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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2004

OR

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.

Datastream Systems, Inc.

FORM 10-Q

Quarter ended March 31, 2004

Index

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“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.

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ITEM 1. Consolidated Financial Statements

Datastream Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
(unaudited)

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)

See accompanying notes to consolidated financial statements.

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Datastream Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
Three months ended March 31, 2004 and 2003

See accompanying notes to consolidated financial statements.

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Datastream Systems, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity and Comprehensive Income
(unaudited)
Three months ended March 31, 2004

See accompanying notes to consolidated financial statements.

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Datastream Systems, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31, 2004 and 2003

See accompanying notes to consolidated financial statements.

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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 consolidated financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). 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 and Form 10-K/A for the year ended December 31, 2003 filed with the SEC on March 10, 2004 and March 16, 2004, respectively. Certain amounts in the prior year financial statements have been reclassified to conform to the 2004 presentation. These reclassifications had no impact on stockholders’ equity or net income as previously reported.

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: Asset Performance Management. The Company manages the Asset Performance Management business over geographical regions. The principal areas of operation include the United States and Canada, Europe, Latin America and Asia. Financial information concerning the Company’s operations in different geographical regions is as follows as of and for the three months ended March 31, 2004 and 2003:

3.     Reconciliation of Basic and Diluted Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted net income per share is computed by dividing net income by the weighted average number of common and potential common shares outstanding. Diluted weighted average common shares include common shares and stock options using the treasury stock method, except when those potential common shares result in antidilution. The reconciliation of basic and diluted income per share as of March 31, 2004 and 2003 is as follows:

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Antidilutive shares totaling 2,414,925 and 3,170,200 were excluded from the diluted net income per share calculations for the three months ended March 31, 2004 and 2003, respectively.

4. Stock Option Plans

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, as amended, to account for its stock-based employee compensation plans. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net income if the fair-value-based method had been applied for the three months ended March 31, 2004 and 2003.

The Company uses the Black Scholes option-pricing model to value the employee and director stock-based compensation plans. The following assumptions were used for grants and purchase rights valued during the quarter ended March 31, 2004 and 2003: an expected dividend rate of 0% and 0%, an expected volatility of 88.5% and 92.2%, a risk-free rate of 2.60% and 3.55% and an expected life of 4.5 years and 8.8 years, respectively.

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5. Commitments and Contingencies

The Company is occasionally involved in claims arising out of its operations in the normal course of business. No such current claims are expected, individually or in the aggregate, to have a material adverse effect on the Company’s consolidated financial statements.

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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

We provide asset performance management software and services to enterprises worldwide, including more than 60 percent of the Fortune 500. Through asset performance management, customers can maintain, manage, and improve the performance of their capital asset infrastructure, such as manufacturing equipment, fleet, and facilities.

Growth in profits for a software company is strongly tied to license revenues. License revenues typically result in subsequent service and support revenues. We intend to grow license revenue by increasing the size of our direct sales force and improving their productivity. Growth in profits is also strongly tied to product quality, functionality and performance, and we can only achieve this by continuing to invest in our product offering.

When we sell to a customer, we typically commit to an arrangement consisting of application licenses, services and support. We also often sell services to host the licensed application. During the first quarter of 2004, we experienced higher support revenue per customer than the first quarter of 2003, which was an important factor in our profitability. Our support revenue is a key source of recurring revenue and profitability in our business.

Our gross margin, which measures net revenues less cost of goods sold as a percentage of total revenues, improved in the first quarter of 2004 compared to the first quarter of 2003 because of reduced services costs and increased support revenue as a percentage of our total revenues. Our operating margin, which measures operating income as a percentage of total revenues, improved in the first quarter of 2004 compared to the first quarter of 2003 due largely to higher productivity in services and support, leading to higher gross margins. Our cost structure primarily consists of salaries, wages, and benefits provided to our employees.

Traditionally, a significant portion of our revenue in any quarter had been the result of a large number of relatively small orders received during the period. We expect the average size of our license sales transactions, however, to continue to increase in the coming years. An increase in average deal size typically increases the length of an average sales cycle. Potential customers spend significant time and resources determining which software to purchase. This requires us to spend substantial time, effort and money educating and convincing prospective customers to purchase our software. A customer’s decision to license our software generally involves evaluation by a number of the customer’s personnel in various functional and geographic areas. Due to these and other factors, our sales cycle may be extended. Since the sales cycle can be unpredictable and can be affected by events beyond our control, we cannot always forecast the timing or amount of specific customer transactions, and sales may vary from quarter to quarter. We expect to experience a decline in the large number of relatively small orders that had been a staple of our marketing and sales efforts in the past.

We typically see reduced service revenues in the third and fourth quarters of our calendar year due to lower utilization of our services from Europe in the summer and fewer available billable days in the November and December months due to holidays and customer site shutdowns. The first and third quarters have traditionally been weaker for license sales, but this has become harder to predict given larger deals sizes and less predictable sales cycles associated with Datastream 7i. This seasonality, combined with the extended sales cycles, may cause our results to vary from quarter to quarter.

Results of Operations

Total Revenues. Total revenues increased 1% to $23,086,840 in the first quarter of 2004 from $22,784,232 in the first quarter of 2003. The slight increase is due to an increase in support renewal contracts and an increase in application hosting revenue due to an increased number of hosted customers. International revenues, which include Canada, were approximately $10,144,000 (44% of total revenues) in the first quarter of 2004 and approximately $8,662,000 (38% of total revenues) in the first quarter of 2003. The increase in international revenues as a

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percentage of total revenues is due to favorable foreign currency translation adjustments, as well as an increase in Datastream 7i revenue in Europe. United States revenues decreased as a result of a decline in service revenues due to increased competition from third party service providers. See Note 2 to the consolidated financial statements.

Software product revenues decreased 1% to $6,456,775 (28% of total revenues) in the first quarter of 2004 from $6,521,646 (29% of total revenues) in the first quarter of 2003 as a result of increasing sales cycles related to Datastream 7i deals.

Professional services and support revenues increased 2% to $16,630,065 (72% of total revenues) in the first quarter of 2004 from $16,262,586 (71% of total revenues) in the first quarter of 2003. Support revenue increased due to an increase in average customer support renewal revenue, customer support renewal rates in excess of the quarter ended March 31, 2003, and an increase in the number of hosted customers. The increase in support revenue was partially offset by a decrease in service revenue, due to increased competition from third party service providers.

Cost of Revenues. Cost of revenues decreased 6% to $7,344,761 (32% of total revenues) in the first quarter of 2004, as compared to $7,779,015 (34% of total revenues) in the first quarter of 2003. The decrease in cost of revenues is primarily due to decreased reimbursed service costs and overall reductions in internal and third party service expenditures.

Sales and Marketing Expenses. Sales and marketing expenses increased 1% to $7,329,302 (32% of total revenues) in the first quarter of 2004 from $7,251,272 (32% of total revenues) in the first quarter of 2003. The slight increase in sales and marketing expenses is due to increased expenditures related to conferences and tradeshows and employee-related costs.

Product Development Expenses. Total product development expenditures increased 18% to $3,392,373 (15% of total revenues) in the first quarter of 2004 from $2,870,320 (13% of total revenues) in the first quarter of 2003. The increase in total product development expense is a result of increased investment in asset performance management functionality, mobile solutions, and web services.

General and Administrative Expenses. General and administrative expenses decreased 12% to $3,146,682 (14% of total revenues) in the first quarter of 2004 from $3,569,425 (16% of total revenues) in the first quarter of 2003 due primarily to decreased professional fees and salary and related expenses, as well as a decrease in bad debt expense as a result of improved days sales outstanding. General and administrative expenses may increase as we incur costs related to the implementation of our compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

Tax Rate. Our effective tax rate was 34.8% and 35.0% for the first quarter 2004 and 2003, respectively.

Net income. Net income increased to $1.3 million (6% of total revenues) in the first quarter of 2004 from net income of $957,738 (4% of total revenues) in the first quarter of 2003. The improvement is attributed to increased support revenues and decreased cost of services and general and administrative expenditures.

Financial Condition

Consolidated total assets were $83.3 million at March 31, 2004, a decrease of approximately $781,000 or 1% from $84.0 million at December 31, 2003. The decrease was primarily due to an $800,000 reduction in accounts receivable and unbilled revenue as a result of improved collections on customer accounts and a $900,000 reduction in income tax receivable and deferred income taxes due to current tax provisions partially offset by a $1.1 million increase in cash and cash equivalents.

Consolidated total liabilities were $28.2 million at March 31, 2004, a decrease of approximately $478,000, or 2% from $28.7 million at December 31, 2003. The decrease was primarily due to a $2.3 million decrease in accounts payable and accrued liabilities due to the timing of payments offset by an increase of $1.8 million in deferred revenue as a result of an increase in average customer support renewal revenue, an increase in the rate of customer renewals, and an increase in the number of hosted customers.

Cash and cash equivalents increased 23% to $46.0 million at March 31, 2004 compared to $37.3 million at March 31, 2003. Cash and cash equivalents increased 2% at March 31, 2004 compared to $44.9 million at December 31, 2003. Cash improved due to improved profitability, higher deferred revenue, and improved collections on accounts receivable.

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Liquidity and Capital Resources

We have funded our operating activities primarily with cash generated from operations. We ended the first quarter of 2004 with $46.0 million in cash and cash equivalents, which are defined as highly liquid securities with maturities of 90 days or less.

On August 15, 2003, we announced that the board of directors had authorized a plan to repurchase up to 1,000,000 shares of our outstanding common stock. This plan expires August 15, 2005. Subject to availability, the repurchases may be made from time to time in the open market or otherwise at prices that management deems appropriate. The repurchased shares are classified as treasury shares on the balance sheet and are reported at cost. The shares may be used, when needed, for general corporate purposes, including the grant of stock options. We repurchased 225,000 shares for $1.8 million during the first quarter of 2004, and 317,300 shares overall for $2.5 million under the current plan. The aggregate number of shares repurchased under all prior and current plans was 1,471,700 as of March 31, 2004.

Cash provided by operations decreased 13% to $3.4 million for the three months ended March 31, 2004 from $3.9 million at March 31, 2003. The decrease was primarily a result of payments on accounts payable.

Net cash used in investing activities decreased 3% to $683,068 for the three months ended March 31, 2004 compared to approximately $701,962 for the three months ended March 31, 2003. The decrease was primarily due to building renovations at our corporate headquarters that occurred during the first quarter of 2003.

Net cash used in financing activities increased 118% to $1.2 million for the three months ended March 31, 2004 compared to approximately $568,547 for the three months ended March 31, 2003. The increase was primarily due to an increase of approximately $1.1 million used to repurchase shares of our Common Stock during the first quarter of 2004 compared to the first quarter of 2003, partially offset by an increase of $427,916 in proceeds from the exercise of stock options.

As of March 31, 2004, we had no long-term debt commitments and no material commitments for capital expenditures. We believe that our current cash balances and cash flows from operations will be sufficient to meet our working capital and capital expenditure needs for the next 12 months.

Critical Accounting Estimates and Polices

In preparation of our financial statements we make estimates and assumptions that can significantly affect the reported amounts of net income and the value of certain assets and liabilities. Our critical accounting estimates are those that are material due to the level of subjectivity and judgment necessary to account for matters that are either highly uncertain or highly susceptible to change and have a material effect on our financial condition or operating performance. We believe critical accounting estimates related to revenue recognition, income taxes and allowance for doubtful accounts receivable encompass critical judgments and our accounting policies provide a basis upon which management considers significant judgments and uncertainties; however, each of these judgments and estimates may potentially result in materially different results under different assumptions and conditions. For a discussion on the application of these and other accounting policies, see Note 1 in the notes to the consolidated financial statements included in our Form 10-K for the fiscal year ended December 31, 2003.

Revenue Recognition - Our revenues consist primarily of fees for product sales, professional services, hosting and customer support.

Product Revenues - We generally recognize product revenues when a non-cancelable license agreement has been signed, the product has been shipped, the fees are fixed or determinable, collectibility is probable and vendor-specific objective evidence (“VSOE”) of fair value exists to allocate the total fee to the multiple elements of an arrangement. Fees are generally considered fixed or determinable upon receipt of a signed license agreement and completion of negotiations. Management sets payment terms depending on market and customer specific conditions. If payment terms on license fees extend beyond a period of time that is out of our historical collection period for each geographic region, then revenue is recognized as payments are received.

The amount of product revenues recognized is determined based on the residual amount of the multiple element contract value that is not assigned to other elements based on VSOE of those elements. If acceptance

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terms for the licensed product exist, we recognize revenue upon customer acceptance or the expiration of the acceptance period. If it is determined that professional services are essential to the functionality of the product as delivered, then product revenue is recognized as the services are performed.

Support Revenues - We recognize support revenues, which consist of fees for ongoing support and product updates, ratably over the term of the contract support period, typically one year. The amount of support revenue invoiced but not yet recognized is recorded as unearned revenue in the accompanying consolidated balance sheets. Support VSOE is either the stated contract renewal rate or the support renewal rate as a percentage of the past product sales if there is no stated contract renewal rate.

Professional Services Revenues - Professional services revenues are primarily related to implementation, integration and training services performed on a time-and-materials basis or a fixed fee arrangement under separate service arrangements. On time and material and fixed-price projects, revenue is generally recognized as the services are performed. For our fixed-price engagements we recognize revenue based on the relationship of incurred labor hours to our estimate of the total labor hours we expect to incur over the term of the contract. Based on our historical experience of estimating the total effort required to complete fixed-price contracts, we believe this methodology achieves a reliable measure of the revenue from the consulting services that we provide to our customers. Significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. These judgments and estimates include an estimate as to the total effort required to complete the project. If we made different judgments or utilized different estimates, the amount and timing of our revenue for any period could be materially different. Losses on fixed-price contracts are recognized during the period in which the loss first becomes evident. Contract losses are determined to be the amount by which the estimated total costs of the contract exceeds the total fixed price of the contract.

Revenues from hosted software service arrangements are recognized ratably over the term of the hosting arrangement. Hosting services VSOE is either the stated contract renewal rate or the renewal rate as a percentage of the past product sales if there is no stated contract renewal rate. Professional services VSOE is based on the day rate we are able to negotiate when services are sold separate from a contract. Reimbursed expenses are recorded gross as revenue with an offsetting amount recorded to service cost of sales.

Our standard agreements do not contain product return rights. We provide a standard warranty of 30 days from the date of sale. We continually evaluate our 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. We may, in certain circumstances, grant discounts for product sales. The discounts are recognized as a reduction of product revenue.

Income Taxes - We account for income taxes under the asset and liability method in accordance with SFAS No. 109, Accounting for Income Taxes. We recognize deferred income taxes, net of valuation allowances, for the estimated future tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. As of March 31, 2004 and 2003, we had approximately $5.1 million and $5.3 million, respectively, in deferred tax assets, net of valuation allowances.

We evaluate the realizability of our deferred tax assets on a regular basis for each taxable jurisdiction. In making this assessment, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers all available evidence, both positive and negative in making this assessment. Positive evidence supporting the realizability of our deferred tax assets include: our strong earnings history prior to operating losses realized in 2001, the ability to carryback losses to prior years, positive results in recent years, projections of future taxable income in 2004, the existence of significantly appreciated net assets and the availability of prudent and feasible tax planning strategies to accelerate taxable amounts.

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowances at March 31, 2004.

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In the future, if we determine that we expect to realize deferred tax assets in excess of the recorded net amounts, a reduction in the deferred tax asset valuation allowance would decrease income tax expense in the period such determination is made. Alternatively, if we determine that we no longer expect to realize a portion of our net deferred tax assets, an increase in the deferred tax asset valuation allowance would increase income tax expense in the period such determination is made.

Allowance for Doubtful Accounts Receivable - We maintain allowances for doubtful accounts receivable for estimated losses resulting from the inability of our customers to make required payments. In determining the allowance for doubtful accounts receivable, we review the rolling twelve month average of account write-offs, customer specific account risks, and geographic specific factors that may impact international accounts. These factors combine to establish the allowance for doubtful accounts balance. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The above is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

The Company did not experience any material changes in market risk in the first quarter of 2004.

ITEM 4. Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2004. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2004, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There have been no changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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. No such current claims are expected, individually or in the aggregate, to have a material adverse effect on the Company’s consolidated financial statements.

ITEM 2.           Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

(1)     The current repurchase program was announced August 15, 2003. Under this plan, the board of directors authorized the repurchase of up to 1,000,000 shares of Common Stock of the Company. The plan expires on August 15, 2005.

ITEM 3.           Defaults Upon Senior Securities

None

ITEM 4.           Submission of Matters to a Vote of Security Holders

None

ITEM 5.           Other Information

None

ITEM 6.           Exhibits and Reports on Form 8-K

(a)          Exhibits

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(b)          Reports on Form 8-K

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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.

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EXHIBIT INDEX

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