          <C>           <C>          <C>           <C>
Balance at December 31, 1997                           $185,855  $58,049,212  $(11,375,601) $   248,231  $         --  $ 47,107,697
 Comprehensive income/(loss)
   Net income                                                --           --     4,700,505           --            --     4,700,505
   Unrealized losses on securities available-for-sale        --           --            --      (30,956)           --       (30,956)
   Foreign currency translation adjustment                   --           --            --      734,007            --       734,007
                                                                                                                        -----------
  Total comprehensive income                                                                                              5,403,556
                                                                                                                        -----------
  Exercise of stock options                               2,974    1,958,556            --           --            --     1,961,530
  Tax benefit of options exercised                           --      182,000            --           --            --       182,000
  Stock issued for Employee Stock Purchase Plan             237      245,909            --           --            --       246,146
Stock issued in acquisitions                              2,767    5,702,728            --           --            --     5,705,495
                                                        -------   ----------   -----------   ----------   -----------   -----------

Balance at December 31, 1998                            191,833   66,138,405    (6,675,096)     951,282            --    60,606,424
 Comprehensive income/(loss)
   Net income                                                --           --     7,435,146           --            --     7,435,146
   Unrealized gain on securities available-for-sale          --           --            --      102,622            --       102,622
   Foreign currency translation adjustment                   --           --            --   (1,207,169)           --    (1,207,169)
                                                                                                                        -----------
 Total comprehensive income                                                                                               6,330,599
                                                                                                                        -----------
 Exercise of stock options                                4,536    3,568,477            --           --            --     3,573,013
 Tax benefit of options exercised                            --      352,000            --           --            --       352,000
 Stock issued for Employee Stock Purchase Plan              373      349,026            --           --            --       349,399
 Amortization of compensatory stock options                  --      125,775            --           --            --       125,775
 Acquisition of 405,000 shares                               --           --            --           --    (4,052,763)   (4,052,763)
                                                        -------   ----------   -----------   ----------   -----------   -----------
Balance at December 31, 1999                            196,742   70,533,683       760,050     (153,265)   (4,052,763)   67,284,447
 Comprehensive loss
   Net loss                                                  --           --   (16,843,258)          --            --   (16,843,258)
   Unrealized losses on securities available-for-sale        --           --            --     (102,622)           --      (102,622)
   Foreign currency translation adjustment                   --           --            --     (203,241)           --      (203,241)
                                                                                                                        -----------
 Total comprehensive loss                                                                                               (17,149,121)
                                                                                                                        -----------
    Exercise of stock options                             9,469    7,086,418            --           --            --     7,095,887
    Tax benefit of options exercised                         --    1,851,000            --           --            --     1,851,000
    Stock issued for Employee Stock Purchase Plan           395      472,349            --           --            --       472,744
    Amortization of compensatory stock options               --      237,677            --           --            --       237,677
    Shares issues for legal settlement                      700      804,300            --           --            --       805,000
                                                        -------   ----------   -----------   ----------   -----------   -----------
Balance at December 31, 2000                           $207,306  $80,985,427  $(16,083,208) $  (459,128) $ (4,052,763) $ 60,597,634
                                                        =======   ==========   ===========   ==========   ===========   ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

                 Years Ended December 31, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                                                     1998               1999               2000
                                                                                 ------------       ------------       ------------
<S>                                                                              <C>                <C>                <C>
Cash flows from operating activities:
    Net income (loss)                                                            $  4,700,505       $  7,435,146       $(16,843,258)
    Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
        Depreciation                                                                3,502,000          4,566,238          5,167,553
        Amortization of capitalized software development costs                      1,570,250          4,101,785                 --
        Amortization of goodwill                                                    2,044,001          3,056,460          3,021,662
        Amortization of customer list                                                      --                 --            206,250
        Accretion of investment discount, net                                        (127,516)              (320)                --
        (Gain) loss on disposal of equipment                                           43,540            (26,935)                --
        Provision for doubtful accounts                                             1,233,927            314,882           (223,766)
        Stock based compensation                                                           --            125,775            237,677
        Issuance of shares in legal settlement                                             --                 --            805,000
        Write-off of in-process research and development                            3,540,008                 --                 --
        Write-off of capitalized software                                           3,943,544                 --                 --
        Changes in operating assets and liabilities, net of
          effects of acquisition:
            Accounts receivable                                                    (9,560,807)         1,904,086          7,487,612
            Unbilled receivables                                                     (490,547)           450,675            264,002
            Prepaid expenses                                                         (947,589)           241,199           (223,297)
            Inventories                                                               223,963            165,049            (15,606)
            Deferred income taxes                                                    (522,000)          (355,800)        (2,255,000)
            Other assets                                                             (244,381)           (47,303)           351,494
            Accounts payable                                                           (3,639)           775,511           (455,283)
            Other accrued liabilities                                              (1,288,596)        (2,380,762)         3,437,577
            Income taxes payable                                                     (278,611)        (2,289,523)        (7,774,817)
            Unearned revenue                                                        1,487,375            295,101          1,586,347
                                                                                 ------------       ------------       ------------
               Net cash provided by (used in) operating activities                  8,825,427         18,331,264         (5,225,853)
                                                                                 ------------       ------------       ------------

Cash flows from investing activities:
    Purchase of investments                                                          (767,793)        (4,310,000)        (2,000,000)
    Proceeds from sale and maturities of investments                               12,627,581          4,571,794          4,348,008
    Additions to property and equipment                                            (4,462,480)        (5,041,827)        (5,709,722)
    Purchase of customer list                                                              --                 --           (550,000)
    Capitalized software development costs                                         (3,654,731)          (967,007)                --
    Cash paid for acquisition, net of cash acquired                               (10,874,284)                --                 --
                                                                                 ------------       ------------       ------------
               Net cash used in investing activities                               (7,131,707)        (5,747,040)        (3,911,714)
                                                                                 ------------       ------------       ------------

Cash flows from financing activities:
    Proceeds from exercise of stock options                                         1,961,530          3,573,013          7,095,887
    Proceeds from stock issuances under employee purchase plan                        246,146            349,399            472,744
    Cash paid to acquire treasury stock                                                    --         (4,052,763)                --
    Principal payments on long-term debt                                             (811,931)          (691,116)          (653,105)
    Proceeds from issuance of net debt                                                506,350            618,000                 --
                                                                                 ------------       ------------       ------------
               Net cash provided by (used in) financing activities                  1,902,095           (203,467)         6,915,526
                                                                                 ------------       ------------       ------------

Foreign currency translation adjustment                                               734,007         (1,207,169)          (203,241)
Net increase (decrease) in cash and cash equivalents                                4,329,822         11,173,588         (2,425,282)
Cash and cash equivalents at beginning of year                                      2,409,387          6,739,209         17,912,797
                                                                                 ------------       ------------       ------------
Cash and cash equivalents at end of year                                         $  6,739,209       $ 17,912,797       $ 15,487,515
                                                                                 ============       ============       ============

Supplemental disclosures of cash flow information:
    Cash paid during the year for:
      Interest                                                                   $    178,113       $    171,778       $     92,114
                                                                                 ============       ============       ============
      Income taxes                                                               $  7,094,949       $  7,123,200       $  2,036,114
                                                                                 ============       ============       ============

Supplemental disclosure of non-cash activities:
    Unrealized net gain (loss) on investments available
      for sale, net of income taxes                                              $    (30,956)      $    102,622       $   (102,622)
                                                                                 ============       ============       ============
</TABLE>

See accompanying notes to consolidated financial statements

                                      F-5
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                       Consolidated Financial Statements

                       December 31, 1998, 1999 and 2000



(1) Summary of Significant Accounting Policies

    (a) Organization and Basis of Presentation

        Datastream Systems, Inc. (the "Company" or "Datastream") is a leading
        provider of asset lifecycle management solutions. The Company's
        solutions enable businesses, government agencies and other organizations
        to maximize the profitability of assets in the four distinct phases of
        their lifecycle: buy, track, manage, and sell. A component of this
        lifecycle is the procurement of spare parts used to maintain assets. The
        Company's iProcure solution automates this process by connecting
        suppliers with buyers of industrial spare parts through the Internet. In
        addition to its U.S. operations, the Company has direct sales offices in
        Argentina, Australia, Brazil, Canada, China, France, Germany, Japan,
        Mexico, The Netherlands, Singapore, and the United Kingdom.

        On March 31, 1998, the Company acquired Datastream Systems GmbH & Co.,
        KG (formerly Insta Instandhaltung technischer Anlagen GmbH, ("Insta"))
        (see note 2).

        On June 16, 1998, the Company acquired Datastream - SIS PFE Ltd.
        (formerly Strategic Information Systems PTE. Ltd., ("SIS")) (see note
        2).

        On July 13, 1998, the Company acquired certain assets of Datastream
        Systems Pty Ltd. (formerly Datastream (Pacific) Pty Ltd., ("DSTM-PAC"))
        (see note 2).

        On September 2, 1998, the Company acquired Computec Sistemas S.A.
        ("Computec"), and its affiliate Computec Sistemas Mexicana S.A. de C.V.,
        a Mexican corporation ("Computec-Mexico) (see note 2).

   (b)  Consolidation Policy

        The consolidated financial statements include the accounts of Datastream
        Systems, Inc. and its wholly owned subsidiaries. All significant
        intercompany accounts and transactions have been eliminated.

                                      F-6                            (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                       Consolidated Financial Statements

                       December 31, 1998, 1999 and 2000


   (c)    Revenue Recognition

          The Company's revenue, which consists primarily of fees for product
          sales, professional services and customer support, is recognized in
          accordance with American Institute of Certified Public Accountants
          ("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 entity. 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.
          Revenue from hosted software service arrangements is recognized
          ratably over the term of the hosting arrangement. Revenue from
          transaction service fees is generally recognized when the transaction
          has occurred.

          In December 1998, the AICPA issued SOP 98-9 Modification of SOP 97-2,
          Software Revenue Recognition, with Respect to Certain Transactions,
          which requires recognition of revenue using the "residual method" in a
          multiple-element arrangement when fair value does not exist for one or
          more of the delivered elements in the arrangement. Under the residual
          method, the total fair value of the undelivered elements is deferred
          and subsequently, recognized in accordance with SOP 97-2. The Company
          adopted SOP 98-9 effectively January 1, 2000 and there was no material
          effect on its financial position, results of operations or cash flows.

          In December 1999, the staff of the Securities and Exchange Commission
          ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
          Recognition in Financial Statements." SAB 101, as amended, summarizes
          some of the staff's interpretations of the application of generally
          accepted accounting practices to revenue recognition. The Company
          adopted SAB 101 in fiscal year 2000 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 for product
          sales. The discounts are recognized in the product revenue at the time
          of shipment.

   (d)    Cash Equivalents

          The Company considers all highly liquid investments with an original
          maturity of three months or less to be cash equivalents.

                                       F-7                          (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                       Consolidated Financial Statements

                       December 31, 1998, 1999 and 2000



   (e)    Concentration of Credit Risk

          Financial instruments which potentially expose the Company to
          concentrations of credit risk consist primarily of trade accounts
          receivable. The Company has not experienced significant losses related
          to receivables from individual customers or groups of customers in a
          particular industry or geographic area. As a result, management
          believes no additional credit risk beyond the amounts provided for
          estimated future collection losses is inherent in the Company's
          accounts receivable.

    (f)   Investment Securities

          The Company classifies its debt and equity securities in one of three
          categories: trading, available-for-sale, or held-to-maturity. Trading
          securities are bought and held principally for the purpose of selling
          them in the near term. Held-to-maturity securities are those
          securities in which the Company has the ability and intent to hold
          until maturity. All other securities not included in trading or held-
          to-maturity are classified as available-for-sale.

          Trading and available-for-sale securities are recorded at fair value.
          Held-to-maturity securities are recorded at amortized cost, adjusted
          for the amortization or accretion of premiums or discounts. Unrealized
          holding gains and losses on trading securities are included in
          earnings. Unrealized holding gains and losses, net of the related tax
          effect, on available-for-sale securities are excluded from earnings
          and are reported as a separate component of stockholders' equity until
          realized. Equity securities without readily determinable fair values
          are recorded at cost. Realized gains and losses from the sale of
          available-for-sale securities are determined on a specific
          identification basis.

          A decline in the market value of any available-for-sale or held-to-
          maturity security below cost that is deemed to be other than temporary
          results in a reduction in carrying amount to fair value. The
          impairment is charged to earnings and a new cost basis for the
          security established. Premiums and discounts are amortized or accreted
          over the life of the related held-to-maturity security as an
          adjustment to yield using the effective interest method. Dividend and
          interest income are recognized when earned.

   (g)    Inventories

          Inventories are stated at the lower of cost (first-in, first-out)
          basis or market (net realizable value). Substantially all of the
          Company's inventory is software-related product.

                                      F-8                           (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                       Consolidated Financial Statements

                       December 31, 1998, 1999 and 2000

   (h)    Property and Equipment

          Property and equipment are recorded at cost. Depreciation is computed
          under the straight-line method over the estimated useful lives for
          financial reporting and under the accelerated and modified accelerated
          cost recovery systems for income tax reporting. The estimated useful
          lives generally assigned are as follows:

               Building                                    40 years
               Computer equipment                      3 to 5 years
               Furniture and fixtures                       5 years
               Automobiles                                  5 years

    (i)   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 eighteen months to three years. 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 operations.

          During the years ended December 1998, 1999 and 2000, total costs
          incurred (excluding amortization of capitalized software development
          costs) for software development activities were $11,828,957,
          $15,521,571 and $15,887,136, respectively; total capitalized software
          development costs were $3,654,731, $967,007 and $0, respectively; and
          amortization of capitalized costs was $1,570,250, $4,101,785 and $0,
          respectively.

          In connection with the acquisitions of Insta, SIS, and Computec in
          1998 (see note 2), the Company acquired software technology valued at
          $210,000, $1,050,000 and $770,000, respectively. In addition, in
          connection with the acquisition of Insta, the Company wrote off
          $597,944 of its existing capitalized software which became obsolete as
          a result of the acquisition. In 1998, the Company also wrote off
          $2,311,667 of acquired software and $1,033,933 of internally
          capitalized software which became obsolete as a result of the
          Company's plan of reorganization (see note 3).

                                       F-9                          (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                       Consolidated Financial Statements

                       December 31, 1998, 1999 and 2000

       In March 1998, the AICPA issued Statement of Position 98-1, "Accounting
       for the Costs of Computer Software Developed or Obtained for Internal
       Use" ("SOP 98-1"). SOP 98-1 provides guidance that requires
       capitalization of certain costs during an internal-use software
       development project. Capitalizable costs consist of (a) certain external
       direct costs of materials and services incurred in developing or
       obtaining internal-use software, (b) payroll and payroll-related costs
       for employees who are directly associated with and who devote time to the
       project, and (c) interest costs incurred. The Company adopted and applied
       the provisions of SOP 98-1 beginning in fiscal year 1999 to internal-use
       computer software costs incurred during the year including those projects
       in progress upon initial application of SOP 98-1.

       In March 2000, the Emerging Issues Task Force of the FASB reached a
       consensus on Issue No. 00-2, "Accounting for Web Site Development
       Costs"("EITF 00-2"). EITF 00-2 provides guidance that requires the
       capitalization of certain costs incurred in the development of Internet
       web sites following the guidelines of SOP 98-1. The Company adopted and
       applied the provisions of EITF 00-2 in fiscal year 2000. There was no
       material impact on the Company of adopting the provisions of EITF 00-2.

       During the years ended December 1998, 1999 and 2000 total cost
       capitalized under the provisions of SOP 98-1 and EITF 00-2 were
       approximately $0, $108,000, and $143,000, respectively.

  (j)  Goodwill and Other Intangible Asset

       Goodwill represents the excess of the purchase price over the fair values
       of assets acquired. Goodwill is amortized using the straight-line method
       over its estimated useful life of seven years. The recoverability of
       goodwill is periodically reviewed when events or circumstances warrant.
       Impairment, determined when the carrying value of an asset cannot be
       recovered over its remaining useful life from undiscounted future cash
       flows, is measured and recognized when the fair value is less than the
       asset's carrying amount.

       Other intangible asset consists of a customer list.  It is amortized
       using the straight-line method over its estimated useful life of two
       years.

   (k) Derivative Financial Instruments

       The Company has only limited involvement with derivative financial
       instruments and uses them only to manage well-defined foreign currency
       rate risks.

       Foreign currency average rate range forward contracts have been used to
       manage fluctuations of the European "Euro".  During 2000, the Company had
       a foreign currency contract that settled quarterly on March 31, June 30,
       September 30 and December 31 and any realized gain or loss was recorded
       each quarter.  Total gains (losses) associated with these contracts were
       not material.  At December 31, 2000, the Company was not party to any
       foreign currency contract.

                                      F-10                          (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                       Consolidated Financial Statements

                       December 31, 1998, 1999 and 2000

   (l)   Stock Option Plans

         Statement of Financial Accounting Standards No. 123 allows an entity to
         apply the provisions of APB Opinion No. 25 and provide pro forma net
         income and pro forma earnings per share disclosures for employee stock
         option grants made in 1995 and future years as if the fair-value-based
         method defined in Statement No. 123 had been applied. The Company has
         elected to continue to apply the provisions of APB Opinion No. 25 and
         provide the pro forma disclosure provisions of Statement No. 123.

   (m)   Income Taxes

         The Company records income taxes using the asset and liability method.
         Deferred tax assets and liabilities are recognized for the future tax
         consequences attributable to differences between the financial
         statement carrying amounts of existing assets and liabilities and their
         respective tax bases. Deferred tax assets and liabilities are measured
         using enacted tax rates expected to apply to taxable income in the
         years in which those temporary differences are expected to be recovered
         or settled. The effect on deferred tax assets and liabilities of a
         change in tax rates is recognized in income in the period that includes
         the enactment date.

   (n)   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 common
         shares outstanding. Diluted weighted average common and potential
         common shares include common shares and stock options using the
         treasury stock method, except when losses occur creating antidilution.

   (o)   Foreign Currency Translation

         The financial statements of subsidiaries outside the United States are
         generally measured using the local currency as the functional currency.
         Assets and liabilities of these subsidiaries are translated at the
         rates of exchange at the balance sheet date. Revenues and expenses are
         translated at the average rate of exchange during the period.

   (p)   Comprehensive Income (Loss)

         Comprehensive income consists of net income, net unrealized foreign
         currency translation adjustment and net unrealized gains (losses) on
         securities and is presented in the consolidated statements of
         stockholders' equity and comprehensive income (loss).

                                      F-11                          (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                       Consolidated Financial Statements

                       December 31, 1998, 1999 and 2000

   (q) 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). 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). Statements No. 137 delayed
       the effective date for Statement No. 133 for one year. In June 2000 the
       FASB issued Statement of Financial Accounting Standards No. 138.
       "Accounting for Certain Derivative Instruments and Certain Hedging
       Activity, an Amendment to SFAS 133" (Statement No. 138). Statements No.
       133 and No. 138 require that all derivative instruments be recorded on
       the balance sheet at their respective fair values. The Company is
       required to adopt Statements No. 133 and No. 138 in the first quarter of
       2001. There is no material impact on the Company of adopting Statements
       No. 133 and No. 138.

       In December 1999, the staff of the Securities and Exchange Commission
       ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
       Recognition in Financial Statements." SAB 101, as amended, summarizes
       some of the staff's interpretations of the application of generally
       accepted accounting practices to revenue recognition. The Company adopted
       SAB 101 in fiscal year 2000 and there was no material effect on the
       financial position, results of operations or cash flows.

   (r) Use of Estimates

       The preparation of financial statements in conformity with accounting
       principles generally accepted in the United States of America requires
       management to make estimates and assumptions that affect the reported
       amounts of assets and liabilities and disclosure of contingent assets and
       liabilities at the date of the financial statements and the reported
       amounts of revenues and expenses during the reporting period including
       estimates and assumptions for allowance for doubtful accounts, allowance
       for deferred tax assets, and useful lives of goodwill and capitalized
       software development costs. Actual results could differ from those
       estimates.

   (s) Advertising Costs

       The Company expenses advertising costs in the period incurred.
       Advertising expense was approximately $1,910,000, $1,870,000, and
       $3,535,000 in 1998, 1999 and 2000, respectively.

                                      F-12                         (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                       Consolidated Financial Statements

                       December 31, 1998, 1999 and 2000

   (2) Acquisitions

       On March 31, 1998, the Company acquired all of the capital stock and
       equity interests of Insta for a total purchase price of $7.2 million. The
       purchase price consisted of approximately $4.4 million in cash,
       approximately $2.6 million of common stock (130,435 shares valued at
       $20.12 per share) and the assumption of net liabilities and costs
       incurred. Insta is a computerized maintenance management software vendor
       in Germany. The acquisition was accounted for using the purchase method.
       The purchase price was 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 all of the capital stock and
       equity interests of SIS for a total purchase price of $7.9 million. The
       purchase price consisted of approximately $4.6 million in cash,
       approximately $1.9 million of common stock (88,652 shares valued at
       $21.75 per share) and the assumption of net liabilities and costs
       incurred. SIS is an enterprise asset maintenance solution provider based
       in Singapore. The acquisition was accounted for using the purchase
       method. The purchase price was allocated to the tangible and intangible
       assets purchased and the liabilities assumed based on the fair values on
       the date of acquisition.

       On July 13, 1998, the Company acquired certain assets of DSTM-PAC, an
       Australian corporation, for a total purchase price of $1.2 million. The
       purchase price consisted of $299,823 in cash, $299,823 of common stock
       (13,274 shares valued at $22.59 per share) and costs incurred. The
       acquisition was accounted for using the purchase method. The purchase
       price was allocated to the tangible and intangible assets purchased based
       on the fair values on the date of acquisition.

       On September 2, 1998, the Company acquired all of the capital stock and
       equity interests of Computec and Computec-Mexico for a total purchase
       price of $3.8 million. The purchase price consisted of approximately $1.8
       million in cash, $852,498 of common stock (44,304 shares valued at $19.24
       per share) and the assumption of net liabilities and costs incurred.
       Computec is an enterprise asset maintenance solution provider based in
       Argentina and Computec-Mexico is an affiliated enterprise asset
       maintenance solution provider based in Mexico. The acquisition was
       accounted for using the purchase method. The purchase price was allocated
       to the tangible and intangible assets purchased and the liabilities
       assumed based on the fair values on the date of acquisition.

   (3) In-process Research and Development, Restructuring and Other Charges

       For the years ended December 31, 1998, 1999 and 2000, the Company
       recorded in-process research and development, restructuring and other
       charges (benefits) as follows:

<TABLE>
<CAPTION>
                                                                     1998             1999                 2000
                                                              --------------      ------------        -------------
<S>                                                           <C>                 <C>                 <C>

          In-process research and development                 $    3,540,008               --                    --
          Restructuring and other charges (benefits)               6,450,248           294,201)                  --
                                                              --------------      ------------        -------------

                                                              $    9,990,256          (294,201)                  --
                                                              ==============      ============        =============
</TABLE>

                                      F-13                           (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                       Consolidated Financial Statements

                       December 31, 1998, 1999 and 2000

   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 the following charges: (i) involuntary relocation and
   termination costs of $2,421,000 related to the centralization of product
   development, services and support functions, (ii) provision for increased
   credit risk on outstanding receivable balances related to product
   obsolescence of $900,000, (iii) cost of closing redundant facilities of
   $656,000 and (iv) charges related to the discontinuance of the Company's
   indirect sales model of $2,242,281. In addition to the amounts noted above,
   the Company also recorded $3,345,600 of capitalized software write-offs
   related to the obsolescence and discontinuance of certain products.

   In 1999, the Company completed its plans to reorganize and centralize certain
   functions and to discontinue certain product lines, as announced at December
   31, 1998.

   As the Company implemented its restructuring plan, it determined that certain
   of the estimates used at the time the restructuring plan was prepared had
   changed. Due to natural attrition, restructuring costs for the involuntary
   terminations related to centralization of product development, services and
   support functions were determined to be lower than originally estimated. The
   Company also recognized higher costs than originally anticipated related to
   the credit risks and warranty on outstanding receivable balances in
   connection with product obsolescence.

   The major components of the 1998 charges and the amounts utilized in 1999
   were as follows:

<TABLE>
<CAPTION>
                                  Original                                     Adjusted              Amount              Remaining
                                   Charge              Reallocation             Charge              Utilized              Balance
                             -----------------     ------------------      ---------------     ---------------      ----------------

<S>                          <C>                   <C>                     <C>                 <C>                  <C>
Involuntary
  terminations
  related to
  centralized
  functions                  $     2,421,000            (1,541,000)             880,000             (616,768)              263,232
Provisions for
  credit risk and
  warranty on
  obsolete
  products                           900,000             1,645,000            2,545,000           (2,542,548)                2,452
Costs of closing
  redundant
  facilities                         656,000              (104,000)             552,000             (523,483)               28,517
                             ---------------      ----------------         ------------        -------------        --------------

Total                        $     3,977,000                    --            3,977,000           (3,682,799)              294,201
                             ===============      ================         ============        =============        ==============
</TABLE>

   The remaining balance of the reserves was recognized as a reduction to
   operating expense in the fourth quarter of 1999.  There was no remaining
   reserve balance at December 31, 1999 and no utilization of the reserve or
   additional reserve recorded in 2000.

                                      F-14                           (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000

(4)  Investment Securities

     The amortized cost, gross unrealized gains and market value of investment
     securities at December 31, 1999 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                           Gross               Estimated
                                                   Amortized             Unrealized               Fair
                                                      Cost                 Gains                 Value
                                               ----------------      ----------------      ----------------
          <S>                           <C>                       <C>                   <C>
          December 31, 1999
          -----------------

          Available for sale:
            Equity securities               $        148,168               102,622               250,790
          Held to maturity:
            State of S.C. Bonds                    4,200,000                    --             4,200,000
                                            ----------------      ----------------      ----------------

                                            $      4,348,168               102,622             4,450,790
                                            ================      ================      ================
           December 31, 2000
          ------------------

          Available for sale:
            Equity securities               $      2,000,160                    --             2,000,160
                                            ----------------      ----------------      ----------------

                                            $      2,000,160                    --             2,000,160
                                            ================      ================      ================
</TABLE>

     Proceeds from the sale of investment securities available-for-sale during
     1999 and 2000 were approximately $3.1 million and $250,000, respectively,
     which approximated amortized costs. During 2000, held to maturity
     investments were sold.

     During 1997, the Company entered into a preferred stock purchase agreement
     with an unrelated software company (the "Investee"). Under the agreement,
     the Company purchased 221,910 shares of the Investee's convertible
     preferred stock for a total purchase price of approximately $2.0 million.
     During 1999, the Investee was purchased. The Company sold shares with a
     carrying value of approximately $1.9 million during 1999 and $250,000
     during 2000.

     During 2000, the Company entered into a preferred stock purchase agreement
     with an unrelated auction company (the "Investee"). Under the agreement,
     the Company purchased 249,688 shares (adjusted for a one to three reverse
     stock split) of the Investee's convertible preferred stock for a total
     purchase price of $2.0 million. This investment is being accounted for as
     an available-for-sale equity security and is included in non-current
     investments in the accompanying balance sheet.

(5)  Fair Value of Financial Instruments

     The fair value of financial instruments is the amount at which the
     instrument could be exchanged in a current transaction between willing
     parties.

     At December 31, 1999 and 2000, the carrying value of financial instruments
     such as cash and cash equivalents, accounts receivable, and accounts
     payable approximated their fair values, based upon the short maturities of
     these instruments.

                                                                     (Continued)

                                     F-15
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000


     The fair value of the Company's long-term debt is estimated using
     discounted cash flow analysis, based on the Company's current incremental
     borrowing rates for similar types of borrowing arrangements. The carrying
     value of such instruments approximated their fair value at December 31,
     1999 and 2000.

     At December 31, 1999 the fair values of investment securities presented in
     note 4 are based on quoted market prices at the reporting date for those or
     similar investments. For investments for which there are no quoted market
     prices, a reasonable estimate of fair value could not be made without
     incurring excessive costs. At December 31, 2000, investment securities are
     carried at cost.

(6)  Property and Equipment

     Property and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                             1999                       2000
                                                                      -------------------      -------------------
          <S>                                                         <C>                      <C>
          Land                                                        $           548,304      $           544,614
          Building                                                              6,231,542                7,360,322
          Computer equipment                                                   15,459,399               17,844,097
          Furniture and fixtures                                                2,704,463                2,923,988
                                                                      -------------------      -------------------
                                                                               24,943,708               28,673,021
          Accumulated depreciation                                            (11,360,237)             (14,547,381)
                                                                      -------------------      -------------------

                                                                      $        13,583,471      $        14,125,640
                                                                      ===================      ===================
</TABLE>


(7)  Other Accrued Liabilities

     Other accrued liabilities consisted of the following at December 31:

<TABLE>
                                                                      1999                    2000
                                                              -------------------     -------------------
<S>                                                           <C>                     <C>
     Accrued salaries and commission                          $         1,821,475     $         2,957,373
     Sales and payroll taxes payable                                    2,380,068               2,397,089
     Accrued legal settlement                                                  --               1,400,683
     Other accrued liabilities                                          3,185,874               4,069,849
                                                              -------------------     -------------------

                                                              $         7,387,417     $        10,824,994
                                                              ===================     ===================
</TABLE>

                                                                     (Continued)

                                     F-16
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000


(8)  Long-term Debt

     Long-term debt as of December 31, consists of the following:

<TABLE>
<CAPTION>
                                                                              1999                       2000
                                                                      -------------------        -------------------
<S>                                                                   <C>                        <C>
     Note payable in annual payments of $16,500, plus
       interest at 5.5% through December 2001; collateralized
       by building                                                    $           245,387        $           211,035



     Subordinated note payable due January 2000, plus
       interest at 4.25%                                                          618,000                         --


     Subordinated note payable in annual payments of $2,837,
       plus interest at 6.5% through December 2002                                 11,476                     10,723
                                                                      -------------------        -------------------
                                                                                  874,863                    221,758
         Less current portion                                                    (650,578)                  (213,642)
                                                                      -------------------        -------------------

     Long-term debt, less current portion                             $           224,285        $             8,116
                                                                      ===================        ===================
</TABLE>

     The remaining annual maturities of long-term debt subsequent to December
     31, 2000 are as follows:

<TABLE>
          <S>                                                                              <C>
          2001                                                                             $  213,642
          2002                                                                                  8,116
                                                                                           ----------

          Total                                                                            $  221,758
                                                                                           ==========
</TABLE>

(9)  Lines of Credit

     The Company maintains a multicurrency line of credit that provides for
     borrowings of 70% of accounts receivable less than 60 days aged up to
     $5,000,000. There were 1,200,000 German Marks ($618,000) outstanding under
     the line at December 31, 1999. There was no outstanding balance under the
     line at December 31, 2000.

     In addition the Company maintains lines of credit or over draft facilities
     in certain locations including a Dutch guilder line for Dfl 1 million
     (approximately $420,000) which bears interest at a pre-agreed percentage
     spread from AIBOR (Amsterdam Interbank Rate), a Singapore dollar line for
     Sgd 1,712,500 (approximately $990,000) which bears interest at 1% over the
     Singapore dollar prime lending rate and an Argentina peso line for 500,000
     (approximately $500,000) which bears interest at 16%.

                                     F-17
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000


(10) Income Taxes

     Income tax expense (benefit) for the years ended December 31 is as follows:

<TABLE>
<CAPTION>
                                                       Current                  Deferred                  Total
                                              -------------------      -------------------      -------------------
     <S>                                      <C>                      <C>                      <C>
     1998:
        Federal                               $         3,528,249      $           571,000      $         4,099,249
        State                                             432,383                   35,000                  467,383
        Foreign                                         2,945,566               (1,128,000)               1,817,566
                                              -------------------      -------------------      -------------------

             Total                            $         6,906,198      $          (522,000)     $         6,384,198
                                              ===================      ===================      ===================
      1999:
        Federal                               $         3,002,073      $        (1,887,160)     $         1,114,913
        State                                             367,900                 (226,235)                 141,665
        Foreign                                         1,398,046                1,757,595                3,155,641
                                              -------------------      -------------------      -------------------

             Total                            $         4,768,019      $          (355,800)     $         4,412,219
                                              ===================      ===================      ===================


     2000:
       Federal                                $        (4,876,903)     $          (766,000)     $        (5,642,903)
       State                                             (130,549)                (388,000)                (518,549)
       Foreign                                           (838,120)              (1,101,000)              (1,939,120)
                                              -------------------      -------------------      -------------------

            Total                             $        (5,845,572)     $        (2,255,000)     $        (8,100,572)
                                              ===================      ===================      ===================
</TABLE>

     Income tax expense differed from the amounts computed by applying the
     Federal income tax rate of 34% as a result of the following:

<TABLE>
<CAPTION>
                                                              1998                     1999                      2000
                                                     -----------------       ------------------        ------------------
     <S>                                             <C>                     <C>                       <C>
     Computed "expected" tax expense
      (benefit)                                      $       3,768,799       $        4,028,104        $       (8,480,902)
     Increase (decrease) in income taxes
      resulting from:
        State and local income taxes, net of
         Federal income tax benefits                           308,473                   93,500                  (309,570)
        In process research and development                  1,282,131                       --                        --
        Effect of graduated income tax rates                    10,847                   49,197                        --
        Goodwill amortization                                  694,960                1,039,197                 1,027,365
        Reduction in expected liability                             --                 (803,207)                 (500,000)
        Other, net                                             318,988                    5,428                   162,535
                                                     -----------------       ------------------        ------------------

     Actual tax expense (benefit)                    $       6,384,198       $        4,412,219        $       (8,100,572)
                                                     =================       ==================        ==================
</TABLE>

                                                                     (Continued)

                                     F-18
<PAGE>

                  DATASTREAM SYSTEMS, INC. AND SUBISIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000


     Deferred income taxes reflect the net tax effects of temporary differences
     between the carrying amounts of assets and liabilities for financial
     reporting purposes and the amounts used for income tax purposes.
     Significant components of the Company's deferred income tax assets and
     liabilities are as follows:

<TABLE>
<CAPTION>
                                                             1999             2000
                                                        ------------       ------------
     <S>                                                <C>                <C>
     Deferred tax assets:
       Net operating loss carryforwards                 $  1,057,000       $  2,740,000
       Accrued expenses and allowances                     1,410,000          2,573,000
                                                        ------------       ------------
       Total gross deferred tax assets                     2,467,000          5,313,000
       Less valuation allowance                           (1,057,000)        (1,648,000)
                                                        ------------       ------------

     Net deferred tax assets                            $  1,410,000       $  3,665,000
                                                        ============       ============
</TABLE>

     The valuation allowance for deferred tax assets as of December 31, 1999 and
     2000 was $1,057,000 and $1,648,000, respectively, and relates to net
     operating loss carryforwards of foreign subsidiaries, which at this time
     are uncertain of recovery.

     At December 31, 2000 the Company has net operating loss carryforwards for
     foreign and state income tax purposes of approximately $7,900,000, of which
     less than $1,000,000 expires through 2005; the remainder can be carried
     forward indefinitely.

(11) Employee Savings and Retirement Plan

     Effective September 1, 1992, the Company established a 401(k) Retirement
     Plan under Section 401(k) of the Internal Revenue Code. The Plan is funded
     in part from employee voluntary contributions with the Company's
     contribution equal to one-half of the employee's contribution up to 3% of
     their compensation. The Plan provides for voluntary employee contributions
     of up to 15% of their total compensation.

     The Company's contributions to the Plan totaled approximately $388,000,
     $527,000 and $621,000 in 1998, 1999 and 2000, respectively.

                                       F-19                          (Continued)
<PAGE>

                  DATASTREAM SYSTEMS, INC. AND SUBISIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000


(12)  Stock Compensation Plans

      1995 Stock Option Plan
      ----------------------

      On September 8, 1995, the Company amended and restated the Datastream
      Systems, Inc. 1995 Stock Option Plan (the "1995 Plan") to provide for the
      grant of both incentive and non-qualified options to purchase up to
      2,000,000 shares of the Company's common stock (adjusted for September 12,
      1995 and January 30, 1998 two-for-one stock splits). The Company's
      stockholders approved the amendment and restatement at the Company's 1996
      annual meeting of stockholders held on May 23, 1996. On December 26, 1996,
      the Company's Board of Director's authorized an additional 1,000,000
      shares (adjusted for January 30, 1998 two-for-one stock split) to be added
      to the 2,000,000 share limit available under the 1995 Plan, subject to
      stockholder approval. The Company's stockholders approved of this increase
      at the Company's 1997 annual meeting of stockholders held on June 13,
      1997. Options granted under this plan vest incrementally over a period of
      one to five years and expire either five or ten years from the date of
      grant, depending on the terms of the particular option agreement. Options
      under the plan are granted with an exercise price at least equal to the
      fair market value of the underlying shares at the grant date. Incentive
      options granted to a participant who is an over 10% owner are not granted
      at less than 110% of the fair market value of the underlying shares at the
      grant date.

      Datastream Systems, Inc. 1997 European Stock Option Plan
      --------------------------------------------------------

      On June 13, 1997, the Company's board of directors approved the Datastream
      Systems, Inc. 1997 European Stock Option Plan (the "1997 EU Plan") to
      provide for grants of stock options to purchase shares of the Company's
      common stock to employees of the Company's subsidiaries in The
      Netherlands, the United Kingdom and France. The 1997 EU Plan consists of
      three sub-plans for each of the respective subsidiaries. Initially, the
      board authorized and reserved for issuance a total of 500,000 shares of
      common stock (adjusted for January 30, 1998 two-for-one stock split) under
      the three sub-plans of the 1997 EU Plan (200,000 for The Netherlands sub-
      plan; 150,000 for the U.K. sub-plan; and 150,000 for the French sub-plan).
      On June 12, 1998, the board authorized and reserved a total of 110,000
      additional shares of common stock for issuance under The Netherlands sub-
      plan (75,000 shares) and the French sub-plan (35,000 shares). Options
      granted pursuant to these plans have varying vesting patterns up to five
      years from the date of grant, depending on the applicable laws of the
      foreign jurisdiction and the terms of the particular option agreement.
      Options granted under the EU Plan expire ten years after the date of grant
      and are granted at the fair market value of the underlying shares at the
      date of grant.

                                       F-20                          (Continued)
<PAGE>

                  DATASTREAM SYSTEMS, INC. AND SUBISIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000


   Datastream Systems, Inc. 1998 Stock Option Plan
   -----------------------------------------------

   On May 8, 1998 and June 12, 1998, respectively, the Company's board of
   directors and stockholders approved and adopted the Datastream Systems, Inc.
   1998 Stock Options Plan (the "1998 Plan") to provide for the grant of both
   incentive and non-qualified options to purchase up to 500,000 shares of the
   company's common stock to the Company's employees.  On March 12, 1999, the
   Company's board of directors authorized an additional 750,000 shares to be
   added to the 500,000 share limit available under the 1998 Plan, subject to
   stockholder approval.  The Company's stockholders approved this increase at
   the Company's annual meeting of stockholders on June 11, 1999.  On March 17,
   2000, the Company's Board of Directors authorized an additional 1,500,000
   shares to be added to the 1,250,000 share limit available, subject to
   stockholders approval.  The Company's stockholders approved this additional
   increase at the Company's annual meeting of stockholders on June 9, 2000.
   Options granted under this plan vest incrementally over a period of one to
   five years and expire either five or ten years from the date of grant,
   depending on the terms of the particular option agreement.  Options under the
   Plan are granted with an exercise price at least equal to the fair market
   value of the underlying shares at the grant date.  Incentive options granted
   to a participant who is an over 10% owner are not granted at less than 110%
   of the fair market value of the underlying shares at the grant date.

   Datastream Systems, Inc. 1998 Singapore Stock Option Plan
   ---------------------------------------------------------

   On  June 12, 1998, the Company's board of directors authorized the
   establishment of the Datastream Systems, Inc. 1998  Singapore Stock Option
   Plan (the "Singapore Plan") and authorized and reserved for issuance 125,000
   shares of common stock for grants of stock options under the Singapore Plan
   for the employees of the Company's Singapore subsidiary.  Options granted
   pursuant to the Singapore Plan will vest incrementally over a period of one
   to three years, depending on the terms of the particular options agreement,
   and expire ten years from the date of grant.  Options are granted at the fair
   market value of the underlying shares at the grant date.

   Datastream Systems, Inc. 1998 German Stock Option Plan
   ------------------------------------------------------

   On June 12, 1998, the Company's board of directors authorized the
   establishment of the Datastream Systems, Inc.  1998 German Stock Option Plan
   (the "German Plan") and authorized and reserved for issuance 125,000 shares
   of common stock for grants of stock options under the German Plan for the
   employees of the Company's German subsidiary.  Options granted pursuant to
   the German Plan will vest incrementally over a period of one to five years,
   depending on the terms of the particular options agreement, and expire ten
   years from the date of grant.  Options are granted at the fair market value
   of the underlying shares at the grant date.

                                       F-21                          (Continued)
<PAGE>

                  DATASTREAM SYSTEMS, INC. AND SUBISIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000


     Datastream Systems, Inc. 1998 Australian Stock Option Plan
     ----------------------------------------------------------

     On December 11, 1998, the Company's board of directors authorized the
     establishment of the Datastream Systems, Inc. 1998 Australian Stock Option
     Plan (the "Australian Plan") and authorized and reserved for issuance
     75,000 shares of common stock for grants of stock options under the
     Australian Plan for the employees of the Company's Australian subsidiary.
     Options granted pursuant to the Australian Plan will vest incrementally
     over a period of one to five years, depending on the terms of the
     particular options agreement, and expire ten years from the date of grant.
     Options are granted at the fair market value of the underlying shares at
     the grant date.

     Datastream Systems, Inc. 1999 Argentinean Stock Option Plan
     -----------------------------------------------------------

     On March 12, 1999, the Company's board of directors authorized the
     establishment of the Datastream Systems, Inc. 1999 Argentinean Stock Option
     Plan (the "Argentinean Plan") and authorized and reserved for issuance
     125,000 shares of common stock for grants of stock options under the
     Argentinean Plan for the employees of the Company's Argentinean subsidiary.
     Options granted pursuant to the Argentinean Plan will vest incrementally
     over a period of one to five years, depending on the terms of the
     particular options agreement, and expire ten years from the date of grant.
     Options are granted at the fair market value of the underlying shares at
     the grant date.

     A summary of activity in the plans noted above during the periods indicated
     is as follows:

<TABLE>
<CAPTION>
                                                                        Weighted-
                                                                        Average
                                                        Number of       Exercise
                                                         Shares          Price
                                                       ----------       --------
     <S>                                               <C>              <C>
     Stock options outstanding:

     Balance at December 31, 1997                      2,838,372          7.50

     Granted                                             704,218         11.76
     Exercised                                          (301,126)         6.76
     Forfeited                                          (148,566)         8.66

     Balance at December 31, 1998                      3,092,898          8.30
                                                       ---------        ------

     Granted                                             987,675         10.63
     Exercised                                          (454,807)         7.91
     Forfeited                                          (232,204)         9.79
                                                       ---------        ------

                                                       3,393,562          8.94
                                                       ---------        ------

     Granted                                           1,763,748          9.32
     Exercised                                          (960,033)         7.90
     Forfeited                                          (578,199)        10.74
                                                       ---------        ------

     Balance at December 31, 2000                      3,619,078          9.12
                                                      ==========        ======
</TABLE>

                                       F-22                          (Continued)
<PAGE>

                  DATASTREAM SYSTEMS, INC. AND SUBISIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000


   The following table summarizes information about stock options outstanding
   under the plans noted above at December 31, 2000:

<TABLE>
<CAPTION>
                                        Options Outstanding             Options exercisable
                              ----------------------------------------------------------------

                                              Weighted Average                      Weighted -
                                                 Remaining                           Average
           Range of                Numbers      Contractual            Number        Exercise
       Exercise Prices           Outstanding        Life             Exercisable      Price
----------------------------------------------------------------------------------------------
<S>                              <C>             <C>                 <C>            <C>
       2.28 -  4.55                153,748            4.1             153,748          3.75
       4.55 -  6.83                 46,943            5.8              46,943          6.38
       6.83 -  9.10              2,151,747            8.3             722,948          8.02
       9.10 - 11.38                893,341            7.2             491,668         10.26
      11.38 - 13.65                303,183            9.0              46,091         12.45
      13.65 - 15.93                 25,183            6.7              14,516         14.75
      15.93 - 18.20                 26,933            8.9               2,766         17.16
      18.20 - 20.48                  8,000            8.9                 500         19.25
      20.48 - 22.75                 10,000            7.2               6,666         22.50
                              ------------        -------           ---------      --------

                                 3,619,078            7.9           1,485,846          8.56
                              ============        =======           =========      ========
</TABLE>

   The per share weighted-average fair value of stock options granted under the
   plans during 1999 and 2000 was $8.75 and $8.12 on the date of grant using the
   Black Scholes option-pricing model with the following weighted-average
   assumptions: 1999 - expected dividend yield of 0%, expected volatility of
   77.42%, risk-free interest rate of 5.65%, and an expected life of 10 years;
   2000 - expected dividend yield of 0%; expected volatility of 106.5%; risk-
   free interest rate of 6.0%, and an expected life of 10 years.

   Stock Option Plan for Directors
   -------------------------------

   On February 7, 1995, the Board of Directors of the Company established the
   Datastream Systems, Inc. Stock Option Plan for Directors (the "Directors'
   Plan") which provides for the grant of non-qualified stock options to
   purchase up to 200,000 shares of Common Stock (adjusted for January 30, 1998
   two-for-one stock split) to directors who are not employees of the Company.
   The Directors' Plan was amended and restated by the Board of Directors on
   April 12, 1996 and approved by the Company's stockholders at the Company's
   1996 annual meeting of stockholders held May 23, 1996.  Under the Director's
   Plan, eligible directors automatically receive options to purchase, at the
   fair market value of a share on the date of grant, (i) 9,000 shares of Common
   Stock upon the commencement of their service as a director and (ii) 2,000
   shares of Common Stock annually as of the first business day of each fiscal
   year.

                                       F-23                          (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000

   A summary of activity in the Directors' Plan during the periods indicated are
   as follows:

<TABLE>
<CAPTION>
                                                                                   Weighted-
                                                                                    Average
                                                           Number of               Exercise
                                                            Shares                   Price
                                                     -------------------     -------------------
<S>                                                    <C>                     <C>
Stock options outstanding:

 Balance at December 31, 1997                                     39,000                    5.56
  Granted                                                          8,000                   15.25
  Exercised                                                           --                      --
                                                     -------------------     -------------------
 Balance at December 31, 1998                                     47,000                    7.21
                                                     -------------------     -------------------

  Granted                                                          8,000                    9.53
  Exercised                                                           --                      --
                                                     -------------------     -------------------

 Balance at December 31, 1999                                     55,000                    7.55

  Granted                                                          8,000                   22.75
  Exercised                                                           --                      --
                                                     -------------------     -------------------

 Balance at December 31, 2000                                     63,000                    9.48
                                                     ===================     ===================
</TABLE>

   The following table summarizes information about stock options outstanding
   under the Director's Plan at December 31, 2000:

<TABLE>
<CAPTION>
                                              Options Outstanding                             Options exercisable
                                 -------------------------------------------     --------------------------------------------

                                                           Weighted Average                                    Weighted -
                                                               Remaining                                         Average
         Range of                       Numbers               Contractual                Number                 Exercise
      Exercise Prices                 Outstanding                Life                 Exercisable                 Price
---------------------------      -------------------     -------------------     --------------------     -------------------
<S>                              <C>                     <C>                     <C>                      <C>

        2.28 -  4.55                          27,000                     4.1                   27,000                    3.75
        6.83 -  9.10                           4,000                     8.3                    4,000                    8.56
        9.10 - 11.38                          16,000                     6.3                   16,000                    9.84
       13.65 - 15.93                           8,000                     7.0                    8,000                   15.25
       20.48 - 22.75                           8,000                     9.0                       --                      --
                                 -------------------     -------------------     --------------------     -------------------

                                              63,000                     5.9                   55,000                    7.55
                                 ===================     ===================     ====================     ===================
</TABLE>

                                      F-24                           (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000

The per share weighted-average fair value of stock options granted under the
Director's Plan during 1999 and 2000 was $7.87 and $20.48 on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 1999 - expected dividend yield of 0%, expected volatility of
77.42%, risk-free interest rate of 5.65%, and expected life of 10 years; 2000-
expected dividend yield of 0%; expected volatility of 106.5%, risk-free interest
rate of 6.0%; and expected life of 10 years.

Employee Stock Purchase Plan
----------------------------

On October 12, 1995, the Board of Directors of the Company adopted the
Datastream Systems, Inc. Amended and Restated Employee Stock Purchase Plan (the
"Purchase Plan"). The Company's stockholders approved the Plan at the Company's
1996 annual meeting of stockholders held May 23, 1996. The Purchase Plan permits
eligible employees to elect to contribute up to 15% of their regular
compensation through payroll deductions, toward the purchase of common stock at
85% of the fair market value of a share on either the date the right is granted
(the first day of each semi-annual period) or the date it is exercised (the last
day of such period), whichever is lower. The Purchase Plan is intended to comply
with Section 423 of the Internal Revenue Code of 1986, as amended. The Board of
Directors and the Company's stockholders have reserved 400,000 shares of common
stock for future issuance pursuant to the Purchase Plan. Under the Plan, the
Company sold 37,227 and 39,541 shares in 1999 and 2000, respectively.

Under Statement No. 123, compensation expense for the Purchase Plan is
determined based on the discount percentage at which the stock is purchased.

The Company applies APB Opinion No. 25 in accounting for its stock option and
stock purchase plans and, accordingly, no compensation cost has been recognized
for its stock options or for stock purchased under the Purchase Plan in the
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for stock options or based on the discount
percentage under the Purchase Plan under Statement No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated below:


                                      1998        1999         2000
                                      ----        ----         ----

Net income (loss)      As reported  $ 4,700,505   7,435,146   (16,843,258)
                       Pro forma     (1,592,974)   (316,987)  (25,598,804)

Basic:
   Net income (loss)   As reported  $       .25         .39          (.84)
      per share        Pro forma           (.08)       (.02)        (1.28)

Diluted:
   Net income (loss)   As reported  $       .23         .37          (.84)
      per share        Pro forma           (.08)       (.02)        (1.28)

Compensation cost related to the Plans is reflected over the options' vesting
period of one to five years.

                                      F-25                           (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000

(13) Leases

     As Lessee
     ---------

     The Company leases office space, automobiles and equipment under agreements
     which have been classified as operating leases for financial reporting
     purposes. At December 31, 2000, the approximate future minimum lease
     payments under noncancelable operating leases that expire at various dates
     through 2005 are as follows:

     2001                                                          $  1,468,741
     2002                                                             1,188,791
     2003                                                               571,412
     2004                                                               312,625
     2005                                                               223,139
     Thereafter                                                          99,384
                                                                   ------------

                                                                   $  3,864,092
                                                                   ============

     Rent expense for the years ended December 31,1998, 1999 and 2000 totaled
     $1,069,599, $1,322,271 and $1,576,891, respectively.

As Lessor
---------

     In 1998, the Company leased a portion of its building and related leasehold
     improvements to outside parties under noncancelable operating leases.
     Rental income (included in other income in the accompanying statement of
     income) for the year ended December 31, 1998 was $126,308.

                                      F-26                           (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000


(14) Segment and Geographic Information

     The Company has identified one business segment for reporting purposes,
     Assets Lifecycle Management. The Company manages the Asset Lifecycle
     Management business over geographical regions. The principal areas of
     operation include the United States, Europe, Latin America and Asia.
     Financial information concerning the Company's operations in different
     geographical regions is as follows:

<TABLE>
<CAPTION>
                                            United                         Latin
                                            States         Europe         America         Asia           Total
                                     ----------------- -------------- -------------- ---------------- -----------
     <S>                                  <C>            <C>            <C>            <C>            <C>
     1998:
     Total revenues                       68,316,535     24,928,462      1,180,028      4,129,832      98,554,857
     Operating income (loss)              10,892,830      1,804,773     (1,061,354)    (1,087,810)     10,548,439
     Operating income before
      one-time charges                    14,997,956      7,419,595        426,964      1,637,724      24,482,239
     Total assets                         65,957,630     16,978,033      1,055,202      2,799,287      86,790,152

     1999:
     Total revenues                       80,891,835     26,267,878      5,028,733      6,587,632     118,776,078
     Operating income (loss)               5,661,978      3,091,766      1,143,885        488,391      10,386,020
     Total assets                         64,955,845     15,759,880      3,042,961      4,416,353      88,175,039

     2000:
     Total revenues                       65,414,206     20,153,867      6,969,087      4,831,067      97,368,227
     Operating income (loss)             (16,475,774)    (3,269,455)        19,447     (1,197,478)    (20,923,260)
     Total assets                         64,459,985     12,967,518      3,929,417      3,925,914      85,282,834
</TABLE>

     In 1998, one-time charges include write-offs of capitalized software (see
     note 1(i)), write-off of in-process research and development, restructuring
     and other charges (see note 3).

     The United States revenues include international revenues of $7,200,000,
     $4,968,000 and $3,451,000 for the years ended December 31, 1998, 1999 and
     2000, respectively.

                                       F-27                          (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000


(15) Reconciliation of Basic and Diluted 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, except when those shares result in antidilution. Antidilutive
     shares totaling 1,795,556, 2,468,578 and 3,682,078 in 1998, 1999, and 2000,
     respectively, were excluded from the diluted net income (loss) calculation.
     The reconciliation of basic and diluted income (loss) per share is as
     follows:

<TABLE>
<CAPTION>
                                                                                                        Per Share
                                                       Income                    Shares                   Amount
     <S>                                       <C>                               <C>              <C>
     1998:
       Basic income per share                  $          4,700,505                18,935,092     $          .25
                                                                                                  ====================
       Effect of dilutive securities:
            Stock options                                        --                 1,344,342
                                               --------------------      --------------------
       Diluted income per share                $          4,700,505                20,279,434     $          .23
                                               ====================      ====================     ====================

     1999:
       Basic income per share                  $          7,435,146                19,118,535     $          .39
                                                                                                  ====================
       Effect of dilutive securities:
            Stock options                                        --                   979,984
                                               --------------------      --------------------
       Diluted income per share                $          7,435,146                20,098,519     $          .37
                                               ====================      ====================     ====================

     2000:
       Basic income (loss) per share           $        (16,843,258)               20,008,710     $         (.84)
                                                                                                  ====================
       Effect of dilutive securities:
            Stock options                                        --                        --
                                               --------------------      --------------------
       Diluted income (loss) per share         $        (16,843,258)               20,008,710     $         (.84)
                                               ====================      ====================     ====================
</TABLE>

(16) Commitments and Contingencies

     During 2000, the Company reached an agreement to settle the consolidated
     securities class action litigation filed against the Company in January
     1999.  Under the agreement all claims against the Company and all of the
     individually named defendants have been dismissed.  In agreeing to the
     settlement, the Company and the individual defendants specifically denied
     any wrongdoing or liability relating to the claims made in the litigation.

     The principal financial terms of the agreement called for payment to the
     plaintiffs, for the benefit of the class, a total of $5.00 million in a
     combination of $3.75 million in cash and $1.25 million in shares of the
     Company's common stock (which was determined to be 132,571 shares).  The
     Company's insurance carrier funded $2.40 million of the settlement.  The
     Company paid the cash portion of the settlement in the fourth quarter of
     2000 and issued the common stock portion of the settlement in the first
     quarter of 2001.

                                       F-28                          (Continued)
<PAGE>

                   DATASTREAM SYSTEMS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 2000


     In an unrelated matter, the Company agreed to settle an escrow dispute
     related to its 1996 acquisition of SQL Systems. Under the terms of the
     settlement, the Company agreed to release 70,000 shares (fair market value
     of $805,000 at settlement date) of the Company's common stock previously
     held in escrow to the former shareholders of SQL Systems.

     The settlement charges and related legal fees are included in other
     expenses on the accompanying income statements.

     The Company 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.

                                     F-29
<PAGE>

                         Independent Auditors' Report
                         ----------------------------

The Board of Directors
Datastream Systems, Inc:

Under date of February 2, 2001, we reported on the consolidated balance sheets
of Datastream Systems, Inc. and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity and
comprehensive income (loss), and cash flows for each of the years in the three-
year period ended December 31, 2000, which are included herein.  In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related accompanying consolidated financial statement schedule.  The
consolidated financial statement schedule is the responsibility of the Company's
management.  Our responsibility is to express an opinion on the consolidated
financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.


                                                 /s/ KPMG LLP


Greenville, South Carolina
February 2, 2001




                                      S-1
<PAGE>

Datastream Systems, Inc.

                  Allowance for Doubtful Accounts Receivable

<TABLE>
<CAPTION>
                                    Balance at      Provision                       Balance at
                                   Beginning of    for Doubtful                       End of
Description                           Year           Accounts        Deductions        Year
                                   ------------    ------------      ----------     ----------
<S>                                <C>             <C>               <C>            <C>
Allowance for doubtful accounts
 receivable:

Year ended December 31, 1998       $  1,589,910     1,943,463         (459,536)       3,073,837
                                    ===========     =========       ==========        =========

Year ended December 31, 1999       $  3,073,837     2,139,482       (1,824,600)       3,388,719
                                    ===========     =========       ==========        =========

Year ended December 31, 2000       $  3,388,719     1,775,084       (1,980,350)       3,183,453
                                    ===========     =========       ==========        =========
</TABLE>

The Provision for Doubtful Accounts for 1998 includes $1.5 million established
through acquisitions and other charges that are not reflected in bad debt
expense on the statement of income.  The Provision for Doubtful Accounts for
1999 includes a $600,000 reclassification related to the 1998 Restructuring
Charge which is not reflected in the bad debt expense on the statement of
income.

                                      S-2
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 2001                    By:/s/  Larry G. Blackwell
                                           _________________________
                                           Larry G. Blackwell
                                           Chairman of the Board,
                                           President and Chief Executive Officer

                               POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
the signature page to this Registration Statement constitutes and appoints Larry
G. Blackwell and C. Alex Estevez and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits hereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, and grants unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and grants or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities
indicated on March 30, 2001.

Signature                               Title

   /s/ Larry G. Blackwell               Chairman of the Board, President
----------------------------
     Larry G. Blackwell                 And Chief Executive Officer
                                        (principal executive officer)


   /s/ C. Alex Estevez                  Chief Financial Officer (principal
----------------------------
     C. Alex Estevez                    financial and accounting officer)


   /s/ Richard T. Brock                 Director
----------------------------
     Richard T. Brock

   /s/ Ira D. Cohen                     Director
----------------------------
     Ira D. Cohen

   /s/ John M. Sterling, Jr.            Director
----------------------------
     John M. Sterling, Jr.

   /s/ James R. Talton, Jr.             Director
----------------------------
     James R. Talton, Jr.

                                        Director
----------------------------
     Kenneth D. Tracy
<PAGE>

                                 EXHIBIT INDEX

     Exhibit
     Number         Description

     3.1*           Amended and Restated Certificate of Incorporation.

     3.1(a)**       Amendment to Amended and Restated Certificate of
                    Incorporation, dated January 12, 1998.

     3.2*           Bylaws.

     3.2(a)         Amendment to Bylaws, dated March 16, 2001.

     4.1            See Exhibits 3.1 and 3.2 for provisions of the Amended and
                    Restated Certificate of Incorporation and By-Laws of the
                    Company defining rights of holders of Common Stock of the
                    Company.

     4.2*           Specimen Stock Certificate.

     10.1***        The Datastream Systems, Inc. 1995 Stock Option Plan (as
                    amended and restated through May 7, 1997)./(1)/

     10.1(a)**      First Amendment to the Datastream Systems, Inc. 1995 Stock
                    Option Plan (as amended and restated through May 7, 1997),
                    dated March 14, 1998./(1)/

     10.1(b)****    Second Amendment to the Datastream Systems, Inc. 1995 Stock
                    Option Plan (as amended and restated through May 7, 1997),
                    dated May 8, 1998./(1)/

     10.1(c)****    Third Amendment to the Datastream Systems, Inc. 1995 Stock
                    Option Plan (as amended and restated May 7, 1997), dated
                    March 12, 1999./(1)/

     10.2+          The Datastream Systems, Inc. Stock Option Plan for Directors
                    (as amended and restated as of April 12, 1996)./(1)/

     10.2(a)**      First Amendment to Datastream Systems, Inc. Stock Option
                    Plan for Directors (as amended and restated as of April 12,
                    1996), dated March 13, 1998./(1)/

     10.2(b)****    Second Amendment to the Datastream Systems, Inc. Stock
                    Option Plan for Directors (as amended and restated as of
                    April 12, 1996), dated March 12, 1999./(1)/

     10.3++         The Datastream Systems, Inc. 1998 Stock Option Plan./(1)/

     10.3(a)****    First Amendment to the Datastream Systems, Inc. 1998 Stock
                    Option Plan, 21 dated March 12, 1999./(1)/

     21             Subsidiaries of the Company.

     23             Consent of KPMG LLP.

     24             Power of Attorney (included on signature page hereto).

_________
<PAGE>

*       Incorporated herein by reference to exhibit of the same number in the
        from S-1 Registration Statement of the Company's Registration Statement
        on Form S-1 (File No. 33-89498).

**      Incorporated herein by reference to exhibit of the same number in
        Company's Annual Report on Form 10-K for the fiscal year ended December
        31, 1997 (File No. 000-25590).

***     Incorporated herein by reference to Appendix A to the Company's
        definitive Proxy Statement for the Company's 1997 Annual Meeting of
        Stockholders, filed May 12, 1997 (File No. 000-25590).

****    Incorporated herein by reference to exhibit of the same number in
        Company's Annual Report on Form 10-K for the fiscal year ended December
        31, 1998 (File No. 000-25590).

+       Incorporated herein by reference to Appendix C to the Company's
        definitive Proxy Statement for the Company's 1996 Annual Meeting of
        Stockholders, filed April 23, 1996 (File No. 000-25590).

++      Incorporated herein by reference to Appendix A to the Company's
        definitive Proxy Statement for the Company's 1998 Annual Meeting of
        Stockholders, filed May 12, 1998 (File No. 000-25590).

/(1)/   Management contract or compensatory plan or arrangement required to be
        filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this
        report.