##### Table of Contents

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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549





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FORM 10Q/A





(Mark One)


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





For the quarterly period ended September 30, 2002





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





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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: November 13, 2002:
20,083,844 shares, $0.01 par value.





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##### Table of Contents

EXPLANATORY NOTE





This Form 10-Q/A represents a resubmission of the Companys Report on Form 10-Q filed on November 14, 2002 (the Report). The Report, as received by the Securities and Exchange
Commission (the SEC) on November 14, 2002, contained errors due to faulty EDGAR software. This Form 10-Q/A represents the Companys resubmission of its Report in the form intended to be filed with the SEC on November 14, 2002.






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##### Table of Contents




Datastream Systems, Inc.





FORM 10-Q/A





Quarter ended September
30, 2002





Index





Page No.Part I.

Consolidated Financial InformationSafe Harbor Statement under the Private Securities Litigation Reform Act of 1995

3Item 1.

Consolidated Financial Statements (unaudited)Consolidated Balance Sheets December 31, 2001 and September 30, 2002 Assets

4Liabilities and Stockholders Equity

5Consolidated Statements of OperationsThree months ended September 30, 2001 and 2002

6Nine months ended September 30, 2001 and 2002

7Consolidated Statement of Changes in Stockholders Equity and Comprehensive Loss Nine months ended September 30, 2002

8Consolidated Statements of Cash Flows Nine months ended September 30, 2001 and 2002

9Notes to Consolidated Financial Statements

10Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

13Item 3.

Quantitative and Qualitative Disclosures About Market Risk

15Item 4.

Controls and Procedures

15Part II.

Other Information

16Item 1.

Legal Proceedings

16Item 2.

Changes in Securities and Use of Proceeds

16Item 3.

Defaults Upon Senior Securities

16Item 4.

Submission of Matters to a Vote of Stockholders

16Item 5.

Other Information

16Item 6.

Exhibits and Reports on Form 8-K

16Signature

17Certifications

18




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##### Table of Contents




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: the increasing
competitiveness of the market for our solutions; our ability to keep pace with rapid technological changes and demands in our markets in order to remain competitive; increasing sales cycles and other factors that may result in volatility of our
quarterly results; our ability to successfully implement an application service provider business model; the stability of certain of our strategic relationships, including those with iProcure network suppliers and technology providers; our ability
to develop products timely to be an innovator in the industry; increasing competition in markets for our products; our ability to protect our proprietary technology; risks associated with security that may deter the use of the Internet for
conducting electronic commerce; 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; 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, 2001, 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.




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##### Table of Contents

ITEM 1.    
Consolidated Financial Statements





Datastream Systems, Inc. and Subsidiaries





Consolidated Balance Sheets





Assets


(unaudited)





December 31, 2001

September 30, 2002Current assets:Cash and cash equivalents

$
25,396,939

$
32,420,017Accounts receivable, net of allowance for doubtful accounts of $1,868,072 and $1,797,663, respectively


17,483,350


17,242,072Unbilled revenue, net of allowance of $320,000 and $100,000 respectively


2,675,670


2,060,128Prepaid expenses


1,270,568


1,116,548Inventories


17,765


4,811Income tax receivable


1,098,919


308,905Deferred income taxes


981,488


981,488Other assets


1,728,295


1,495,163Total current assets


50,652,994


55,629,132Investments


2,000,000


2,000,000Property and equipment, net


12,031,550


10,394,989Deferred income taxes


6,664,009


5,912,137Other long term assets


68,750


93,241Total assets

$
71,417,303

$
74,029,499





See accompanying notes to consolidated financial statements.







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Datastream Systems, Inc. and Subsidiaries





Consolidated Balance Sheets (Continued)





Liabilities and Stockholders Equity


(unaudited)





December 31, 2001


September 30, 2002Current liabilities:Accounts payable

$
2,432,947


$
2,449,073Other accrued liabilities


8,019,997



8,341,070Current portion of long-term debt


9,995



Unearned revenue


12,330,840



14,779,242Total liabilities


22,793,779



25,569,385Stockholders equity:Preferred stock, $1 par value, 1,000,000 shares authorized;






none issuedCommon stock, $.01 par value, 40,000,000 shares authorized; 21,000,668 shares issued at December 31, 2001, 21,082,444
shares issued at September 30, 2002


210,006



210,825Additional paid-in capital


86,501,216



87,130,287Accumulated deficit


(30,602,457
)


(29,918,729
)Accumulated other comprehensive loss


(1,303,570
)


(2,167,708
)Treasury stock, at cost;859,000 shares at December 31, 2001,953,500 shares at September 30, 2002


(6,181,671
)


(6,794,561
)Total stockholders equity


48,623,524



48,460,114Total liabilities and stockholders equity

$
71,417,303


$
74,029,499





See accompanying notes to consolidated financial statements.




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##### Table of Contents

Datastream Systems, Inc. and Subsidiaries





Consolidated Statements of Operations


(unaudited)


Three months ended September 30, 2001 and 2002





September 30, 2001


September 30, 2002Revenues:Product

$
5,038,672


$
6,040,013Service and support


15,138,354



15,935,403Total revenues


20,177,026



21,975,416Cost of revenues:Cost of product revenues


356,420



234,916Cost of service and support revenues


7,911,842



8,128,439Total cost of revenues


8,268,262



8,363,355Gross profit


11,908,764



13,612,061Operating expenses:Sales and marketing


8,093,162



8,347,083Product development


3,065,161



2,647,870General and administrative


2,632,367



2,216,055Goodwill amortization


755,416



Impairment of goodwill and other long-lived assets


9,955,330



Total operating expenses


24,501,436



13,211,008Operating income (loss)


(12,592,672
)


401,053Other income, net


322,671



123,156Income (loss) before income taxes


(12,270,001
)


524,209Income tax expense (benefit)


(408,914
)


183,476Net income (loss)

$
(11,861,087
)

$
340,733Basic net income (loss) per share

$
(.58
)

$
.02Diluted net income (loss) per share

$
(.58
)

$
.02Basic weighted average number of common shares outstanding


20,465,969



20,155,027Diluted weighted average number of common and potential common shares outstanding


20,465,969



20,517,169





See accompanying notes to consolidated financial statements.







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##### Table of Contents

Datastream Systems, Inc. and Subsidiaries





Consolidated Statements of Operations


(unaudited)


Nine months ended September 30, 2002








September 30, 2001


September 30, 2002Revenues:Product

$
18,947,113


$
18,670,826Service and support


48,775,891



47,715,128Total revenues


67,723,004



66,385,954Cost of revenues:Cost of product revenues


1,158,615



860,455Cost of service and support revenues


25,974,895



23,870,626Total cost of revenues


27,133,510



24,731,081Gross profit


40,589,494



41,654,873Operating expenses:Sales and marketing


27,477,305



25,193,322Product development


9,814,163



7,949,168General and administrative


7,553,214



7,731,330Goodwill amortization


2,266,247



Impairment of goodwill and other long-lived assets


9,955,330



Total operating expenses


57,066,259



40,873,820Operating income (loss)


(16,476,765
)


781,053Other income, net


634,220



268,043Income (loss) before income taxes


(15,842,545
)


1,049,096Income tax expense (benefit)


(1,076,473
)


365,368Net income (loss)

$
(14,766,072
)

$
683,728Basic net income (loss) per share

$
(.72
)

$
.03Diluted net income (loss) per share

$
(.72
)

$
.03Basic weighted average number of common shares outstanding


20,491,407



20,152,443Diluted weighted average number of common and potential common shares outstanding


20,491,407



20,607,078





See accompanying notes to consolidated financial statements.







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##### Table of Contents




Datastream Systems, Inc. and Subsidiaries





Consolidated Statement of Stockholders Equity and Comprehensive Loss


(unaudited)


Nine months ended September 30, 2002





CommonStock

AdditionalPaid-InCapital

Accumulated(Deficit) Earnings


AccumulatedOtherComprehensive Loss


Treasury Stock


TotalStockholdersEquityBalance at December 31, 2001

$210,006

$86,501,216

$(30,602,457
)

$(1,303,570
)

$(6,181,671
)

$48,623,524Comprehensive lossNet income





683,728








683,728Foreign currency translation adjustment








(864,138
)




(864,138
)Total comprehensive loss














(180,410
)Exercise of stock options

476

254,824










255,300Stock issued for employee stock purchase plan

343

176,556










176,899Amortization of compensatory stock options



83,906










83,906Acquisition of 94,500 shares











(612,890
)

(612,890
)Warrants issued



113,785










113,785Balance at September 30, 2002

$210,825

$87,130,287

$(29,918,729
)

$(2,167,708
)

$(6,794,561
)

$48,460,114





See accompanying notes to consolidated financial statements.










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##### Table of Contents




Datastream Systems, Inc. and Subsidiaries





Consolidated Statements of Cash Flows


(unaudited)


Nine months ended September 30, 2001 and 2002





September 30,2001


September 30,2002Cash flows from operating activities:Net (loss) income

$
(14,766,072
)

$
683,728Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation


3,619,876



3,062,209Goodwill amortization


2,266,247



Other amortization


206,250



89,294Provision for doubtful accounts


(697,661
)


(290,409
)Stock based compensation


60,378



83,906Issuance 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


7,318,703



311,687Unbilled receivable


(619,617
)


835,542Income taxes receivable


8,908,633



790,014Prepaid expenses


(48,617
)


154,020Inventories


109,665



12,954Deferred income taxes


(1,852,000
)


751,872Other assets


(321,475
)


233,132Accounts payable


(750,655
)


16,126Other accrued liabilities


(2,787,833
)


321,073Unearned revenue


1,138,668



2,448,402Net cash provided by operating activities


12,989,820



9,503,550Cash flows from investing activities:Additions to property and equipment


(2,283,623
)


(1,425,648
)Net cash used in investing activities


(2,283,623
)


(1,425,648
)Cash flows from financing activities:Proceeds from exercise of stock options


591,844



255,300Proceeds from issuances of shares under employee stock purchase plan


366,338



176,899Cash paid to acquire treasury stock


(1,620,288
)


(612,890
)Principal payments on long-term debt


(16,479
)


(9,995
)Net cash provided by financing activities


(678,585
)


(190,686
)Foreign currency translation adjustment


(489,595
)


(864,138
)Net increase in cash and cash equivalents


9,538,017



7,023,078Cash and cash equivalents at beginning of period


15,487,515



25,396,939Cash and cash equivalents at end of period

$
25,025,532


$
32,420,017





See accompanying notes to consolidated financial statements.










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##### Table of Contents




Datastream Systems, Inc. and Subsidiaries





Notes to Consolidated Financial Statements





1.    Basis of Presentation





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, 2001 filed with the
SEC on March 29, 2002. 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.





2.    Segment and Geographic Information





The Company has identified
one business segment for reporting purposes. The Company manages the segment 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:





For the three months ended September 30, 2001 and 2002 (US
dollars):





United States


Europe


Latin America


Asia


TotalSeptember 30, 2001:Total revenues

13,086,464


4,120,203


1,788,242


1,182,117


20,177,026Impairment 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


68,259,140September 30, 2002:Total revenues

13,699,689


5,338,152


1,429,494


1,508,081


21,975,416Operating income (loss)

(89,558
)

515,726


(10,087
)

(15,028
)

401,053Total assets

51,526,223


13,889,109


3,202,211


5,411,956


74,029,499





For the nine months ended September 30, 2001 and 2002 (US dollars):





United States


Europe


Latin America


Asia


TotalSeptember 30, 2001:Total revenues

44,362,474


14,083,845


5,485,948


3,790,737


67,723,004Impairment 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


68,259,140September 30, 2002:Total revenues

42,143,504


14,935,505


4,807,505


4,499,440


66,385,954Operating income (loss)

385,662


(17,362
)

340,357


72,396


781,053Total assets

51,526,223


13,889,109


3,202,211


5,411,956


74,029,499




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##### Table of Contents




The United States revenues include international revenues of approximately $404,000 and $617,000 for the
third quarters of 2001 and 2002, respectively and approximately $2,098,000 and $1,905,000 for the first nine months of 2001 and 2002, respectively.





3.    Reconciliation of Basic and Diluted Net Income 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. At
September 30, 2001, basic loss per share equaled diluted loss per share. The reconciliation of basic and diluted income per share as of September 30, 2002 is as follows:





Income

Shares

Per Share AmountFor the three months ended:September 30, 2002:Basic net income per share

$
340,733

20,155,027

$
.02Effect of dilutive securities:Stock options




362,142Diluted net income per share

$
340,733

20,517,169

$
.02For the nine months ended:September 30, 2002:Basic net income per share

$
683,728

20,152,443

$
.03Effect of dilutive securities:Stock options




454,635Diluted net income per share

$
683,728

20,607,078

$
.03





Antidilutive shares totaling 3,318,203 and 3,058,762 were excluded from the diluted net
income calculation for the three and nine months ended September 30, 2002, respectively.





4.    Recent Accounting
Pronouncements





In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 141, Business Combinations (SFAS 141), and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill.
SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment. The effective date of SFAS 142 was January 1, 2002.





As reported in the Companys third quarter 2001, significant events occurred which triggered the impairment of its goodwill under FAS
121. Therefore, no amortization has been recorded since that time and adoption of SFAS 142 did not impact the Company. Goodwill amortization for the three months and nine months ended September 30, 2001 was $755,416 and $2,266,247, respectively. If
SFAS 142 had been effective in those periods, operating loss would have been reduced by the amount of amortization.





In August 2001, FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supersedes SFAS 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 144 essentially combines the requirements of SFAS 121 and Accounting Principles Board Opinion (APBO) No. 30 into one single accounting
standard. The effective date of SFAS 144 was January 1, 2002.





The FASB issued Statement
No. 146, Accounting for Costs Associated with Exit or Disposal Activities, in July 2002. The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.




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##### Table of Contents

5.    Commitments and Contingencies





The Company is occasionally involved in legal proceedings and other claims arising out of its operations in the normal course of business. None of such current claims are
expected, individually or in the aggregate, to have a material adverse effect on the Company.




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##### Table of Contents




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 performance and profitability of 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 of $21,975,416 in the third quarter of 2002 increased 9% from $20,177,026 in the third quarter of 2001. Total
revenues decreased 2% to $66,385,954 for the first nine months of 2002 from $67,723,004 for the first nine months of 2001, due principally to unfavorable market conditions and longer sales cycles incurred with the transition to Datastream 7i.
International revenues were approximately $8,892,000 (40% of total revenues) in the third quarter of 2002 and approximately $7,495,000 (37% of total revenues) in the third quarter of 2001. International revenues were approximately $26,147,000 (39%
of total revenues) for the first nine months of 2002 and approximately $25,460,000 (38% of total revenues) for the first nine months of 2001. See Note 2 to consolidated financial statements.





Product revenues increased 20% to $6,040,013 (27% of total revenues) in the third quarter of 2002 from $5,038,672 (25% of total revenues) in the third quarter of 2001, as a
result of increased sales of Datastream 7i, which has a higher license fee than the MP2 product family, partially offset by lower license sales in the MP2 product family. Product revenues decreased 1% to $18,670,827 (28% of total revenues) in the
first nine months of 2002 from $18,947,113 (28% of total revenues) in the first nine months of 2001. The decrease was a result of unfavorable market conditions and longer sales cycles incurred with the transition to Datastream 7i.





Service and support revenues increased 5% to $15,935,403 (73% of total revenues) in the third quarter of 2002 from $15,138,354
(75% of total revenues) in the third quarter of 2001. The increase is due to the impact of support renewal contracts entered into during the third quarter of 2002 and is offset by decreased software license revenues in prior quarters resulting in a
decrease in installation, training and services revenue. Service and support revenues decreased 2% to $47,715,130 (72% of total revenues) in the first nine months of 2002 from $48,775,891 (72% of total revenues) in the first nine months of 2001.





Cost of Revenues.    Cost of revenues increased 1% to $8,363,355 (38% of revenues) in
the third quarter of 2002, as compared to $8,268,262 (41% of total revenues) in the third quarter of 2001. The increase in cost of revenues is due to an increase in third party contract service expenses. Cost of revenues decreased 13% to $24,731,081
(36% of total revenues) in the first nine months of 2002 from $27,133,510 (40% of total revenues) in the first nine months of 2001 due to cost savings in the support department as a result of improved utilization and improved organizational
efficiency in the first half of 2002.





Sales and Marketing Expenses.    Sales and
marketing expenses increased 3% to $8,347,083 (38% of total revenues) in the third quarter of 2002 from $8,093,162 (40% of total revenues) in the third quarter of 2001. The increase is due an increase in sales commissions. Sales and marketing
expenses decreased 8% to $25,193,322 (38% of total revenues) in the first nine months of 2002 from $27,477,305 (41% of total revenues) in the first nine months of 2001 as a result of the consolidation of sales activities and reduction of certain
marketing activities in the first half of 2002.





Product Development Expenses.    Total
product development expenditures decreased 14% to $2,647,870 (12% of total revenues) in the third quarter of 2002 from $3,065,161 (15% of total revenues) in the third quarter of 2001. Total product development expenditures decreased 19% to
$7,949,168 (12% of total revenues) in the first nine months of 2002 from $9,814,163 (14% of total revenues) in the first nine months of 2001. 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.





General and
Administrative Expenses.    General and administrative expenses decreased 16% to $2,216,055 (10% of total revenues) in the third quarter of 2002 from $2,632,367 (13% of total revenues) in the third quarter of 2001, due to
reduced professional service fees, a reduction in bad debt expense and a benefit from foreign currency transactions.




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General and administrative expenses increased 2% to $7,731,330 (12% of total revenues) in the first nine months of 2002 from $7,553,214 (11% of
total revenues) in the first nine months of 2001.





Goodwill Amortization.    The
Company wrote off the remaining balance of goodwill in the third quarter of 2001, therefore, no amortization expense was incurred in 2002.





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.





Other income, net.    Other income, net decreased to $123,156 in the third quarter of 2002 from
$322,671 in the third quarter of 2001. The decrease was due to a decrease in return on investments during the third quarter of 2002 due primarily to a reduction in yields on cash equivalent investment instruments. Other income, net decreased to
$268,043 in the first nine months of 2002 from $634,220 in the first nine months of 2001.





Tax
Rate.    The Companys effective tax rate was 35% for the third quarter of 2002 as compared to 3% for the third quarter of 2001. The Companys effective tax rate was 35% for the first nine months of 2002 as compared
to 7% for the first nine months of 2001. The increase in the effective tax rate is due to the elimination of goodwill and related amortization, which significantly reduced the Companys permanent book/tax differences.





Net income (loss).    Net income (loss) improved to $340,733 (2% of total revenues) in the third quarter of
2002 from $(11,861,087) ((59%) of total revenues) in the third quarter of 2001. Net income (loss) improved to $683,728 (1% of total revenues) for the first nine months of 2002 from $(14,766,072) ((22%) of total revenues) for the first nine month of
2002. The improvement is attributed to the absence of goodwill amortization and related impairment charges which occurred during the third quarter of 2001.





Liquidity and Capital Resources





The Company has funded its operating activities
primarily from cash generated from operations. The Company ended its third quarter of 2002 with $32,420,017 in cash and cash equivalents.





On July 23, 2002 the Company announced that its board of directors had authorized the repurchase of up to 500,000 shares of Datastreams outstanding common stock. This plan expires on July 23, 2003. As of September 30,
2002, the Company has repurchased 953,500 shares (94,500 shares in 2002) under separate stock repurchase plans. The repurchased shares may be used, when needed, for general corporate purposes, including grants of employee stock options. The shares
are classified as treasury stock on the balance sheet and are reported at cost.





In connection with entering into
a software development and licensing agreement with GE Fanuc North America, Inc. (GE Fanuc), on February 13, 2002, Datastream issued a warrant to GE Fanuc to purchase up to 50,000 shares of common stock of the Company. The warrant was
exercisable on the date of issuance and remains exercisable for three years from the date of issuance. The exercise price per share is $6.95, which was the market price of the Companys common stock on the date of issuance of the warrant. The
warrant agreement allows for net issuance at the option of GE Fanuc and provides piggy back registration rights for the underlying common stock.





The Company has accounted for the warrant using the guidance of Emerging Issues Task Force (EITF) 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services and EITF 00-25, Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendors Products. As a result, on the date of issuance the Company recorded the fair value of the
warrant as a credit to Additional Paid-In Capital and a debit to prepaid commissions. The Company will record amortization of the prepaid commissions as a reduction of revenue over the three years the warrant is exercisable. The impact to the
financial condition of the Company will be immaterial over the three year period.





As of September 30, 2002, the
Company had no long-term debt commitments and no material commitments for capital expenditures. The Company believes that its current cash balances, cash flows from operations and investments available for sale will be sufficient to meet its working
capital and capital expenditure needs for at least the next 12 months.




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Critical Accounting Polices





Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results
under different assumptions and conditions. The Companys critical accounting policies include revenue recognition, income taxes, impairment of goodwill and other long lived assets, functional currencies for the purpose of consolidation and
allowance for doubtful accounts. For a detailed discussion on the application of these and other accounting policies, see the Companys Form 10-K filed for the year ended December 31, 2001.





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 2002.





ITEM 4.    
Controls and Procedures





| | (a) |  | Evaluation of Disclosure Controls and Procedures.    Within 90 days prior to the filing of this Report, (the
Evaluation Date), our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act). Based on
such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date, our disclosure controls and procedures provide reasonable assurance that the information required to be disclosed by us in the
reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported in the time periods specified in the SECs rules and forms.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (b) |  | Changes in Internal Controls.    Since the Evaluation Date, there have been no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to the Evaluation Date.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents




PART II.    
OTHER INFORMATION





Item 1.    
Legal Proceedings





The Company is occasionally involved in legal proceedings and other
claims arising out of its operations in the normal course of business. None of such current claims 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
| | --- |  | -------------------




Datastream filed a Current Report on Form 8-K on July 24, 2002 to report the Companys announcement of a stock repurchase plan.




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##### Table of Contents




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.Date:    November 18, 2002



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




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##### Table of Contents




CERTIFICATIONS





I, Larry G. Blackwell, certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Datastream Systems, Inc.;
| | -- |  | -------------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a. |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b. |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c. |  | Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a. |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize
and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b. |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:    November 14, 2002





/s/    LARRY G. BLACKWELLLarry G. Blackwell President and Chief Executive Officer
Datastream Systems, Inc.




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##### Table of Contents




CERTIFICATIONS





I, C. Alex Estevez, certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Datastream Systems, Inc.;
| | -- |  | -------------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a. |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b. |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c. |  | Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a. |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b. |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses._
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:    November 14, 2002





/s/    C. ALEX ESTEVEZC. Alex Estevez Chief Financial Officer Datastream Systems, Inc.




19