SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 10Q

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

                  For the quarterly period ended June 30, 2001

                                       OR

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

                 For the transition period from_____________to______________


                        COMMISSION FILE NUMBER: 000-25590


                            DATASTREAM SYSTEMS, INC.

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

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

                50 DATASTREAM PLAZA, GREENVILLE, SC 29605

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

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


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

APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding
of the issuer's  common stock as of the latest  practicable  date: June 30, 2001
20,507,156 shares, $0.01 par value.
<page>

                         Datastream Systems, Inc.

                                FORM 10-Q

                       Quarter ended June 30, 2001

                                  Index

                                                                        Page No.

Part I.    Consolidated Financial Information

           "Safe Harbor" Statement under the Private Securities
               Litigation Reform Act of 1995                                 3

Item 1.    Consolidated Financial Statements (unaudited)

           Consolidated Balance Sheets-
               December 31, 2000 and June 30, 2001
                Assets                                                       4
                Liabilities and Stockholders' Equity                         5

           Consolidated Statements of Operations -
                for the Three months ended June 30,  2000 and 2001           6

           Consolidated Statements of Operations -
                for the Six months ended June 30,  2000 and 2001             7

           Consolidated Statement of Changes in Stockholders' Equity
                and Comprehensive Loss -
                for the Six months ended June 30, 2001                       8

           Consolidated Statements of Cash Flows -
                for the Six months ended June 30, 2000 and 2001              9

           Notes to Consolidated Financial Statements                        10

Item 2.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations                     13

Item 3.    Quantitative and Qualitative Disclosures About                    15
           Market Risk


Part II.   Other Information                                                 16


Signature                                                                    17

                                      -2-
<PAGE>

PART I.     CONSOLIDATED FINANCIAL INFORMATION


                 "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 Quarterly Report on Form 10-Q (the "Report"), as
well as those made in other filings with the SEC.

     Forward-looking  statements can be identified by 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 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.  Such factors
include,  but are not limited  to: our  ability to sell larger and more  complex
software   solutions;   our   ability   to   successfully   develop   additional
Internet-based  products and to migrate our  customers  to these  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 the Company's Form 10-K for the fiscal year
ended  December 31, 2000,  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.

                                      -3-
<PAGE>


ITEM 1.  Consolidated Financial Statements

                    Datastream Systems, Inc. and Subsidiaries

                           Consolidated Balance Sheets
                                   (unaudited)
                                     Assets

                                                   December 31,        June 30,
                                                       2000             2001
                                                       ----             ----
Current assets:
   Cash and cash equivalents                        $15,487,515     $18,833,401
   Accounts receivable, net of allowance
        for doubtful accounts of
        $3,183,453 and $ 2,622,998, respectively     22,939,649      18,267,498
   Unbilled revenue, net of allowance of
        $156,000 and $171,000, respectively           2,065,745       2,259,495
   Investments                                              160             160
   Prepaid expenses                                   1,615,325       1,651,869
   Inventories                                          125,059           6,876
   Income tax receivable                              9,504,889       8,806,163
   Deferred income taxes                              3,665,000       4,715,000
   Other assets                                       1,358,525       1,508,194
                                                      ---------       ---------
        Total current assets                         56,761,867      56,048,656

Investments                                           2,000,000       2,000,000
Property and equipment, net                          14,125,640      13,510,677
Goodwill, net                                        12,051,577      10,540,746
Other long-term assets                                  343,750         206,250
                                                      ---------       ---------
        Total assets                                $85,282,834     $82,306,329
                                                    ===========     ===========

See accompanying notes to consolidated financial statements.


                                      -4-
<PAGE>


                    Datastream Systems, Inc. and Subsidiaries

                     Consolidated Balance Sheets (Continued)
                                   (unaudited)
                      Liabilities and Stockholders' Equity

                                                  December 31,        June 30,
                                                       2000             2001
                                                       ----             ----

Current liabilities:
   Accounts payable                                 $ 3,464,121     $ 3,135,532
   Other accrued liabilities                         10,824,994       8,326,722
   Current portion of long-term debt                    213,642         184,430
   Unearned revenue                                  10,174,327      12,052,406
                                                     ----------      ----------
        Total current liabilities                    24,677,084      23,699,090
Long-term debt, less current portion                      8,116               -
                                                     ----------      ----------
        Total liabilities                            24,685,200      23,699,090
                                                     ----------      ----------
Stockholders' equity:
   Preferred stock, $1 par value,
        1,000,000 shares authorized; none issued              -               -

   Common stock, $.01 par value,
        40,000,000 shares authorized;
        20,730,644 shares issued at December 31, 2000,
        20,952,656 shares issued at June 30, 2001       207,306         209,526
   Additional paid-in capital                        80,985,427      82,973,764
   Accumulated deficit                              (16,083,208)    (18,988,193)
   Other accumulated comprehensive loss                (459,128)     (1,212,357)
   Treasury stock, at cost;
        405,000 shares at December 31, 2000,
        445,500 shares at June 30, 2001              (4,052,763)     (4,375,501)
                                                     ----------      ----------
        Total stockholders' equity                   60,597,634      58,607,239
                                                     ----------      ----------
        Total liabilities and stockholders' equity  $85,282,834     $82,306,329
                                                    ===========     ===========

See accompanying notes to consolidated financial statements.


                                      -5-
<PAGE>

                    Datastream Systems, Inc. and Subsidiaries

                      Consolidated Statements of Operations
                                   (unaudited)
                    Three months ended June 30, 2000 and 2001

                                                      June 30,        June 30,
                                                       2000             2001
                                                       ----             ----
Revenues:
   Product                                         $  5,574,687    $  6,474,906
   Service and support                               17,436,310      16,538,184
                                                     ----------      ----------
      Total revenues                                 23,010,997      23,013,090

Cost of revenues:
   Cost of product revenues                             567,789         135,354
   Cost of service and support revenues              10,754,713       9,063,107
                                                     ----------       ---------
      Total cost of revenues                         11,322,502       9,198,461
                                                     ----------       ---------
      Gross profit                                   11,688,495      13,814,629

Operating expenses:
   Sales and marketing                               12,408,518       9,468,298
   Product development                                4,744,996       3,376,297
   General and administrative                         3,428,367       2,459,310
   Goodwill amortization                                755,416         755,416
                                                     ----------       ---------
      Total operating expenses                       21,337,297      16,059,321
                                                     ----------       ---------

      Operating loss                                 (9,648,802)     (2,244,692)

Other income (expense):
   Interest and other income                            313,725         252,188
   Interest expense                                     (11,752)        (34,080)
                                                     ----------       ---------
      Net other income                                  301,973         218,108
                                                     ----------       ---------
      Loss before income taxes                       (9,346,829)     (2,026,584)

Income tax benefit                                   (3,087,433)       (364,768)
                                                     ----------       ---------
Net loss                                           $ (6,259,396)   $ (1,661,816)
                                                   =============   =============

   Basic net loss per share                        $       (.31)   $       (.08)
   Diluted net loss per share                      $       (.31)   $       (.08)

   Basic weighted average number of common and
      potential common shares outstanding            20,074,827      20,510,383
   Diluted weighted average number of common and
      potential common shares outstanding            20,074,827      20,510,383

See accompanying notes to consolidated financial statements.


                                      -6-
<PAGE>

                    Datastream Systems, Inc. and Subsidiaries

                      Consolidated Statements of Operations
                                   (unaudited)
                     Six months ended June 30, 2000 and 2001

                                                      June 30,        June 30,
                                                       2000             2001
                                                       ----             ----
Revenues:
   Product                                         $ 13,127,616    $ 13,908,441
   Service and support                               35,134,326      33,637,536
                                                     ----------       ---------
      Total revenues                                 48,261,942      47,545,977

Cost of revenues:
   Cost of product revenues                           1,029,930         802,193
   Cost of service and support revenues              21,323,821      18,063,054
                                                     ----------       ---------
      Total cost of revenues                         22,353,751      18,865,247
                                                     ----------       ---------
       Gross profit                                  25,908,191      28,680,730

Operating expenses:
   Sales and marketing                               23,884,805      19,384,143
   Product development                                8,972,042       6,749,002
   General and administrative                         6,435,262       4,920,847
   Goodwill amortization                              1,510,831       1,510,831
                                                     ----------       ---------
      Total operating expenses                       40,802,940      32,564,823
                                                     ----------       ---------
      Operating loss                                (14,894,749)     (3,884,093)

Other income (expense):
   Interest and other income                            474,960         371,478
   Interest expense                                     (42,751)        (59,929)
                                                     ----------       ---------
      Net other income                                  432,209         311,549
                                                     ----------       ---------
      Loss before income taxes                      (14,462,540)     (3,572,544)

Income tax benefit                                   (5,135,367)       (667,559)
                                                     ----------       ---------
Net loss                                           $ (9,327,173)   $ (2,904,985)
                                                   =============   =============

   Basic net loss per share                        $       (.47)   $       (.14)
   Diluted net loss per share                      $       (.47)   $       (.14)

   Basic weighted average number of common and
      potential common shares outstanding            19,838,839      20,504,126
   Diluted weighted average number of common and
      potential common shares outstanding            19,838,839      20,504,126

See accompanying notes to consolidated financial statements.

                                      -7-
<PAGE>

<table>
                    Datastream Systems, Inc. and Subsidiaries

      Consolidated Statement of Stockholders' Equity and Comprehensive Loss
                                   (unaudited)

                         Six months ended June 30, 2001
<caption>

                                                                           Other
                                             Additional   Accumulated   Accumulated                  Total
                                  Common      Paid-In      Earnings    Comprehensive   Treasury   Stockholders'
                                   Stock      Capital      (Deficit)       (Loss)        Stock       Equity
                                   -----      -------      ---------    -----------      -----       ------

                                 <c>         <c>          <c>           <c>            <c>          <c>

Balance at December 31, 2000    $207,306   $80,985,427  $(16,083,208)  $ (459,128) $(4,052,763)     $60,597,634

Comprehensive loss
   Net loss                            -             -    (2,904,985)           -            -       (2,904,985)
   Foreign currency
        translation adjustment         -             -             -     (753,229)           -         (753,229)
                                                                                                     ----------
Total comprehensive loss                                                                             (3,658,214)
                                                                                                     ----------
Exercise of stock options            610       487,359             -            -            -          487,969

Stock issued for Employee
   Stock Purchase Plan               285       235,759             -            -            -          236,044

Amortization of compensatory
   stock options                       -        16,544             -            -            -           16,544

Acquisition of 40,500 shares           -             -             -            -     (322,738)        (322,738)

Shares issued for legal
        settlement                 1,325     1,248,675             -            -            -        1,250,000
                                --------   -----------   -----------    ---------  -----------      -----------
Balance at June 30, 2001        $209,526   $82,973,764  $(18,988,193) $(1,212,357) $(4,375,501)     $58,607,239
                                ========   ===========   ===========    =========  ===========      ===========

<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>

                                      -8-
<PAGE>


                    Datastream Systems, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows
                                   (unaudited)

                     Six months ended June 30, 2000 and 2001

                                                      June 30,        June 30,
                                                       2000             2001
                                                       ----             ----
Cash flows from operating activities:
   Net loss                                        $ (9,327,173)   $ (2,904,985)
   Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
      Depreciation                                    2,632,670       2,454,111
      Goodwill amortization                           1,510,831       1,510,831
      Other amortization                                 68,750         137,500
      Provision for doubtful accounts                  (192,326)       (578,955)
      Stock based compensation                          118,814          16,544
      Issuance of shares in legal settlement                  -       1,250,000
      Changes in operating assets and liabilities:
       Accounts receivable                            6,793,288       5,232,605
       Unbilled receivable                             (366,212)       (175,250)
       Income taxes receivable                       (7,203,742)        698,726
       Prepaid expenses                                (667,744)        (36,544)
       Inventories                                       17,475         118,183
       Deferred income taxes                                  -      (1,050,000)
       Other assets                                      39,755        (149,671)
       Accounts payable                               1,236,563        (328,769)
       Other accrued liabilities                        339,371      (2,498,092)
       Unearned revenue                               2,207,641       1,878,079
                                                     ----------       ---------
       Net cash provided by
            (used in) operating activities           (2,792,039)      5,574,313
                                                     ----------       ---------

Cash flows from investing activities:
   Purchase of investments                           (2,000,000)              -
   Proceeds from sale and maturities of investments     208,008               -
   Additions to property and equipment               (3,955,108)     (1,839,146)
   Purchase of customer list                           (550,000)              -
                                                     ----------       ---------
       Net cash used in investing activities         (6,297,100)     (1,839,146)
                                                     ----------       ---------

Cash flows from financing activities:
   Proceeds from exercise of stock options            5,743,249         487,969
   Proceeds from issuances of shares under employee
       stock purchase plan                              237,054         236,044
   Cash paid to acquire treasury stock                        -        (322,738)
   Principal payments on long-term debt                (645,517)        (37,327)
                                                     ----------       ---------
       Net cash provided by financing activities      5,334,786         363,948
                                                     ----------       ---------

Foreign currency translation adjustment                (746,984)       (753,229)

Net increase (decrease) in cash and cash equivalents (4,501,337)      3,345,886
Cash and cash equivalents at beginning of period     17,912,797      15,487,515
                                                     ----------       ---------
Cash and cash equivalents at end of period         $ 13,411,460    $ 18,833,401
                                                   ============    ============

See accompanying notes to consolidated financial statements.

                                      -9-
<PAGE>

             Datastream Systems, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements


1)  Summary of Significant Accounting Policies

A. Organization and Basis of Presentation

Datastream  Systems,  Inc. (the "Company" or "Datastream") is a leading provider
of  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.

The  interim  financial  information  included  herein  is  unaudited.   Certain
information  and  footnote   disclosures  normally  included  in  the  financial
statements have been condensed or omitted  pursuant to the rules and regulations
of the Securities and Exchange  Commission (SEC),  although the Company believes
that the  disclosures  made are adequate to make the  information  presented not
misleading.  In the opinion of management,  such unaudited  information reflects
all  adjustments,  consisting  only  of  normal  recurring  accruals  and  other
adjustments  as  disclosed  herein,  necessary  for a fair  presentation  of the
unaudited information. These consolidated financial statements should be read in
conjunction  with  the  consolidated  financial  statements  and  related  notes
contained in the Company's  Form 10-K for the year ended December 31, 2000 filed
with the SEC on March 30, 2001. Other than as indicated herein,  there have been
no significant changes from the financial data published in those reports.

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

B.    Accounting Policies

Revenue Recognition

The  Company's  revenue,  which  consists  primarily of fees for product  sales,
professional  services and 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 effective  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 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  Company's
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.

                                      -10-
<PAGE>

Net Income (Loss) Per Share

Basic net income  (loss) per share is computed by dividing net income  (loss) by
the weighted  average  number of common shares  outstanding.  Diluted net income
(loss) per share is  computed  by  dividing  net income  (loss) by the  weighted
average  number of common and  potential  dilutive  common  shares  outstanding.
Diluted  weighted  average common and potential  dilutive  common shares include
common  shares and stock options  using the treasury  stock method,  except when
those shares result in antidilution.  Antidilutive shares totaling 2,944,247 and
3,467,214 at June 30, 2000 and June 30, 2001,  respectively,  were excluded from
the diluted net income (loss)  calculation.  At June 30, 2000 and June 30, 2001,
basic loss per share equaled diluted loss per share.

C. Segment and Geographic Information

The Company has identified one business  segment for reporting  purposes:  Asset
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>
For the three months ended June 30, 2000 and 2001:
<caption>
                                  United Latin
                        States          Europe        America         Asia            Total

                     <c>             <c>           <c>             <c>             <c>
June 30, 2000:

Total revenues          $15,644,265  $ 4,782,376    $ 1,607,286     $   977,070     $23,010,997
Operating income (loss)  (9,216,649)    (346,571)       258,450        (344,032)     (9,648,802)
Total assets             68,638,584   12,980,017      3,199,596       4,147,310      88,965,507

June 30, 2001:

Total revenues           14,953,611    4,906,280      1,895,923       1,257,276      23,013,090
Operating loss           (1,235,746)    (640,543)      (226,523)       (141,880)     (2,244,692)
Total assets             60,426,692   13,519,295      4,721,155       3,639,187      82,306,329
</table>
<table>
For the six months ended June 30, 2000 and 2001:
<caption>
                                  United Latin
                        States          Europe        America         Asia            Total

                     <c>             <c>           <c>             <c>             <c>
June 30, 2000:

Total revenues          $32,173,356  $10,578,784    $ 2,958,168     $ 2,551,634     $48,261,942
Operating income (loss) (14,650,027)    (377,652)       518,911        (385,981)    (14,894,749)
Total assets             68,638,584   12,980,017      3,199,596       4,147,310      88,965,507

June 30, 2001:

Total revenues           31,276,009    9,963,642      3,697,706       2,608,620      47,545,977
Operating loss           (3,704,936)    (123,349)       (43,028)        (12,780)     (3,884,093)
Total assets             60,426,692   13,519,295      4,721,155       3,639,187      82,306,329
</table>

The United  States  revenues  include  international  revenues of  approximately
$619,000 and $1,018,000 for the second  quarters of 2000 and 2001,  respectively
and approximately $1,717,000 and $1,694,000 for the first six months of 2000 and
2001,  respectively.  During  2001,  intercompany  charges  related to  software
licenses were invoiced  monthly.  During 2000,  intercompany  charges related to
software licenses were invoiced annually.

D. 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). Statements No. 133 and

                                      -11-
<PAGE>

No. 138 require that all derivative instruments be recorded on the balance sheet
at their respective fair values.  The Company adopted Statements No. 133 and No.
138 in the first  quarter  of 2001.  The  Company  had no  derivative  financial
instruments in place during the second quarter of 2001.

In July 2001, the FASB issued  Statement of Financial  Accounting  Standards No.
141,  "Business  Combinations"(Statement  No. 141),  and  Statement of Financial
Accounting  Standards No. 142, "Goodwill and Other Intangible Assets" (Statement
No. 142).  Statement No. 141 requires that the purchase  method of accounting be
used for all business combinations  initiated after June 30, 2001. Statement No.
141 also specifies  criteria  intangible  assets  acquired in a purchase  method
business  combination  must  meet  to be  recognized  and  reported  apart  from
goodwill.  Statement  No. 142 will require that goodwill and  intangible  assets
with  indefinite  useful lives no longer be  amortized,  but instead  tested for
impairment.  The  effective  date of Statement No. 142 is January 1, 2002. As of
the date of  adoption,  the  Company  expects to have  unamortized  goodwill  of
approximately  $9,030,000,  which will be subject to the provisions of Statement
No. 142.  Amortization expense related to goodwill was $3,021,662 and $1,510,831
for the year ended  December  31, 2000 and the six months  ending June 30, 2001,
respectively.  The  Company is  currently  evaluating  the impact of adoption of
Statement No. 142.

E. Commitments and Contingencies

The Company is  occasionally  involved in litigation  relating to claims arising
out of its  operations  in the normal  course of  business.  The  Company is not
currently engaged in any legal proceedings that are expected, individually or in
the aggregate, to have a material adverse affect on the Company.

                                      -12-
<PAGE>

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

     This Report contains certain forward-looking statements with respect to the
Company's  operations,   industry,  financial  condition  and  liquidity.  These
statements   reflect  the  Company's   assessment  of  a  number  of  risks  and
uncertainties.  The Company's  actual results could differ  materially  from the
results anticipated in these  forward-looking  statements as a result of certain
factors set forth in this Report.  An additional  statement made pursuant to the
Private Securities  Litigation Reform Act of 1995 and summarizing certain of the
principal risks and uncertainties inherent in the Company's business is included
in Part I of this Report under the caption  "'Safe Harbor'  Statement  Under the
Private  Securities  Litigation Reform Act of 1995".  Readers of this Report are
encouraged to read such statement carefully.

Overview

     Datastream is a leading provider of 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.

     The Company's products consist of three major categories based on price and
functionality.  MP2  Professional  provides asset  management  solutions for the
small to medium  size  facility;  MP5i  offers  Internet-based  asset  lifecycle
management  solutions for the larger,  multi-site  global client  needing a full
featured enterprise  solution,  and is also 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.

Results of Operations

     Total Revenues. Total revenues of $23,013,090 in the second quarter of 2001
were  virtually  unchanged  from  $23,010,997 in the second quarter of 2000, due
principally to unfavorable market conditions,  longer sales cycles and decreased
service and support revenue  resulting from decreased  license revenues in prior
quarters. Total revenues decreased 1% to $47,545,977 for the first six months of
2001 from $48,261,942 from the first six months of 2000.  International revenues
were  approximately  $9,077,000 (39% of total revenues) in the second quarter of
2001 and approximately  $7,986,000 (35% of total revenues) in the second quarter
of 2000.  International  revenues were  approximately  $17,964,000 (38% of total
revenues) for the first six months of 2001 and approximately $17,806,000 (37% of
total  revenues)  for the first six months of 2000.  See Note C to  consolidated
financial statements.

     Product revenues increased 16% to $6,474,906 (28% of total revenues) in the
second  quarter of 2001 from  $5,574,687  (24% of total  revenues) in the second
quarter  of 2000,  as a result  of  increased  sales of MP5i  which has a higher
license fee,  offset by lower license sales in the MP2 product  family.  Product
revenues  increased 6% to  13,908,441  (29% of total  revenues) in the first six
months of 2001 from  $13,127,616 (27% of total revenues) in the first six months
of 2000.

     Service and support  revenues  decreased  5% to  $16,538,184  (72% of total
revenues) in the second quarter of 2001 from $17,436,310 (76% of total revenues)
in the second  quarter of 2000.  The decrease is a result of decreased  software
license revenues in prior quarters resulting in decreased installation, training
and support  services  revenue.  Service and support  revenues  decreased  4% to
$33,637,536  (71% of total  revenues)  in the  first  six  months  of 2001  from
$35,134,326 (73% of total revenues) in the first six months of 2000.

     Cost of Revenues.  Cost of revenues  decreased  19% to  $9,198,461  (40% of
total  revenues) in the second quarter of 2001, as compared to $11,322,502  (49%
of total  revenues)  in the second  quarter  of 2000.  The  decrease  in cost of
revenues is due to cost  savings in the  services  and support  department  as a
result of  improved  utilization  and  improved  organizational  efficiency  and
reduced payments to third parties for license sales. Cost of revenues  decreased
16% to $18,865,247  (40% of total  revenues) in the first six month of 2001 from
$22,353,751 (46% of total revenues) in the first six months of 2000.

     Cost of product  revenues was 1% of total revenues in the second quarter of
2001 and 2% of total revenues in the second quarter of 2000. The decrease is due
to reduced payments to third parties for license sales. Cost of product revenues
was 2% of total revenues for the first six months of 2001 and 2000.

     Cost of service  and  support  revenues  was 39% of total  revenues  in the
second  quarter of 2001 and 47% of total revenues in the second quarter of 2000.
The  decrease  as a  percentage  of total  revenues  for the  quarter was due to
improved  utilization rates and a reduction in  employee-related  costs. Cost of
service and support revenues was 38% of total revenue in the first six months of
2001 and 44% of total revenues for the first six months of 2000.

     Sales and Marketing Expenses. Sales and marketing expenses decreased 24% to
$9,468,298  (41%  of  total  revenues)  in  the  second  quarter  of  2001  from
$12,408,518  (54% of total revenues) in the second quarter of 2000. The decrease
is  due  to  cost  savings  realized  upon   consolidation  of  certain  product
departments  resulting in decreased  employee-related  costs and decreased sales
and marketing expenditures for Internet-related initiatives. Sales and marketing
expenses  decreased 19% to $19,384,143  (41% of total revenues) in the first six
months of 2001 from  $23,884,805 (49% of total revenues) in the first six months
of 2000.

                                      -13-
<PAGE>

     Product  Development  Expenses.   Total  product  development  expenditures
decreased 29% to  $3,376,297  (15% of total  revenues) in the second  quarter of
2001 from  $4,744,996 (21% of total revenues) in the second quarter of 2000. The
decrease  in total  product  development  expense  resulted  from  cost  savings
realized upon consolidation of the MP2, MP5i and iProcure  development teams and
a  reduction  in  outside  contract  labor  costs.  Total  product   development
expenditures  decreased 25% to $6,749,002  (14% of total  revenues) in the first
six  months of 2001 from  $8,972,042  (19% of total  revenues)  in the first six
months of 2000.

     General and Administrative  Expenses.  General and administrative  expenses
decreased 28% to  $2,459,310  (11% of total  revenues) in the second  quarter of
2001 from  $3,428,367 (15% of total revenues) in the second quarter of 2000, due
to a reduction  in costs  associated  with  managing  the  iProcure  product and
decreased employee related costs. General and administrative  expenses decreased
23% to $4,920,847  (10% of total  revenues) in the first six months of 2001 from
$6,435,262 (13% of total revenues) in the first six months of 2000.

     Goodwill Amortization. Amortization of goodwill expense was $755,416 (3% of
total  revenues)  during  the first  quarter of 2001 and  $755,416  (3% of total
revenues) in the first  quarter of 2000.  Amortization  of goodwill  expense was
$1,510,831  (3% of  total  revenues)  for the  first  six  months  of  2001  and
$1,510,831 (3% of total revenues) for the first six months of 2000.

     Interest and other income.  Interest and other income decreased to $252,188
in the second  quarter of 2001 from $313,725 in the second  quarter of 2000. The
decrease was due to a decrease in long-term  investment  balances.  Interest and
other income decreased to $371,478 in the first six months of 2001 from $474,960
in the first six months of 2000.

     Interest  Expense.  Interest  expense  increased  to  $34,080 in the second
quarter of 2001 from  $11,752 in the second  quarter of 2000,  due to  increased
line of credit balances  internationally.  Interest expense increased to $59,929
for the first six months of 2001 from $42,751 for the six months of 2000.

     Tax Rate.  The Company's  effective tax rate was 18% for the second quarter
of 2001 as compared to 33% for the second  quarter of 2000.  The decrease in the
effective  tax rate is due to the  impact of the  Company's  permanent  book/tax
differences including amortization of goodwill, as a percentage of pre-tax loss.
The  Company's  effective  tax rate was 19% for the first six  months of 2001 as
compared to 35% for the first six months of 2001.

     Net loss. Net loss improved to $(1,661,816) ((7%) of total revenues) in the
second quarter of 2001 from $(6,259,396) ((27%) of total revenues) in the second
quarter  of  2000.  The  improvement  is  attributed  to  increased  operational
efficiency  and  a  reduction  in  costs   associated   with  Internet   related
initiatives.  Net loss improved to $(2,904,985) ((6%) of total revenues) for the
first six months of 2001 from  $(9,327,173)  ((19%) of total  revenues)  for the
first six month of 2000.

Liquidity and Capital Resources

     The  Company  has  funded  its  operating  activities  primarily  from cash
generated  from  operations.  The Company ended its second  quarter of 2001 with
$18,833,401 in cash and cash equivalents  defined as securities maturing in less
than 90 days.

     On February 26, 2001 the Company  announced that its board of directors had
authorized the repurchase of up to 500,000  shares of  Datastream's  outstanding
common  stock.  The  repurchased  shares  will be  used  for  general  corporate
purposes,  including grants of employee stock options. During the second quarter
of 2001  the  Company  repurchased  24,000  shares  at a cost of  $170,191.  The
repurchased  shares  will be  added  to the  16,500  treasury  shares  (cost  of
$152,547)  repurchased during the first quarter of 2001 and the 405,000 treasury
shares (cost of  $4,052,763)  repurchased by the company in 1999. The shares are
classified as treasury stock on the balance sheet and are reported at cost.

     The  Company's  principal  commitments  as  of  June  30,  2001,  consisted
primarily of long-term debt and there were no material  commitments  for capital
expenditures. The Company believes that its current cash balances,  availability
under its lines of credit and cash flow from  operations  will be  sufficient to
meet its working capital and capital expenditure needs for the next 12 months.

                                      -14-
<PAGE>

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk


     The Company did not experience any material changes in market risk in the
second quarter of 2001.



                                      -15-
<PAGE>

PART II.     OTHER INFORMATION

Item 1.    Legal Proceedings

     The  Company is  occasionally  involved  in  litigation  relating to claims
arising out of its  operations in the normal course of business.  The Company is
not currently engaged in any legal  proceedings that are expected,  individually
or in the aggregate, to have a material adverse affect on the Company.

Item 2.    Changes in Securities and Use of Proceeds

           None

Item 3.    Defaults Upon Senior Securities

           None

Item 4.         Submission of Matters to a Vote of Stockholders

     The 2001 Annual Meeting of Stockholders  was held on June 8, 2001, at which
time certain  matters were  submitted to the  stockholders  of Datastream  for a
vote.  Present in person or by proxy at the meeting were  holders of  17,945,363
shares of the issued and outstanding shares of Datastream's  common stock, which
represents 87% of the 20,511,955  shares of common stock issued and  outstanding
as of April 24, 2001, the record date for the Annual  Meeting.  Below is a brief
description  of each matter,  as well as the number (and  percentage)  of shares
represented  at the meeting and  entitled to vote and voting for, or  witholding
authority to vote, as to each matter.

           1.    The stockholders elected the following Class II directors to
                 serve a three-year term expiring 2004 by the following vote:

           Name                 For                 Withhold Authority
           ----                 ---                 ------------------
           Richard T. Brock     17,269,964(96.2%)   675,399 (3.8%)
           Ira D. Cohen         17,315,843(96.5%)   629,520 (3.5%)

Each of the  following  directors  continued  their term of office as a director
after the Annual Meeting: Larry G. Blackwell, John M. Sterling, Jr. and James R.
Talton, Jr. Dr. Kenneth D. Tracy, one of the Company's directors, passed away in
June 2001. Dr. Tracy would have been up for reelection to the Company's Board of
Directors in 2003. The Board of Directors has decided to leave Dr. Tracy's board
seat vacant until it decides whether to fill the vacancy with the appointment of
another suitable  candidate or to decrease the size of the board of directors to
5 members.

Item 5.    Other Information

           None

Item 6.    Exhibits and Reports on Form 8-K

           (a)  Exhibits
                None

           (b)  Reports on Form 8-K
                None


                                      -16-
<PAGE>


SIGNATURES



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



                               Datastream Systems, Inc.


                               /s/ C. Alex Estevez
Date:   08/10/01                    ______________________
                                    C. Alex Estevez
                                    Chief Financial Officer (principal
                                    financial and accounting officer)

                                      -17-