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 September 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:  September 30,
2001 20,311,168 shares, $0.01 par value.

<page>
                            Datastream Systems, Inc.

                                    FORM 10-Q

                        Quarter ended September 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 September 30, 2001
                Assets                                                      4
                Liabilities and Stockholders' Equity                        5

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

           Consolidated Statements of Operations -
                for the Nine months ended September 30,  2000 and 2001      7

           Consolidated Statement of Stockholders' Equity
                and Comprehensive Loss -
                for the Nine months ended September 30, 2001                8

           Consolidated Statements of Cash Flows -
                for the Nine months ended September 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,    September 30,
                                                       2000            2001
                                                       ----            ----
Current assets:
   Cash and cash equivalents                        $15,487,515     $25,025,532
   Accounts receivable, net of allowance
      for doubtful accounts
      of $3,183,453 and $ 2,373,292, respectively    22,939,649      16,431,105
   Unbilled revenue, net of allowance of
      $156,000 and $287,000, respectively             2,065,745       2,572,862
   Investments                                              160             160
   Prepaid expenses                                   1,615,325       1,663,942
   Inventories                                          125,059          15,394
   Income tax receivable                              9,504,889         596,256
   Deferred income taxes                              3,665,000       5,517,000
   Other assets                                       1,358,525       1,680,000
                                                     ----------      ----------
        Total current assets                         56,761,867      53,502,251

Investments                                           2,000,000       2,000,000
Property and equipment, net                          14,125,640      12,619,389
Goodwill, net                                        12,051,577               -
Other long-term assets                                  343,750         137,500
                                                     ----------      ----------
        Total assets                                $85,282,834     $68,259,140
                                                    ===========     ===========

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,    September 30,
                                                       2000            2001
                                                       ----            ----
Current liabilities:
   Accounts payable                                  $3,464,121      $2,713,466
   Other accrued liabilities                         10,824,994       8,037,161
   Current portion of long-term debt                    213,642         205,279
   Unearned revenue                                  10,174,327      11,312,995
                                                     ----------      ----------
        Total current liabilities                    24,677,084      22,268,901
Long-term debt, less current portion                      8,116               -
                                                     ----------      ----------
        Total liabilities                            24,685,200      22,268,901
                                                     ----------      ----------
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,
        21,000,668 shares issued at September 30, 2001  207,306         210,006
   Additional paid-in capital                        80,985,427      83,251,287
   Accumulated deficit                              (16,083,208)    (30,849,280)
   Other accumulated comprehensive loss                (459,128)       (948,723)
   Treasury stock, at cost;
      405,000 shares at December 31, 2000,
      689,500 shares at September 30, 2001           (4,052,763)     (5,673,051)
                                                     ----------      ----------
        Total stockholders' equity                   60,597,634      45,990,239
                                                     ----------      ----------
        Total liabilities and stockholders' equity  $85,282,834     $68,259,140
                                                    ===========     ===========

See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

                    Datastream Systems, Inc. and Subsidiaries

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

                                                   September 30,   September 30,
                                                       2000             2001
                                                       ----             ----
Revenues:
   Product                                         $  7,745,758    $  5,038,672
   Service and support                               16,671,141      15,138,354
                                                     ----------      ----------
      Total revenues                                 24,416,899      20,177,026

Cost of revenues:
   Cost of product revenues                             548,898         356,420
   Cost of service and support revenues               9,477,877       7,911,842
                                                     ----------      ----------
      Total cost of revenues                         10,026,775       8,268,262
                                                     ----------      ----------
      Gross profit                                   14,390,124      11,908,764

Operating expenses:
   Sales and marketing                               10,374,715       8,093,162
   Product development                                3,733,767       3,065,161
   General and administrative                         3,384,588       2,632,367
   Goodwill amortization                                755,416         755,416
   Impairment of goodwill and other
      long-lived assets                                       -       9,955,330
                                                     ----------      ----------
      Total operating expenses                       18,248,486      24,501,436
                                                     ----------      ----------
      Operating loss                                 (3,858,362)    (12,592,672)
                                                     ----------      ----------
Other income (expense):
   Interest and other income                            159,274         354,517
   Interest expense                                     (15,801)        (31,846)
   Other expense                                     (4,703,423)              -
                                                     ----------      ----------
      Net other income                               (4,559,950)        322,671
                                                     ----------      ----------
      Loss before income taxes                       (8,418,312)    (12,270,001)

Income tax benefit                                   (2,650,206)       (408,914)
                                                     ----------      ----------
Net loss                                           $ (5,768,106)   $(11,861,087)
                                                   ============    ============

   Basic net loss per share                        $       (.29)   $       (.58)
   Diluted net loss per share                      $       (.29)   $       (.58)

   Basic weighted average number of common and
      potential common shares outstanding            20,113,107      20,465,969
   Diluted weighted average number of common and
      potential common shares outstanding            20,113,107      20,465,969

See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

                    Datastream Systems, Inc. and Subsidiaries

                      Consolidated Statements of Operations
                                   (unaudited)
                  Nine months ended September 30, 2000 and 2001

                                                   September 30,   September 30,
                                                       2000             2001
                                                       ----             ----
Revenues:
   Product                                         $ 20,873,375    $ 18,947,113
   Service and support                               51,805,467      48,775,891
                                                     ----------      ----------
      Total revenues                                 72,678,842      67,723,004

Cost of revenues:
   Cost of product revenues                           1,578,828       1,158,615
   Cost of service and support revenues              30,801,697      25,974,895
                                                     ----------      ----------
      Total cost of revenues                         32,380,525      27,133,510
                                                     ----------      ----------
      Gross profit                                   40,298,317      40,589,494

Operating expenses:
   Sales and marketing                               34,259,520      27,477,305
   Product development                               12,705,809       9,814,163
   General and administrative                         9,819,850       7,553,214
   Goodwill amortization                              2,266,246       2,266,247
   Impairment of goodwill and other
      long-lived assets                                       -       9,955,330
                                                     ----------      ----------
      Total operating expenses                       59,051,425      57,066,259
                                                     ----------      ----------
      Operating loss                                (18,753,108)    (16,476,765)
                                                     ----------      ----------
Other income (expense):
   Interest and other income                            634,234         725,995
   Interest expense                                     (58,553)        (91,775)
   Other expense                                     (4,703,423)              -
                                                     ----------      ----------
      Net other income                               (4,127,742)        634,220
                                                     ----------      ----------
      Loss before income taxes                      (22,880,850)    (15,842,545)

Income tax benefit                                   (7,785,571)     (1,076,473)
                                                     ----------      ----------
Net loss                                          $ (15,095,279)  $ (14,766,072)
                                                  =============   =============

   Basic net loss per share                       $        (.76)  $        (.72)
   Diluted net loss per share                     $        (.76)  $        (.72)

   Basic weighted average number of common and
      potential common shares outstanding            19,930,262      20,491,407
   Diluted weighted average number of common and
      potential common shares outstanding            19,930,262      20,491,407

See accompanying notes to consolidated financial statements.

                                       7
<PAGE>


<table>
                    Datastream Systems, Inc. and Subsidiaries

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

                      Nine months ended September 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                            -             -   (14,766,072)           -            -      (14,766,072)
   Foreign currency
       translation adjustment          -             -             -     (489,595)           -         (489,595)
                                                                                                    -----------
Total comprehensive loss                                                                            (15,255,667)
                                                                                                    -----------

Exercise of stock options            887       590,957             -            -            -          591,844

Stock issued for Employee
   Stock Purchase Plan               488       365,850             -            -            -          366,338

Amortization of compensatory
   stock options                       -        60,378             -            -            -           60,378

Acquisition of 284,500 shares          -             -             -            -   (1,620,288)      (1,620,288)


Shares issued for legal settlement 1,325     1,248,675             -            -            -         1,250,000

Balance at September 30, 2001   $210,006   $83,251,287  $(30,849,280)  $ (948,723) $(5,673,051)      $45,990,239
                                ========   ===========   ===========    =========  ===========      ===========

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

                                       8
<PAGE>


                    Datastream Systems, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows
                                   (unaudited)

                  Nine months ended September 30, 2000 and 2001

                                                   September 30,   September 30,
                                                       2000             2001
                                                       ----             ----

Cash flows from operating activities:
   Net loss                                       $ (15,095,279)  $ (14,766,072)
   Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
      Depreciation                                    3,945,926       3,619,876
      Goodwill amortization                           2,266,246       2,266,247
      Other amortization                                137,500         206,250
      Provision for doubtful accounts                  (206,698)       (697,661)
      Stock based compensation                          178,226          60,378
      Issuance of shares in legal settlement                  -       1,250,000
      Impairment of goodwill and
        other long-lived assets                               -       9,955,330
      Changes in operating assets and liabilities:
       Accounts receivable                            7,652,932       7,318,703
       Unbilled receivable                             (133,535)       (619,617)
       Income taxes receivable                       (9,866,258)      8,908,633
       Prepaid expenses                                (492,167)        (48,617)
       Inventories                                       55,788         109,665
       Deferred income taxes                                  -      (1,852,000)
       Other assets                                     549,441        (321,475)
       Accounts payable                                (670,500)       (750,655)
       Other accrued liabilities                      4,272,817      (2,787,833)
       Unearned revenue                               1,151,776       1,138,668
                                                     ----------      ----------
       Net cash provided by (used in)
        operating activities                         (6,253,785)     12,989,820
                                                     ----------      ----------
Cash flows from investing activities:
   Purchase of investments                           (2,000,000)              -
   Proceeds from sale and maturities of investments   4,348,008               -
   Additions to property and equipment               (5,165,382)     (2,283,623)
   Purchase of customer list                           (550,000)              -
                                                     ----------      ----------
       Net cash used in investing activities         (3,367,374)     (2,283,623)
                                                     ----------      ----------
Cash flows from financing activities:
   Proceeds from exercise of stock options            6,021,271         591,844
   Proceeds from issuances of shares under employee
       stock purchase plan                              472,744         366,338
   Cash paid to acquire treasury stock                        -      (1,620,288)
   Principal payments on long-term debt                (652,433)        (16,479)
                                                     ----------      ----------
       Net cash provided by financing activities      5,841,582        (678,585)
                                                     ----------      ----------
Foreign currency translation adjustment                (771,285)       (489,595)

Net increase (decrease) in cash and cash equivalents (4,550,862)      9,538,017
Cash and cash equivalents at beginning of period1    17,912,797      15,487,515
                                                     ----------      ----------
Cash and cash equivalents at end of period        $  13,361,935   $  25,025,532
                                                  =============   =============

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,  Chile, 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 3,744,623 and
3,466,596 at September  30, 2000 and  September  30,  2001,  respectively,  were
excluded from the diluted net income (loss)  calculation.  At September 30, 2000
and September 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 September 30, 2000 and 2001:
<caption>
                        United                         Latin
                        States          Europe        America         Asia            Total

                     <c>             <c>           <c>             <c>             <c>
September 30, 2000:

Total revenues          $16,880,905  $ 4,546,985    $ 1,931,018     $ 1,057,991     $24,416,899
Operating income(loss)   (3,668,803)    (105,536)       226,299        (310,322)     (3,858,362)
Total assets             66,469,382    11,151,870     3,177,183       3,911,391      84,709,826

September 30, 2001:

Total revenues           13,086,464     4,120,203     1,788,242       1,182,117      20,177,026
Impairment Charge        (9,955,330)            -             -               -      (9,955,330)
Operating loss          (11,551,206)     (450,513)     (320,144)       (270,809)    (12,592,672)
Total assets             48,728,875    11,004,111     4,766,185       3,759,969      68,259,140
</table>
<table>
For the nine months ended September 30, 2000 and 2001:
<caption>
                        United                         Latin
                        States          Europe        America         Asia            Total

                     <c>             <c>           <c>             <c>             <c>
September 30, 2000:

Total revenues          $49,054,262  $15,125,769    $ 4,889,186     $ 3,609,625     $72,678,842
Operating income(loss)  (18,318,828)    (438,188)       745,210        (696,302)    (18,753,108)
Total assets             66,469,382   11,151,870      3,177,183       3,911,391      84,709,826

September 30, 2001:

Total revenues           44,362,474   14,083,845      5,485,948       3,790,737      67,723,004
Impairment Charge        (9,955,330)           -              -               -      (9,955,330)
Operating loss          (15,256,142)    (573,863)      (363,172)       (283,588)    (16,476,765)
Total assets             48,728,875   11,004,111      4,766,185       3,759,969      68,259,140
</table>

The United  States  revenues  include  international  revenues of  approximately
$777,000 and $404,000 for the third quarters of 2000 and 2001,  respectively and
approximately  $2,494,000  and  $2,098,000 for the first nine 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.

                                       11
<PAGE>

D. Impairment of goodwill and other long-lived assets

As part of its  review of its  third  quarter  financial  results,  the  Company
performed an impairment  assessment of goodwill and other long-lived assets. The
Company identified  indicators of possible  impairment which included,  but were
not limited to, significant  negative industry and economic trends,  significant
underperformance of certain of the Company's  international  operations relative
to  historical or projected  future  operating  results,  the Company's net book
value as compared to market  capitalization and a decline in the Company's stock
price for a sustained period.

The Company  determined  whether any impairment  existed in accordance  with the
provisions of Statement of Financial  Accounting  Standards No. 121  "Accounting
for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed
of".  Impairment  does  not  exist  if  the  sum  of  the  expected  cash  flows
(undiscounted)  attributable  to the intangible  assets is greater than the book
value of the intangible assets.  However,  if the sum of the expected cash flows
(undiscounted) attributable to the intangible assets is less than the book value
of  the  intangible  assets,  then  impairment  may  exist.  The  impairment  is
calculated  by  deducting  the estimate of fair value from the book value of the
intangible  assets.  The  estimate  of fair value was based upon the  discounted
estimated cash flows for the geographic  regions impacted for the relevant years
using a discount rate based upon weighted average cost of capital for comparable
companies  and an estimated  terminal  value.  The  assumptions  supporting  the
estimated  cash flows,  including  the discount  rate and an estimated  terminal
value, reflect management's best estimates.

As a result,  the Company  recorded an  impairment  charge of  $9,785,330 in the
third  quarter of 2001 to reduce  goodwill  to its  estimated  fair  value.  The
goodwill was associated  with the Company's  European  acquisitions of SQL Group
B.V.  ($2,167,011)  and  Datastream  Systems  GmbH  & Co  KG  ($2,472,444),  the
Company's Pacific Rim acquisitions of Datastream  Systems Pte Ltd.  ($3,075,288)
and  Datastream  Systems Pty Ltd.  ($611,802)  and the Company's  Latin American
acquisition  of  Computec  S.A.  and  Datastream  Systems de Mexico S.A. de C.V.
($1,458,785).  There are no  remaining  goodwill  balances  and there will be no
goodwill amortization expense related to these acquisitions in future periods.

In conjunction with the Company's  assessment of goodwill,  the Company reviewed
other  long-lived  assets and reduced the value of a building located in Dessau,
Germany to its estimated fair value. This resulted in a charge of $170,000.

E. Recent Accounting Pronouncements

In July 2001, the Financial  Accounting  Standards Board (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. At September 30, 2001 the Company  expects
no impact on the adoption of Statement No. 142.

In August 2001, the FASB issued Statement of Financial  Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (Statement
No. 144). Statement No. 144 retains the fundamental  provisions of Statement for
Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of Long-Lived
Assets and for Long-Lived  Assets to Be Disposed Of" (Statement No. 121),  while
resolving  significant  implementation issues associated with Statement No. 121.
The Effective  date of Statement No. 144 is January 1, 2002. The Company has not
yet assessed the impact this standard  will have on its  financial  condition or
results  of  operations  at the  time of  adoption;  however,  the  impact  will
ultimately depend on the long-lived assets held at the time of adoption, if any.

F. 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.

Results of Operations

     Total  Revenues.  Total revenues  decreased 17% to $20,177,026 in the third
quarter of 2001 from  $24,416,899 in the third quarter of 2000, due  principally
to  unfavorable  market  conditions,  longer sales cycles and decreased  service
revenue resulting from decreased license revenues.  Total revenues  decreased 7%
to $67,723,004 for the first nine months of 2001 from $72,678,842 from the first
nine months of 2000.  International revenues were approximately  $7,495,000 (37%
of total  revenues) in the third  quarter of 2001 and  approximately  $8,313,000
(34% of total  revenues) in the third  quarter of 2000.  International  revenues
were approximately $25,460,000 (38% of total revenues) for the first nine months
of 2001 and approximately $26,119,000 (36% of total revenues) for the first nine
months of 2000. See Note C to consolidated financial statements.

     Product revenues decreased 35% to $5,038,672 (25% of total revenues) in the
third  quarter  of 2001 from  $7,745,758  (32% of total  revenues)  in the third
quarter of 2000, due  principally to  unfavorable  market  conditions and longer
sales  cycles.  Product  revenues  decreased  9% to  $18,947,113  (28% of  total
revenues)  in the  first  nine  months of 2001  from  $20,873,375  (29% of total
revenues) in the first nine months of 2000.

     Service and support  revenues  decreased  9% to  $15,138,354  (75% of total
revenues) in the third quarter of 2001 from  $16,671,141 (68% of total revenues)
in the third  quarter of 2000.  The decrease is a result of  decreased  software
license  revenues  resulting in  decreased  installation  and  training  service
revenues. Service and support revenues decreased 6% to $48,775,891 (72% of total
revenues)  in the  first  nine  months of 2001  from  $51,805,467  (71% of total
revenues) in the first nine months of 2000.

     Cost of Revenues.  Cost of revenues  decreased  17% to  $8,268,262  (41% of
total revenues) in the third quarter of 2001, as compared to $10,026,775 (41% of
total  revenues) in the third 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.  Cost of revenues
decreased 16% to $27,133,510 (40% of total revenues) in the first nine months of
2001 from $32,380,525 (45% of total revenues) in the first nine months of 2000.

     Cost of product revenues was 2% of total revenues in both the third quarter
of 2001 and 2000.  Cost of product  revenues  was 2% of total  revenues  for the
first nine months of 2001 and 2000.

     Cost of service and support  revenues was 39% of total revenues in both the
third quarters of 2001 and 2000. Cost of service and support revenues was 38% of
total revenue in the first nine months of 2001 and 42% of total revenues for the
first nine months of 2000.  The decrease as a percentage  of total  revenues for
the  first  nine  months  of 2001 was due to  improved  utilization  rates and a
reduction in employee-related costs.

     Sales and Marketing Expenses. Sales and marketing expenses decreased 22% to
$8,093,162 (40% of total revenues) in the third quarter of 2001 from $10,374,715
(42% of total  revenues)  in the third  quarter of 2000.  The decrease is due to
cost  savings  realized  upon  consolidation  of  certain  product  departments,
decreased  employee-related costs and decreased sales and marketing expenditures
for Internet-related initiatives.  Sales and marketing expenses decreased 20% to
$27,477,305  (41% of total  revenues)  in the  first  nine  months  of 2001 from
$34,259,520 (47% of total revenues) in the first nine months of 2000.

     Product  Development  Expenses.   Total  product  development  expenditures
decreased 18% to $3,065,161 (15% of total revenues) in the third quarter of 2001
from  $3,733,767  (15% of total  revenues)  in the third  quarter  of 2000.  The
decrease  in total  product  development  expense  resulted  from  cost  savings
realized  upon  consolidation  of  development  teams and a reduction in outside
contract labor costs. Total product  development  expenditures  decreased 23% to
$9,814,163  (14% of total  revenues)  in the  first  nine  months  of 2001  from
$12,705,809 (17% of total revenues) in the first nine months of 2000.

     General and Administrative  Expenses.  General and administrative  expenses
decreased 22% to $2,632,367 (13% of total revenues) in the third quarter of 2001
from  $3,384,588  (14% of total revenues) in the third 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
$7,553,214  (11% of total  revenues)  in the  first  nine  months  of 2001  from
$9,819,850 (14% of total revenues) in the first nine months of 2000.

                                       13
<PAGE>


     Goodwill Amortization. Amortization of goodwill expense was $755,416 (4% of
total  revenues)  during  the third  quarter of 2001 and  $755,416  (3% of total
revenues) in the third  quarter of 2000.  Amortization  of goodwill  expense was
$2,266,247  (3% of  total  revenues)  for the  first  nine  months  of 2001  and
$2,266,246 (3% of total revenues) for the first nine months of 2000.

     Impairment  of  goodwill  and other  long-lived  assets.  During  the third
quarter of 2001,  the company  wrote off  $9,785,330  of impaired  goodwill  and
$170,000  for an impaired  building.  See note D to the  consolidated  financial
statements.

     Interest and other income.  Interest and other income increased to $354,517
in the third  quarter of 2001 from  $159,274 in the third  quarter of 2000.  The
increase  was due to an increase in cash  balances.  Interest  and other  income
increased  to  $725,995  in the first nine  months of 2001 from  $634,234 in the
first nine months of 2000.

     Interest  Expense.  Interest  expense  increased  to  $31,846  in the third
quarter of 2001 from $15,801 in the third quarter of 2000, due to increased line
of credit balances  internationally.  Interest expense  increased to $91,775 for
the first nine months of 2001 from $58,553 for the nine months of 2000.

     Other Expense. Other expense recorded in the third quarter of 2000 consists
primarily of costs incurred to settle the Company's  class action lawsuit and to
settle the escrow claims dispute with the former shareholders of SQL Systems.

     Tax Rate. The Company's  effective tax rate was 3% for the third quarter of
2001 as  compared  to 31% for the third  quarter of 2000.  The  decrease  in the
effective  tax rate is due to the  impact of the  Company's  permanent  book/tax
differences  including impairment of goodwill and amortization of goodwill, as a
percentage  of pre-tax  loss.  The  Company's  effective tax rate was 7% for the
first nine months of 2001 as compared to 34% for the first nine months of 2000.

     Net loss. Net loss increased to $(11,861,087)  ((59%) of total revenues) in
the third  quarter of 2001 from  $(5,768,106)  ((24%) of total  revenues) in the
third  quarter of 2000.  The increase is due to the  impairment  of goodwill and
other  long-lived  assets.  Net loss improved to  $(14,766,072)  ((22%) of total
revenues) for the first nine months of 2001 from  $(15,095,279)  ((21%) of total
revenues) for the first nine month of 2000.

Liquidity and Capital Resources

     The  Company  has  funded  its  operating  activities  primarily  from cash
generated  from  operations.  The Company  ended its third  quarter of 2001 with
$25,025,532 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 third quarter
of 2001 the Company  repurchased  244,000  shares at a cost of  $1,297,550.  The
repurchased  shares  will be  added  to the  40,500  treasury  shares  (cost  of
$322,738)  repurchased  during  the  first six  months  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. This plan expired during the third quarter.

     Subsequent to the end of the third quarter,  on October 4, 2001 the Company
announced  that its board of directors had  authorized  the  repurchase of up to
1,000,000  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 third  quarter of 2001 the Company's  $5,000,000  multi-currency
line of credit expired and was not renewed.

     The Company's  principal  commitments  as of September 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 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
third 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

           None

Item 5.    Other Information

           None

Item 6.    Exhibits and Reports on Form 8-K

           (a)  Exhibits
                None

           (b)  Reports on Form 8-K
                The Company filed a Current Report on Form 8-K on
                October 4, 2001 to report the Company's announcement
                of a stock repurchase plan.


                                       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:   11/13/01                    ______________________
                               C. Alex Estevez
                               Chief Financial Officer (principal
                                financial and accounting officer)


                                       17