SECURITIES AND EXCHANGE COMMISSION
                          Washington, DC 20549


                               FORM 10-Q

(Mark One)
__X__            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934

           For the quarterly period ended SEPTEMBER 30, 1997

                                   OR

_____            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                 THE SECURITIES EXCHANGE ACT OF 1934

                 For the transition period from
                    ________________to_________________


                   COMMISSION FILE NUMBER:   000-25590


                        DATASTREAM SYSTEMS, INC.

       Incorporated pursuant to the laws of the State of Delaware
               -------------------------------------------

   Internal Revenue Service  -- Employer Identification No. 57-0813674

                50 DATASTREAM PLAZA, GREENVILLE, SC 29605

                             (864) 422-5001
               -------------------------------------------

                             NOT APPLICABLE
       (Former Name, Former Address, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes _X_ No ___

APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares
outstanding of the issuer's common stock as of the latest practicable
date:   SEPTEMBER 30, 1997    9,270,810 shares, $0.01 par value.


<PAGE>





                         Datastream Systems, Inc.

                                FORM 10-Q

                     Quarter ended September 30, 1997

                                  Index

                                                                        Page No.

Part I.    Consolidated Financial Information

Item 1.    Consolidated Financial Statements (unaudited)

           Consolidated Balance Sheets - December 31, 1996 and
                September 30, 1997
                Assets                                                3
                Liabilities and Stockholders' Equity                  4

           Consolidated Statements of Income -
                for the Three Months ended
                    September 30,1996 and 1997                        5

           Consolidated Statements of Income -
                for the Nine Months ended
                    September 30,1996 and 1997                        6

           Consolidated Statement of Changes in
               Stockholders' Equity - for the Nine Months
                    ended September 30, 1997                          7

           Consolidated Statement of Cash Flows -
                for the Nine Months ended
                    September 30, 1996 and 1997                       8

           Notes to the Consolidated Financial Statements             9

Item 2.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations              11

Item 3.    Quantitative and Qualitative Disclosures About             14
           Market Risk


Part II.   Other Information                                          15


Signature                                                             17


<PAGE>


PART I.  CONSOLIDATED FINANCIAL INFORMATION

ITEM 1.  Consolidated Financial Statements

                  Datastream Systems, Inc. and Subsidiaries

                           Consolidated Balance Sheets

                                   Assets

                                                    December 31, September 30,
                                                       1996           1997
                                                                  (unaudited)
Current assets:
   Cash and cash equivalents                         $6,315,719    $1,149,670
   Accounts receivable, net of allowance for
     doubtful accounts of $835,000 and
          $835,000, respectively                     11,725,928    18,474,729
   Investments held to maturity                      13,011,856    10,292,437
   Accrued interest receivable                          221,827        95,487
   Prepaid expenses                                     586,647       820,020
   Inventories                                          324,018       308,453
   Deferred income taxes                                395,000       395,000
   Other assets                                       1,961,496     3,909,439
                                                      ---------     ---------
        Total current assets                         34,542,491    35,445,235

Investments held to maturity                          4,547,220     5,911,737

Property and equipment
   Land                                                 465,981       500,981
   Building                                           4,371,113     4,603,447
   Computer equipment                                 4,719,340     7,148,080
   Furniture and fixtures                               930,226     1,172,521
                                                        -------     ---------
                                                     10,486,660    13,425,029
   Less accumulated depreciation                      1,794,337     3,252,188
                                                      ---------     ---------
        Net property and equipment                    8,692,323    10,172,841

Goodwill                                              7,636,748     6,818,760

Capitalized software development costs, net of
 accumulated amortization of $1,197,177 and
     $2,239,941, respectively                         2,158,436     2,709,530
                                                      ---------     ---------

        Total assets                                $57,577,218   $61,058,103
                                                    ===========   ===========

See notes to Consolidated Financial Statements


<PAGE>


                  Datastream Systems, Inc. and Subsidiaries
                     Consolidated Balance Sheets (Continued)
                    Liabilities and Stockholder' Equity

                                                    December 31, September 30,
                                                       1996           1997
                                                                  (unaudited)
 Current liabilities:
   Accounts payable                                  $4,403,205    $3,278,351
   Other accrued liabilities                          9,139,078     4,539,232
   Income taxes payable                                 743,707     1,585,105
   Current portion of long-term debt                  1,507,274       668,718
   Unearned revenue                                   5,116,007     6,692,200
                                                      ---------     ---------
        Total current liabilities                    20,909,271    16,763,606

Long-term debt, less current portion                  2,892,743       849,171
Deferred income taxes                                   650,000       650,000
                                                        -------       -------
        Total liabilities                            24,452,014    18,262,777

Stockholders' equity:
   Preferred stock, $1 par value,
     1,000,000 shares authorized;                           -              -
      none outstanding
   Common stock, $.01 par value, 15,000,000 shares       91,268        92,707
      authorized; 9,126,789 share issued and
      outstanding at December 31, 1996, 9,270,810 shares
      issued and outstanding at September 30, 1997
   Additional paid-in capital                        55,832,034    57,585,733
   Foreign currency translation adjustment                  -         452,149
   Retained earnings                                (22,798,098)  (15,335,263)
                                                    -----------   -----------
        Total stockholders' equity                   33,125,204    42,795,326
                                                     ----------    ----------
        Total liabilities and stockholders' equity  $57,577,218   $61,058,103
                                                    ===========   ===========

See Notes to Consolidated Financial Statements


<PAGE>


                Datastream Systems, Inc. and Subsidiaries

                    Consolidated Statements of Income
                               (unaudited)
              Three months ended September 30, 1996 and 1997

                                              September 30,      September 30,
                                                  1996                1997

Revenues:
   Product                                $   3,651,553          $  8,194,800
   Professional service                       3,069,642             6,187,778
   Support                                    1,542,707             3,017,597
                                              ---------             ---------
      Total revenues                          8,263,902            17,400,175

Cost of revenues:
   Cost of product revenues                     472,718               745,550
   Cost of professional service revenues      1,715,819             3,738,612
   Cost of support revenues                     258,314             1,134,280
                                                -------             ---------
      Total cost of revenues                  2,446,851             5,618,442
                                              ---------             ---------
      Gross profit                            5,817,051            11,781,733

Operating expenses:
   Sales and marketing                        2,268,547             4,604,504
   Product development                          357,707             1,180,355
   General and administrative                   805,640             1,522,411
                                                -------             ---------
      Total operating expenses                3,431,894             7,307,270

      Operating income                        2,385,157             4,474,463

Other income (expense):
   Interest income                              579,903               198,571
   Interest expense                                (923)              (48,792)
   Other                                         11,425                99,658
                                                 ------                ------
      Net other income                          590,405               249,437
                                                -------               -------
      Income before income taxes              2,975,562             4,723,900

Income taxes                                  1,145,500             1,748,000
                                              ---------             ---------
Net income                                  $ 1,830,062           $ 2,975,900
                                            ===========           ===========
Per share data:
   Net income                               $       .21           $       .31
                                            ===========           ===========
   Weighted average number of common and
      common equivalent shares outstanding    8,919,505             9,717,080

See Notes to Consolidated Financial Statements


<PAGE>


                Datastream Systems, Inc. and Subsidiaries

                    Consolidated Statements of Income
                               (unaudited)
              Nine months ended September 30, 1996 and 1997

                                              September 30,      September 30,
                                                  1996                1997

Revenues:
   Product                                $   9,983,265        $   21,194,296
   Professional service                       8,371,707            18,878,489
   Support                                    4,514,793             8,823,343
                                              ---------             ---------
      Total revenues                         22,869,765            48,896,128

Cost of revenues:
   Cost of product revenues                   1,327,546             2,284,532
   Cost of professional service revenues      4,333,540            10,980,210
   Cost of support revenues                     784,087             2,911,807
                                                -------             ---------
      Total cost of revenues                  6,445,173            16,176,549
                                              ---------            ----------
      Gross profit                           16,424,592            32,719,579

Operating expenses:
   Sales and marketing                        6,630,284            13,571,866
   Product development                        1,076,112             3,050,566
   General and administrative                 2,300,326             5,530,108
                                              ---------             ---------
      Total operating expenses               10,006,722            22,152,540

      Operating income                        6,417,870            10,567,039

Other income (expense):
   Interest income                            1,727,158               707,431
   Interest expense                              (3,678)             (186,954)
   Other                                         23,499               218,281
                                                 ------               -------
      Net other income                        1,746,979               738,758
                                              ---------               -------
      Income before income taxes              8,164,849            11,305,797

Income taxes                                  3,145,000             3,750,812
                                              ---------             ---------
Net income                                  $ 5,019,849           $ 7,554,985
                                            ===========           ===========
Per share data:
   Net income                               $       .57           $       .80
                                            ===========           ===========
   Weighted average number of common and
      common equivalent shares outstanding    8,850,754             9,492,652

See Notes to Consolidated Financial Statements


<PAGE>



                Datastream Systems, Inc. and Subsidiaries

        Consolidated Statement of Changes in Stockholders' Equity
                               (unaudited)


               For the nine months ended September 30, 1997


                                                        Foreign
                            Additional                  Currency       Total
                      Common  Paid-In      Retained   Translations Stockholders'
                      Stock   Capital      Earnings    Adjustment      Equity


Balance at
 December 31, 1996  $ 91,268  $55,832,034 $(22,798,098)$     -      $33,125,204

Net income               -            -      7,554,985       -        7,554,985

Stock options
 exercised             1,344    1,616,016          -         -        1,617,360

Shares issued for
 Employee Stock
 Purchase Plan            95      137,683          -         -          137,778

Foreign currency
 translations            -            -        (92,150)  452,149        359,999


Balance at
 June 30, 1997      $ 92,707  $57,585,733 $(15,335,263) $452,149    $42,795,326
                    ========  =========== ============  ========    ===========

See Notes to Consolidated Financial Statements


<PAGE>


                Datastream Systems, Inc. and Subsidiaries

                  Consolidated Statements of Cash Flows
                               (unaudited)

       Nine months ended September 30, 1996 and September 30, 1997

                                               September 30,     September 30,
                                                   1996               1997
Cash flows from operating activities:
   Net income                                  $  5,019,848      $  7,554,985
   Adjustments to reconcile net income to
    net cash provided by operating activities:
      Depreciation                                  613,123         1,590,698
      Amortization of capitalized software
       development costs                            350,519           988,544
      Amortization of goodwill                          -             818,251
      Foreign currency translation adjustment           -             334,538
      Loss on disposal of fixed assets                 (213)           45,037
      Provision for doubtful accounts               135,525               -
      Changes in operating assets and liabilities:
       Accounts receivable                       (2,082,302)       (6,748,801)
       Accrued interest receivable                  493,070           126,340
       Prepaid expenses                            (118,812)         (233,374)
       Inventories                                  (10,408)           15,565
       Other assets                                 (84,392)       (1,947,944)
       Accounts payable                             365,366        (1,124,848)
       Other accrued liabilities                    (80,999)       (4,619,847)
       Income taxes payable                         284,918           841,397
       Unearned revenue                             660,708         1,576,194
                                                    -------         ---------
       Net cash provided by (used in)
          operating activities                    5,545,951          (783,265)
Cash flows from investing activities:
   Net proceeds from investments                    220,252         1,370,801
   Additions to property and equipment           (2,974,781)       (3,111,340)
   Proceeds from the sale of equipment                9,000            58,644
   Capitalized software development costs        (1,632,414)       (1,593,909)
                                                 ----------        ----------
       Net cash used in investing activities     (4,377,943)       (3,275,804)

Cash flows from financing activities:
   Proceeds from exercise of stock options          838,574         1,755,148
   Proceeds from line of credit                         -             400,000
   Principal payments on long-term debt             (15,000)       (3,262,128)
                                                    -------        ----------
       Net cash provided by (used in)
          financing activities                      823,574        (1,106,980)

Net increase (decrease) in
     cash and cash equivalents                    1,991,582        (5,166,049)
Cash and cash equivalents at
     beginning of period                          1,184,092         6,315,719
                                                  ---------         ---------
Cash and cash equivalents at end of period     $  3,175,674      $  1,149,670
                                               ============      ============

See Notes to Consolidated Financial Statements


<PAGE>



               Datastream Systems, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements


1)  Summary of significant Accounting Policies

A. Organization and Basis of Presentation

Datastream  Systems,  Inc. (the "Company" or  "Datastream")  develops,  markets,
sells  and  supports  Microsoft  and  Oracle  based  software  products  for the
industrial  automation  market.  These products serve the desktop,  file server,
client-server and enterprise-wide networking environments. Datastream's software
enables users to schedule preventive  maintenance,  record equipment maintenance
histories, organize and control spare parts inventories,  schedule equipment and
parts inventory purchases and deploy maintenance  personnel.  In addition to its
U.S.  operations,  the Company has direct sales or  distribution  offices in the
Canada,  United Kingdom, The Netherlands,  France,  Mexico,  Brazil,  Argentina,
Venezuela, Peru, Malaysia, Korea, Australia and South Africa.

On December  31,  1996,  the  Company  acquired  SQL Group,  B.V.  ("SQL").  The
acquisition has been accounted for using the purchase method. The purchase price
has been  allocated to the  tangible and  intangible  assets  purchased  and the
liabilities assumed based on the fair values on the date of acquisition.

The  interim  financial  information  included  herein  is  unaudited.   Certain
information  and  footnote   disclosures  normally  included  in  the  financial
statements have been condensed or omitted  pursuant to the rules and regulations
of the Securities and Exchange  Commission (SEC),  although the Company believes
that the  disclosures  made are adequate to make the  information  presented not
misleading.   These  consolidated   financial   statements  should  be  read  in
conjunction  with  the  consolidated  financial  statements  and  related  notes
contained  in the  Company's  Form 10-K filed with the SEC on April 15, 1997 and
the  Company's  Form 10-Q filed with the SEC on August 15,  1997.  Other than as
indicated herein, there have been no significant changes from the financial data
published  in those  reports.  In the  opinion  of  management,  such  unaudited
information  reflects  all  adjustments,  consisting  only of  normal  recurring
accruals  and  other  adjustments  as  disclosed  herein,  necessary  for a fair
presentation of the unaudited information.

Results for interim periods are not necessarily  indicative of results  expected
for the full year.


B.  Accounting Policies

Net income per share

Net income per share is computed by dividing net income by the weighted  average
number of common and common  equivalent  shares  outstanding.  Weighted  average
common and common equivalent  shares include common shares,  stock options using
the treasury stock method,  and the assumed  exercise  price of the  outstanding
warrants to purchase common stock.


C.  Public Offering of Common Stock

On April 5, 1995, the Company  closed its initial  public  offering of 1,633,000
shares of common stock (633,000 of which were sold by existing shareholders) for
$15.00 per share before giving effect to the two for one stock split referred to
in  the  following   paragraph.   The  Company  invested  the  net  proceeds  of
approximately $13.95 million from the offering in U.S. Government securities.

Effective  September 12, 1995,  the Company  completed a two for one stock split
effected in the form of a stock  dividend.  All  references in the  accompanying
consolidated financial statements to the number of shares have been presented to
reflect this stock split.

On October 3, 1995,  the Company  closed a second  public  offering of 2,000,000
shares of common stock for $22.25 per share  (1,085,670 of such shares were sold
by  existing   shareholders).   The  Company   invested   the  net  proceeds  of
approximately $19.12 million from the offering in U.S. Government securities. In
conjunction with the second offering, on October 17, 1995, the Company closed on
the  over-allotment  option  of  300,000  shares of common  stock.  The  Company
invested the net proceeds of approximately $6.28 million from the over-allotment
option in U.S. Government securities.




<PAGE>


ITEM 2.  Management's Discussion and Analysis of Financial Condition
and Results of Operations

    This report contains certain forward-looking  statements with respect to the
Company's  operations,   industry,  financial  condition  and  liquidity.  These
statements   reflect  the  Company's   assessment  of  a  number  of  risks  and
uncertainties.  The Company's  actual results could differ  materially  from the
results anticipated in these  forward-looking  statements as a result of certain
factors set forth in this report.

Overview

    The Company offers a family of "computerized maintenance management systems"
("CMMS") to the maintenance,  repair and operations ("MRO") industry,  including
MP2 Pro, MP2 Enterprise, Maintainit, Maintainit Pro and R5 CAMMS. These products
serve the desktop,  client-server and enterprise-wide  networking  environments.
Datastream  supports  its  software  products  through  professional   services,
including  installation,   consulting,   integration,   custom  programming  and
training.  Ongoing technical support services are supplied pursuant to renewable
annual technical support contracts.

    Financial information for 1997 includes the operations of Datastream and its
European subsidiary,  SQL Group, B. V. ("SQL"),  which was acquired December 31,
1996. SQL's financial results from 1996 are not included. The acquisition of SQL
has  resulted in the mix of products  and costs of  providing  professional  and
support  services  to change.  These  changes  are most  evident in product  and
services gross profit margins.

Results of Operations

    Total Revenues.  The Company  reported higher revenues for the third quarter
of 1997.  Total  revenues  increased 111% to $17,400,175 in the third quarter of
1997 from  $8,263,902  in the third  quarter  of 1996,  due  principally  to the
acquisition  of SQL, the continued  acceptance of the Company's  products in the
industrial   automation  market  and  the  expansion  of  the  Company's  sales,
professional service and technical support service organizations. Total revenues
increased  114% to  $48,896,128  during  the  first  nine  months  of 1997  from
$22,869,765 in the first nine months of 1996.

    Product revenues increased 124% to $8,194,800 (47% of total revenues) in the
third  quarter  of 1997 from  $3,651,553  (44% of total  revenues)  in the third
quarter of 1996,  as a result of the growth in new product  sales  including MP2
Enterprise and Maintainit Pro, the growth in international  sales and the impact
of the SQL acquisition.  Product revenues  increased 112% to $21,194,296 (43% of
total  revenues) in the first nine months of 1997 from  $9,983,265 (44% of total
revenues) in the first nine months of 1996.

    Professional  service  revenues  increased 102% to $6,187,778  (36% of total
revenues) in the third quarter of 1997 from  $3,069,642  (37% of total revenues)
in  the  third  quarter  1996.  The  increase  resulted  from  the  addition  of
professional  service personnel to service expansion of the Company's  installed
base of  systems  and the  acquisition  of SQL.  Professional  service  revenues
increased 126% to $18,878,489  (39% of total  revenues) in the first nine months
of 1997 from  $8,371,707  (37% of total  revenues)  in the first nine  months of
1996.

    Technical support services revenues for the third quarter 1997 increased 96%
to $3,017,597 (17% of total revenues) from $1,542,707 (19% of total revenues) in
the third  quarter of 1996,  primarily  due to the  expansion  of the  Company's
installed base of systems and the acquisition of SQL. Technical support services
revenues  increased 95% to $8,823,343  (18% of total revenues) in the first nine
months of 1997 from  $4,514,793 (20% of total revenues) in the first nine months
of 1996.

    Cost of Revenues.  Cost of revenues  increased  130% to  $5,618,442  (32% of
total  revenues) in the third quarter of 1997, as compared to $2,446,851 (30% of
total  revenues)  in the  comparable  quarter of 1996.  The  increase in cost of
revenues as a percentage  of sales is  attributed to the shipment of updates for
MP2 Pro and increased  expenses  incurred in the  Applications  Engineering  and
Support Departments related to salaries and customer reimbursed travel.

    Cost of  revenues  increased  151% to  $16,176,549  (33% of total  revenues)
during the first nine months of 1997 from  $6,445,173 (28% of total revenues) in
the first nine months of 1996.

    Cost of product  revenues was 4% of total  revenues in the third  quarter of
1997, and 6% of total revenues  during the same period of 1996. The decrease was
due to decreased costs of shipping and packaging related items.

    Cost of professional  service  revenues was 22% of total revenues during the
third quarter of 1997, and 21% of total revenues during the same period in 1996.
The increase as a percentage  of total  revenues was due to increased  personnel
and customer reimbursed travel costs.

    Cost of technical  support service  revenues was 6% of total revenues during
the third  quarter of 1997 and 3% of total  revenues  during the same  period in
1996.  The  increase as  percentage  of total  revenue was due to  increases  in
support personnel to support the company's  expanded  installed base,  salaries,
the cost of updates  provided to MP2 Pro customers  under the terms of technical
support agreements and the acquisition of SQL.

    Sales and Marketing Expenses. Sales and marketing expenses increased 103% to
$4,604,504  (26% of total  revenues)  during  the  third  quarter  of 1997  from
$2,268,547 (27% of total revenues) during the third quarter in 1996, as a result
of an increased  number of sales personnel and  commissions  associated with the
increase in sales revenue,  increased  marketing  expenses  associated  with new
product  introductions and the acquisition of SQL. Sales and marketing  expenses
increased 105% to $13,571,866  (28% of total  revenues) in the first nine months
of 1997 from  $6,630,284  (29% of total  revenues)  in the first nine  months of
1996.

    Product  Development  Expenses.   Total  product  development   expenditures
increased 77% to $1,932,207 (11% of total revenues)  during the third quarter of
1997 from $1,089,505 (13% of total revenues) during the same period in 1996. The
capitalized  portion of these amounts were $751,852 and $731,798,  respectively.
Giving effect to amounts capitalized, product development expense increased 230%
to $1,180,355 (7% of total  revenues) in the third quarter of 1997 from $357,707
(4% of total  revenues)  during the same period in 1996.  The  increase in total
product  development  expense resulted from increasing the number of development
personnel  to  support  continued  development  of R5  CAMMS,  foreign  language
development and other new products.

    Total product  development  expenditures  increased 72% to $4,644,473 (9% of
total  revenues)  during the first nine months of 1997 from  $2,708,516  (12% of
total revenues) during the same period in 1996. The capitalized portion of these
amounts were $1,593,908 and $1,632,404,  respectively.  Giving effect to amounts
capitalized,  product  development  expense  increased 184% to $3,050,566 (6% of
total  revenues) in the first nine months of 1997 from  $1,076,112  (5% of total
revenues) during the same period in 1996.

    General and Administrative  Expenses.  General and  administrative  expenses
increased 89% to $1,522,411 (9% of total  revenues)  during the third quarter of
1997  from  $805,640  (10% of total  revenues)  in the  third  quarter  of 1996,
primarily  due to  increased  salaries  and related  costs  attributable  to the
acquisition  of SQL.  General  and  administrative  expenses  increased  140% to
$5,530,108  (11% of total  revenues)  during the first nine  months of 1997 from
$2,300,326 (10% of total revenues) in the first nine months of 1996.

    Miscellaneous Income. Miscellaneous income increased to $99,658 in the third
quarter of 1997 from $11,425 in the third quarter of 1996.  The increase was due
to rental income  generated from leasing a portion of the Company's  building in
Greenville,  South Carolina in the third quarter of 1997.  Miscellaneous  income
increased to $218,281 in the first nine months of 1997 from $23,499 in the first
nine months of 1996.

    Interest  Income/(Expense).  Interest  income  decreased  to $198,571 in the
third quarter of 1997 from  $579,903 in the third quarter of 1996,  due to lower
investment  balances realized upon completion of the SQL acquisition in December
1996.  Interest  expense  increased to $48,792 in the third quarter of 1997 from
$923 in the third quarter of 1996,  due to debt assumed in the SQL  acquisition.
Interest  income  decreased  to  $707,431  in the first nine months of 1997 from
$1,727,158  in the first nine  months of 1996.  Interest  expense  increased  to
$186,954  in the first nine  months of 1997 from $3,678 in the first nine months
of 1996.

    Tax Rate. The Company's  effective tax rate was 37% for the third quarter of
1997 as compared to 38.5% for the third quarter of 1996. The Company's effective
tax rate was 33% in the first nine  months of 1997 as  compared  to 38.5% in the
first nine months of 1996.

    Net Income.  Net income  increased 63% to $2,975,900 (17% of total revenues)
in the third  quarter of 1997 from  $1,830,062  (22% of total  revenues)  in the
third quarter of 1996.  Net income  increased  51% to  $7,554,985  (15% of total
revenues)  in the  first  nine  months  of 1997  from  $5,019,849  (22% of total
revenues) in the first nine months of 1996.

Liquidity and Capital Resources

    The Company has funded its  activities  entirely  from cash  generated  from
operations. The Company ended its third quarter of 1997 with $ 1,149,670 in cash
and cash  equivalents  defined as securities  maturing in less than 90 days. The
Company intends to re-invest the proceeds of maturing U.S. Government securities
in similar U.S. Government securities.

    The Company completed renovating and assumed occupancy of its new offices at
50 Datastream Plaza, Greenville, SC 29605 during April 1996.

    The  acquisition  of SQL was completed for $31 million,  $17 million in cash
and $14 million in stock issued pursuant to Regulation S. In connection with the
acquisition,  the Company also deposited into escrow an additional $3 million in
stock,  and assumed  certain of SQL's  outstanding  liabilities.  Following  the
acquisition, SQL's long-term debt totaling approximately $2.7 million was repaid
by the Company and additional  working capital  infusions of approximately  $2.5
million were required to sustain SQL's  operations and pay current  liabilities.
Approximately   $1.7  million  of  SQL's   long-term  debt  remains,   of  which
approximately $800,000 is scheduled to be repaid by the end of 1997.

      In July 1997,  the Company  made a $2 million  investment  in  Distinction
Software,  Inc.  ("Distinction") This investment represents less than 20% of the
outstanding  equity  interests  of  Distinction  and is  included  in long  term
investments on the balance
sheet.

      The Company's  principal  commitments as of September 30, 1997,  consisted
primarily of long term debt assumed in the acquisition of SQL, and there were no
material commitments for capital expenditures. The Company completed its initial
public offering in April 1995, raising proceeds,  net of underwriting  discounts
and   commission   (but  before  payment  of  other  expenses  of  $389,787)  of
$13,950,000.  Proceeds  from  the  offering  were  invested  in U.S.  Government
securities.  The Company  completed its second public  offering in October 1995,
raising  proceeds,  net of  underwriting  discounts and  commission  (but before
payment  of other  expenses  of  $255,064)  of  $25,400,000.  Proceeds  from the
offering were invested in U.S. Government securities.  The Company believes that
its current cash balances, availability under its line of credit, cash flow from
operations and the proceeds of the Company's most recent public offering will be
sufficient  to meet its working  capital and  capital  expenditure  needs for at
least the next 12 months.



<PAGE>



ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk


           Not Applicable.



<PAGE>


PART II.     OTHER INFORMATION

Item 1.    Legal Proceedings

           Not Applicable.

Item 2.    Changes in Securities

           Not Applicable.

Item 3.    Defaults Upon Senior Securities

           Not Applicable.

Item 4.    Submission of Matters to a Vote of Stockholders

           Not Applicable.

Item 5.         Other Information

           Not Applicable.

Item 6.         Exhibits and Reports on Form 8-K

           (a)  Exhibits

           27   Financial Data Schedule

           (b)  Reports on Form 8-K

                No  reports on Form 8-K were filed  during the third  quarter of
                    1997.

<PAGE>



                                SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                            Datastream Systems, Inc.


                             /s/ Daniel H. Christie
Date:   11/06/97                    ______________________
                               Daniel H. Christie
                               Chief Financial Officer (principal
                                financial and accounting officer)