(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
OR
| o | 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 ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ý No o
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: May 7, 2004: 20,045,136 shares, $0.01 par value.
2
“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: a highly competitive market; our ability to keep pace with rapid technological changes and demands in our markets; volatility of our quarterly results due to increasing sales cycles; engagements that require longer implementations and other professional services engagements; reduced profitability due to our hosting services strategy; our ability to generate future revenue and profits from our Datastream 7i Buy strategy; significant delays in product development and our ability to be an innovator in the industry; third party relationships on which our success is substantially dependent; third party technologies on which our future success is substantially dependent; our ability to detect software bugs or errors to avoid a correction to or delay in the release of our products; our ability to manage our international operations; risks unique to government contracts that may have a detrimental impact on our operating results; deterioration of economic and political conditions; continued acceptance of the Internet for business transactions; recruiting and retaining key employees; our ability to adequately protect our proprietary rights; security risks and concerns that may deter use of the Internet for our applications; fluctuations in our stock price since our initial public offering; and our articles of incorporation and bylaws may inhibit a takeover that would be in the stockholders’ best interest. The preceding list of risks and uncertainties, however, is not intended to be exhaustive, and should be read in conjunction with other cautionary statements that we make herein including, but not limited to, the “Risk Factors” set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended December 31, 2003, 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
ITEM 1. Consolidated Financial Statements
| March 31, 2004 |
December 31, 2003 |
|||||||
|---|---|---|---|---|---|---|---|---|
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 45,963,594 | $ | 44,874,599 | ||||
| Accounts receivable, net of allowance for doubtful accounts of | ||||||||
| $741,274 and $995,421 in 2004 and 2003, respectively | 16,374,274 | 17,422,089 | ||||||
| Unbilled revenue | 1,365,750 | 1,089,540 | ||||||
| Prepaid expenses | 1,407,318 | 1,331,413 | ||||||
| Income tax receivable | 28,155 | 706,030 | ||||||
| Deferred income taxes, net | 1,007,461 | 1,278,492 | ||||||
| Other assets | 1,247,410 | 1,442,348 | ||||||
| Total current assets | 67,393,962 | 68,144,511 | ||||||
Investment | 501,983 |
501,983 |
||||||
| Property and equipment, net | 11,181,553 | 11,238,830 | ||||||
| Deferred income taxes, net | 4,098,198 | 4,049,011 | ||||||
| Other long term assets | 81,472 | 104,252 | ||||||
| Total assets | $ | 83,257,168 | $ | 84,038,587 | ||||
See accompanying notes to consolidated financial statements.
4
| March 31, 2004 |
December 31, 2003 |
|||||||
|---|---|---|---|---|---|---|---|---|
| Current liabilities: | ||||||||
| Accounts payable | $ | 2,413,052 | $ | 3,376,454 | ||||
| Other accrued liabilities | 7,136,891 | 8,493,200 | ||||||
| Unearned revenue | 18,684,485 | 16,842,539 | ||||||
| Total liabilities | 28,234,428 | 28,712,193 | ||||||
Stockholders’ equity: | ||||||||
| Preferred stock, $1 par value, 1,000,000 shares authorized; none issued | – | – | ||||||
| Common stock, $.01 par value, 40,000,000 shares authorized; | ||||||||
| 21,537,169 shares issued and 20,065,469 outstanding at March 31, 2004 and | ||||||||
| 21,453,911 shares issued and 20,207,211 outstanding at December 31, 2003 | 215,371 | 214,539 | ||||||
| Additional paid-in capital | 90,211,142 | 89,674,896 | ||||||
| Accumulated deficit | (23,550,718 | ) | (24,863,981 | ) | ||||
| Other accumulated comprehensive loss | (1,412,847 | ) | (1,035,986 | ) | ||||
| Treasury stock, at cost; | ||||||||
| 1,471,700 shares at March 31, 2004, 1,246,700 shares at December 31, 2003 | (10,440,208 | ) | (8,663,074 | ) | ||||
| Total stockholders’ equity | 55,022,740 | 55,326,394 | ||||||
| Total liabilities and stockholders’ equity | $ | 83,257,168 | $ | 84,038,587 | ||||
See accompanying notes to consolidated financial statements.
5
| March 31, 2004 |
March 31, 2003 |
|||||||
|---|---|---|---|---|---|---|---|---|
| Revenues: | ||||||||
| Software product | $ | 6,456,775 | $ | 6,521,646 | ||||
| Services and support | 16,630,065 | 16,262,586 | ||||||
| Total revenues | 23,086,840 | 22,784,232 | ||||||
Cost of revenues: | ||||||||
| Cost of product revenues | 487,768 | 220,730 | ||||||
| Cost of services and support revenues | 6,856,993 | 7,558,285 | ||||||
| Total cost of revenues | 7,344,761 | 7,779,015 | ||||||
| Gross profit | 15,742,079 | 15,005,217 | ||||||
Operating expenses: | ||||||||
| Sales and marketing | 7,329,302 | 7,251,272 | ||||||
| Product development | 3,392,373 | 2,870,320 | ||||||
| General and administrative | 3,146,682 | 3,569,425 | ||||||
| Total operating expenses | 13,868,357 | 13,691,017 | ||||||
| Operating income | 1,873,722 | 1,314,200 | ||||||
| Other income: | ||||||||
| Interest income, net | 121,296 | 119,471 | ||||||
| Other income, net | 19,593 | 39,912 | ||||||
| Total other income | 140,889 | 159,383 | ||||||
| Income before income taxes | 2,014,611 | 1,473,583 | ||||||
Income tax expense | 701,348 | 515,845 | ||||||
| Net income | $ | 1,313,263 | $ | 957,738 | ||||
| Basic net income per share | $ | .07 | $ | .05 | ||||
| Diluted net income per share | $ | .06 | $ | .05 | ||||
| Basic weighted average number of common shares outstanding | 20,203,696 | 20,017,239 | ||||||
| Diluted weighted average number of common shares outstanding | 20,650,665 | 20,369,362 | ||||||
See accompanying notes to consolidated financial statements.
6
| Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Other Accumulated Comprehensive Loss |
Treasury Stock |
Total Stockholders’ Equity |
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at December 31, 2003 | $ | 214,539 | $ | 89,674,896 | $ | (24,863,981 | ) | $ | (1,035,986 | ) | $ | (8,663,074 | ) | $ | 55,326,394 | |||||
Comprehensive income | ||||||||||||||||||||
Net income | -- | -- | 1,313,263 | -- | -- | 1,313,263 | ||||||||||||||
Foreign currency translation adjustment | -- | -- | -- | (376,861 | ) | -- | (376,861 | ) | ||||||||||||
| Total comprehensive income | 936,402 | |||||||||||||||||||
Exercise of stock options | 739 | 473,836 | -- | -- | -- | 474,575 | ||||||||||||||
Stock issued for Employee Stock Purchase Plan |
93 | 62,410 | -- | -- | -- | 62,503 | ||||||||||||||
Acquisition of 225,000 shares | -- | -- | -- | -- | (1,777,134 | ) | (1,777,134 | ) | ||||||||||||
| Balance at March 31, 2004 | $ | 215,371 | $ | 90,211,142 | $ | (23,550,718 | ) | $ | (1,412,847 | ) | $ | (10,440,208 | ) | $ | 55,022,740 | |||||
See accompanying notes to consolidated financial statements.
7
| March 31, 2004 |
March 31, 2003 |
|||||||
|---|---|---|---|---|---|---|---|---|
| Cash flows from operating activities: | ||||||||
| Net income | $ | 1,313,263 | $ | 957,738 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation | 740,345 | 812,156 | ||||||
| Amortization | 9,482 | 9,480 | ||||||
| Provision for doubtful accounts | 283,150 | 429,376 | ||||||
| Deferred income taxes | 221,844 | – | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 764,665 | 509,883 | ||||||
| Unbilled revenue | (276,210 | ) | (358,079 | ) | ||||
| Prepaid expenses | (75,905 | ) | (200,600 | ) | ||||
| Income taxes receivable/payable | 677,875 | 780,039 | ||||||
| Other assets | 208,236 | 269,281 | ||||||
| Accounts payable | (963,402 | ) | (252,423 | ) | ||||
| Other accrued liabilities | (1,356,309 | ) | (1,308,328 | ) | ||||
| Unearned revenue | 1,841,946 | 2,236,998 | ||||||
| Net cash provided by operating activities | 3,388,980 | 3,885,521 | ||||||
| Cash flows from investing activities: | ||||||||
| Additions to property and equipment | (683,068 | ) | (701,962 | ) | ||||
| Net cash used in investing activities | (683,068 | ) | (701,962 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from exercise of stock options | 474,575 | 46,659 | ||||||
| Proceeds from issuances of shares under employee stock purchase plan | 62,503 | 79,495 | ||||||
| Cash paid to acquire treasury stock | (1,777,134 | ) | (694,701 | ) | ||||
| Net cash used in financing activities | (1,240,056 | ) | (568,547 | ) | ||||
| Foreign currency translation adjustment | ||||||||