SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File No. 0-23306
PROPHET 21, INC.
----------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-2746447
- ---------------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
19 West College Ave., Yardley, Pennsylvania 19067
- ------------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(215) 493-8900
-------------------------------------
(Registrant's Telephone Number,
Including Area Code)
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:
----- -----
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of October 31, 1998:
Class Number of Shares
- ----- ----------------
Common Stock, $.01 par value 3,724,974
<PAGE>
PROPHET 21, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION.................................... 1
Item 1. Financial Statements..................................... 1
Consolidated Balance Sheets
as of June 30, 1998 and
September 30, 1998 (unaudited).............................. 2
Consolidated Statements of Operations
for the three months ended
September 30, 1997 and 1998 (unaudited)..................... 3
Consolidated Statements of Cash Flows
for the three months ended
September 30, 1997 and 1998 (unaudited)..................... 4
Notes to Consolidated Financial Statements (unaudited)...... 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition............. 9
Results of Operations....................................... 10
Liquidity and Capital Resources............................. 12
Year 2000 Compliance........................................ 13
PART II. OTHER INFORMATION........................................... 14
Item 6. Exhibits and Reports on Form 8-K.......................... 14
SIGNATURES ............................................................ 15
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
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<PAGE>
PROPHET 21, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Shares)
June 30, September 30,
1998 1998
---- ----
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents................... $ 2,206 $ 2,484
Marketable securities....................... 1,555 1,488
Accounts receivable, net of allowance for
doubtful accounts of $240 and $308,
respectively.............................. 17,201 16,148
Billed and unearned maintenance contracts... 2,016 2,226
Inventories................................. 1,402 1,261
Deferred income taxes....................... 203 203
Prepaid and other current assets............ 797 829
-------- --------
Total current assets..................... 25,380 24,639
Long-term marketable securities................ 2,825 3,175
Equipment and improvements, net................ 2,887 2,787
Software development costs, net................ 3,410 3,090
Other assets................................... 113 87
-------- --------
Total assets............................. $ 34,615 $ 33,778
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 3,690 $ 2,494
Accrued expenses and other liabilities ..... 1,540 1,089
Commissions payable......................... 808 439
Taxes payable............................... 668 913
Profit sharing plan contribution payable ... 391 302
Deferred income ............................ 2,451 2,533
-------- --------
Total current liabilities ............... 9,548 7,770
-------- --------
Commitments and contingent liabilities......... -- --
Deferred income taxes.......................... 1,211 1,211
-------- --------
Stockholders' equity:
Preferred stock -- $0.01 par value,
1,500,000 shares authorized; no shares
issued or outstanding..................... -- --
Common stock -- $0.01 par value,
10,000,000 shares authorized;
4,153,642 and 4,161,742 shares issued,
respectively; 3,710,742 and 3,718,842
outstanding, respectively................. 42 42
Additional paid-in capital.................. 10,386 10,500
Retained earnings .......................... 15,946 16,773
Treasury stock at cost, 442,900 shares ..... (2,518) (2,518)
--------- ---------
Total stockholders' equity .............. 23,856 24,797
--------- ---------
Total liabilities and stockholders'
equity .............................. $ 34,615 $ 33,778
======== ========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
PROPHET 21, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
For the Three Months
Ended September 30,
---------------------------------
1997 1998
---- ----
Revenue:
System sales............................... $ 5,983 $ 6,504
Service and support........................ 3,742 4,661
-------- --------
9,725 11,165
Cost of revenue:
System sales............................... 3,454 3,437
Service and support........................ 1,884 2,221
-------- --------
5,338 5,658
-------- --------
Gross profit............................ 4,387 5,507
-------- --------
Operating expenses:
Sales and marketing........................ 2,099 2,393
General and administrative................. 655 660
Research and development................... 789 1,310
-------- --------
3,543 4,363
-------- --------
Operating income........................ 844 1,144
Interest income.............................. 86 72
-------- --------
Income before taxes.......................... 930 1,216
Provision for income taxes................... 335 389
-------- --------
Net income................................... $ 595 $ 827
======== ========
Basic earnings per share:
Net income per share......................... $ .17 $ .22
======== ========
Weighted average common shares outstanding... 3,560 3,686
======== ========
Diluted earnings per share:
Net income per share......................... $ .16 $ .21
======== ========
Weighted average common and common equivalent
shares outstanding......................... 3,780 4,023
======== ========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
PROPHET 21, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months Ended September 30,
--------------------------------
1997 1998
---- ----
Cash flows from operating activities:
Net income......................................... $ 595 $ 827
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................. 333 589
Provision for losses on accounts receivable.... 69 67
Increases (decreases) in operating assets:
Accounts receivable............................ (1,549) 986
Billed and unearned maintenance................ (291) (210)
Inventories.................................... (524) 141
Prepaid expenses and other assets.............. 74 (32)
Other assets................................... -- 26
Decreases (increases) in operating liabilities:
Accounts payable............................... (64) (1,196)
Accrued expenses............................... (494) (948)
Taxes payable.................................. 46 374
Profit sharing plan contribution payable....... 75 (89)
Deferred income................................ 67 82
-------- --------
Total adjustments.............................. (2,258) (210)
-------- --------
Net cash (used) provided by operating activities... (1,663) 617
-------- --------
Cash flows from investing activities:
Cash purchases of equipment and improvements..... (340) (253)
Software development costs....................... (564) --
Purchase of marketable securities................ (1,475) (1,200)
Maturity of marketable securities................ 2,700 1,000
-------- --------
Net cash provided (used) by investing activities... 321 (453)
-------- --------
Cash flows from financing activities:
Employee stock purchase plan..................... -- 62
Stock options exercised including tax benefits... -- 52
-------- --------
Net cash provided by financing activities.......... -- 114
-------- --------
Net (decrease) increase in cash and cash
equivalents ..................................... (1,342) 278
Cash and cash equivalents at beginning
of period........................................ 1,829 2,206
-------- --------
Cash and cash equivalents at end of period......... $ 487 $ 2,484
======== ========
Supplemental cash flow disclosures:
Income taxes paid................................ $ 351 $ 15
======== ========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
PROPHET 21, INC. AND SUBSIDIARIES
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for September 30, 1997 and 1998 is unaudited)
NOTE 1 -- BASIS OF PRESENTATION:
The information presented for September 30, 1998, and for the three-month
periods ended September 30, 1997 and 1998, is unaudited, but, in the opinion of
the Company's management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) which the Company considers necessary for the fair presentation of the
Company's financial position as of September 30, 1998 and the results of its
operations and its cash flows for the three-month periods ended September 30,
1997 and 1998. The financial statements included herein have been prepared in
accordance with generally accepted accounting principles and the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These consolidated financial statements should be read in conjunction
with the Company's audited financial statements for the year ended June 30,
1998, which were included as part of the Company's Annual Report on Form 10-K.
Certain items in prior year financial statements have been reclassified for
comparative purposes.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances have been
eliminated.
Results for the interim period are not necessarily indicative of results
that may be expected for the entire year.
NOTE 2 -- CAPITALIZED SOFTWARE DEVELOPMENT COSTS (IN THOUSANDS):
The Company has capitalized certain software development costs in
accordance with the Statement of Financial Accounting Standards Board ("SFAS")
No. 86. Such costs are capitalized after technological feasibility has been
demonstrated. Beginning when the products are offered for sale, the capitalized
software development costs are amortized to cost of revenue on a straight-line
basis over the lesser of three years or the estimated economic lives of the
products.
Amortization of capitalized software development costs amounted to $426 and
$320 in the year ended June 30, 1998, and the three months ended September 30,
1998, respectively. All other research and development costs have been expensed.
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<PAGE>
PROPHET 21, INC. AND SUBSIDIARIES
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for September 30, 1997 and 1998 is unaudited)
NOTE 3 -- STOCKHOLDERS' EQUITY:
Preferred Stock
The Company has an authorized class of 1,500,000 shares of Preferred Stock
which may be issued by the Board of Directors on such terms and with such
rights, preferences and designations as the Board of Directors may determine.
NOTE 4 -- STOCK REPURCHASE PROGRAM:
In fiscal 1997, the Company's Board of Directors approved resolutions to
repurchase up to 600,000 shares of the Company's Common Stock in open market
purchases. The Company has repurchased an aggregate of 442,900 shares at a total
cost of $2,518,000. Such shares are held in treasury. The Company's last Common
Stock repurchase occurred in the fourth quarter of fiscal 1997.
NOTE 5 -- NEW ACCOUNTING STANDARD:
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which will replace the current rules for earnings per
share computations, presentation and disclosure. Under the new standard, basic
earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue Common Stock
were exercised or converted into Common Stock. SFAS No. 128 requires a dual
presentation of basic and diluted earnings per share on the face of the income
statement.
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<PAGE>
PROPHET 21, INC. AND SUBSIDIARIES
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for September 30, 1997 and 1998 is unaudited)
The Company adopted SFAS No. 128 during fiscal year 1998 and, as required
by the standard, has restated all prior period earnings per share data. The
Company's new earnings per share amounts as calculated under SFAS No. 128 are
not materially different from those computed under the present accounting
standard.
The following table sets forth the computation of basic and dilutive
earnings per share:
Three Months Ended,
September 30,
1997 1998
---- ----
Net Income......................... $ 595 $ 827
Weighted average common shares
outstanding...................... 3,560 3,686
Basic earnings per share........... $ 0.17 $ 0.22
Effect of dilutive securities:
Stock Options.................... 220 337
Weighted average common and
common equivalent shares
outstanding...................... 3,780 4,023
Diluted earnings per share......... $ 0.16 $ 0.21
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS 130"), which was issued in June 1997, is effective
for fiscal years beginning after December 15, 1997. SFAS 130 establishes
standards for reporting and disclosure of comprehensive income and its
components in a full set of general-purpose financial statements. The Company
believes that it does not have a significant amount of comprehensive income
(loss), as defined, if any. Accordingly, the Company believes that this
statement will not have a material effect on its future financial statement
presentations.
In June 1997, Statement of Financial Accounting Standards No. 131
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131") was also issued. This pronouncement is effective for fiscal years
beginning after December 15, 1997 and requires disclosures about operating
segments and enterprise-wide disclosures about products and services, geographic
areas and major customers.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, Software Revenue Recognition. The
statement supersedes SOP 91-1 and provides specific industry guidance and
stipulates that revenue recognized from software arrangements is to be allocated
to each element of the arrangement based on the relative fair values of the
elements, such as software products, upgrades, enhancements, post contract
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<PAGE>
customer support, installation, or training. Under SOP 97-2, the determination
of fair value is based on objective evidence which is specific to the vendor.
Prophet offers the various elements individually, and has used the individual
prices as a reference for allocation of revenues. SOP 97-2 was adopted by the
Company effective July 1, 1998. The adoption of SOP 97-2 did not result in any
significant changes to Prophet 21's revenue recognition policy.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
GENERAL
The Company was established to provide innovative software solutions that
meet the changing business demands of distribution operations within the
extended supply chain. Prophet 21 develops, markets and supports a complete
suite of Year 2000 compliant, distribution-centric enterprise applications for
either Windows NT or UNIX for finance, order management, inventory management,
purchasing and electronic commerce. In addition, Prophet 21 provides
industry-specific, distribution-centric enterprise solutions for select markets
including industrial, automotive, aerospace and defense, electrical supply,
electronics, and plumbing and HVAC.
The Company's revenue is derived primarily from the sale of either Prophet
21 Acclaim or Prophet 21 Servent Software Solutions. Other sources of revenue
include: customer support maintenance contracts, equipment maintenance (when
purchased via Prophet 21), the sale of optional third-party software products
and training services provided by the Company's Educational Services Department
which began operations in fiscal 1998. Each Prophet 21 Acclaim Solution includes
the Prophet 21 Acclaim Software, an IBM RISC System/6000 computer, various
optional third-party software products and hardware components, training,
support and installation. Each Prophet 21 Servent Solution includes the Prophet
21 Servent Software, training, support and installation. The Company's
Educational Services Department develops a variety of educational tools and
programs to train customers in the Prophet 21 Systems. Such programs include
interactive computer-based training, video training and remote training. The
Company's cost of revenue consists principally of the costs of hardware
components, customer support, installation and training and, to a lesser extent,
third-party software.
In fiscal 1996, the Company introduced its next generation UNIX product,
Prophet 21 Acclaim. A complete distribution industry management solution that
combines the functionality of the traditional Prophet 21 System with the
technology of Progress Software Corporation's DBMS. Prophet 21 Acclaim is
targeted for sales to new and current Prophet 21 XL customers. It has been
designed so that current XL users can move to this new product while preserving
their existing technology infrastructure. The general release of Prophet 21
Acclaim began late in the second quarter of fiscal 1997.
In the second quarter of fiscal 1998, the Company introduced its newest
product, Prophet 21 Servent, a fully integrated Microsoft Windows NT-based
client/server software suite. Servent is targeted for medium-sized companies
looking to solve their distribution-centric business requirements with a Windows
NT client/server solution. These companies desire a solution that provides a
transaction-intensive sales order management and inventory management solution
to meet their customer service needs. They also require a solution that
integrates with an accounting solution and can be implemented in a
cost-effective manner. The Servent product is
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<PAGE>
suitable for distribution oriented companies, as well as businesses that have a
distribution component of their own. The general release of Servent began in the
third quarter of fiscal 1998.
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are forward-looking statements (within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended) that involve risks and
uncertainties. Such forward-looking statements may be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. From time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Securities and Exchange Commission, or press releases or
oral statements made by or with the approval of an authorized executive officer
of the Company. These forward-looking statements, such as statements regarding
anticipated future revenues, capital expenditures and other statements regarding
matters that are not historical facts, involve predictions. The Company's actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Potential risks
and uncertainties that could affect the Company's future operating results
include, but are not limited to: (i) economic conditions, including economic
conditions related to the computer industry; (ii) the availability of components
and parts from the Company's vendors at current prices and levels; (iii) the
intense competition in the markets for the Company's products and services; (iv)
the Company's ability to protect its intellectual property; (v) potential
infringement claims against the Company for its software development products;
(vi) the Company's ability to obtain customer maintenance contracts at current
levels; (vii) the Company's ability to develop, market, provide, and achieve
market acceptance of new service offerings to new and existing clients; and
(viii) Year 2000 compliance of the Company's and other vendors' products and
related issues, including impact of the Year 2000 problem on customer buying
patterns.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenue. Revenue increased by 14.8%, or $1,440,000, from $9,725,000 in the
three months ended September 30, 1997 ("First Quarter of Fiscal 1998") to
$11,165,000 in the three months ended September 30, 1998 ("First Quarter of
Fiscal 1999"). System sales revenue increased by 8.7% or $521,000, from
$5,983,000 in the First Quarter of Fiscal 1998 to $6,504,000 in the First
Quarter of Fiscal 1999. This increase was attributable primarily to the increase
in sales of the Company's new Servent product, which began in the third quarter
of fiscal 1998, and to sales of the Company's Prophet 21 Acclaim product, and,
to a lesser extent, the increase in the sale of optional Prophet 21 software.
Service and support revenue increased
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<PAGE>
by 24.6% or $919,000, from $3,742,000 in the First Quarter of Fiscal 1998 to
$4,661,000 in the First Quarter of Fiscal 1999. This increase was attributable
primarily to an increase in the number of new users who have entered into
maintenance contracts, an increase in services performed by the Company in
connection with its new Educational Services Division and, to a lesser extent,
sales of services related to the Company's Acclaim and new Servent product.
Gross profit. The Company's gross profit increased by 25.5%, or $1,120,000,
from $4,387,000 in the First Quarter of Fiscal 1998 to $5,507,000 in the First
Quarter of Fiscal 1999. Gross profit margin increased from 45.1% of revenue in
the First Quarter of Fiscal 1998 to 49.3% of revenue in the First Quarter of
Fiscal 1999. Gross profit from system sales increased by 21.3%, or $538,000,
from $2,529,000 in the First Quarter of Fiscal 1998 to $3,067,000 in the First
Quarter of Fiscal 1999. Gross profit margin attributable to system sales
increased from 42.3% in the First Quarter of Fiscal 1998 to 47.2% in the First
Quarter of Fiscal 1999. The increase in such gross profit and gross profit
margin were attributable primarily to the sales of the Company's new Servent
product, and to a lesser extent to increased sales of the Company's optional
software offerings which carry higher margins. Gross profit from service and
support revenue increased by 31.3%, or $582,000, from $1,858,000 in the First
Quarter of Fiscal 1998 to $2,440,000 in the First Quarter of Fiscal 1999. Gross
profit margin attributable to service and support revenue increased from 49.7%
of service and support revenue in the First Quarter of Fiscal 1998 to 52.3% of
service and support revenue in the First Quarter of Fiscal 1999. The increase in
such gross profit and gross profit margin was attributable primarily to (i) an
increase in the number of new users who have entered into maintenance contracts,
(ii) an increase in services performed by the Company in connection with the
general release of the new Prophet 21 Servent and Prophet 21 Acclaim products,
and (iii) an increase in revenue from the Company's new Educational Service
Division. These increases were offset in part by increased staffing.
Sales and marketing expenses. Sales and marketing expenses increased by
14.0%, or $294,000, from $2,099,000 in the First Quarter of Fiscal 1998 to
$2,393,000 in the First Quarter of Fiscal 1999, but decreased slightly as a
percentage of revenue from 21.6% to 21.4%, respectively. Such expenses increased
in absolute dollars due primarily to increased compensation expenses associated
with the Company's increased sales and marketing staffing related to its new
product offerings. Sales and marketing expenses decreased as a percentage of
revenue as a result of increased sales volume.
General and administrative expenses. General and administrative expenses
remained virtually flat, at $655,000 in the First Quarter of Fiscal 1998 and
$660,000 in the First Quarter of Fiscal 1999, but decreased as a percentage of
revenue from 6.7% to 5.9%, respectively. Increases in compensation expenses were
offset in part by decreased fees paid to the Company's outside professionals.
General and administrative expenses decreased as a percentage of revenue as a
result of increased sales volume.
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<PAGE>
Research and development expenses. Research and development expenses
increased by 66.0%, or $521,000, from $789,000 in the First Quarter of Fiscal
1998 to $1,310,000 in the First Quarter of Fiscal 1999, and increased as a
percentage of revenue from 8.1% to 11.7%, respectively. Research and development
expenses increased in absolute dollars and as a percentage of revenue due
primarily to an increase in salary expenses and staffing associated with the
Company's new product release.
Income taxes. The Company's effective tax rate was 36.0% and 32.0% in the
First Quarter of Fiscal 1998 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its operations primarily from
cash generated by operations and available cash, including funds raised in the
Company's initial public offering completed in March 1994. The Company's cash
flow provided by operations was $617,000 for the three months ended September
30, 1998.
The Company's working capital was $11,251,000 and $16,869,000 at September
30, 1997 and 1998, respectively.
The Company invested $253,000 in capital equipment and leasehold
improvements in the three months ended September 30, 1998. There are no other
material commitments for capital expenditures currently outstanding.
The Company does not have a significant concentration of credit risk with
respect to accounts receivable due to the large number of customers comprising
the Company's customer base and their dispersion across different geographic
regions. The Company performs on-going credit evaluations and generally does not
require collateral. The Company maintains reserves for potential credit losses,
and, to date, such losses have been within the Company's expectations.
In fiscal 1997, the Company's Board of Directors approved resolutions to
repurchase up to 600,000 shares of the Company's Common Stock in open market
purchases not to exceed a purchase price of $6.00 per share. The Company has
repurchased an aggregate of 442,900 shares at a total cost of $2,518,000. The
Company's last Common Stock repurchase occurred in the fourth quarter of fiscal
1997.
The Company believes that available funds and the cash flow expected to be
generated from operations will be adequate to satisfy its current and planned
operations for at least the next 24 months.
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<PAGE>
YEAR 2000 COMPLIANCE
Historically, certain computer programs have been written using two digits
rather than four to define the applicable year, which could result in the
computer recognizing a date using "00" as the year 1900 rather than 2000. This
in turn, could result in major system failures or miscalculations, and is
generally referred to as the "Year 2000 Problem". The Company believes that it
has sufficiently assessed its state of readiness with respect to its Year 2000
compliance. The Company does not believe that Year 2000 compliance will result
in material investments by the Company, nor does the Company anticipate that the
Year 2000 Problem will have any adverse effects on the business operations or
financial performance of the Company. The Company does not believe that it has
any material exposure to the Year 2000 Problem with respect to its own
information systems. There can be no assurance, however, that the Year 2000
Problem will not adversely affect the Company's business, operating results and
financial condition.
Some of the Company's older products, which are no longer sold, are not
Year 2000 compliant, however, the Company offers compliant upgrades for such
products. The Company believes that each of its current products is Year 2000
compliant, however, it has no control over whether software modification made by
third parties will be Year 2000 compliant. There can be no assurance that the
Company's products will not be integrated by the Company or its customers or
interact with non-compliant software or other products which may expose the
Company to claims. Additionally, there can be no assurance that such potential
instances of non-compliance will not adversely affect the Company's business,
operating results and financial condition. The Company has established no
reserve for auditing its software products or for correcting Year 2000
compliance issues with such products.
Although the Company believes its products are Year 2000 compliant, the
purchasing patterns of customers and potential customers may be affected by
issues associated with the Year 2000 Problem. As companies expend significant
resources to correct their current data storage solutions, these expenditures
may result in reduced funds to purchase products as those offered by the
Company. There can be no assurance that the Year 2000 Problem will not adversely
affect the Company's business, operating results and financial condition.
Conversely, the Year 2000 Problem may cause other companies to accelerate
purchases, thereby causing an increase in short-term demand and a consequent
decrease in long-term demand for the Company's products.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27 Financial Data Schedule for the period ended September 30, 1998.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report on Form 10-Q is filed.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Prophet 21, Inc.
DATE: November 13, 1998 By:/s/ Charles L. Boyle, III
-------------------------
Charles L. Boyle, III,
President and Chief
Executive Officer
(Principal Executive
Officer)
DATE: November 13, 1998 By:/s/ Thomas M. Giuliani
----------------------
Thomas M. Giuliani,
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S FORM 10-Q FOR THE
PERIODS ENDED September 30, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000917823
<NAME> Prophet 21, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<EXCHANGE-RATE> 1,000 1,000
<CASH> 2,484 487
<SECURITIES> 1,488 2,351
<RECEIVABLES> 18,682 14,231
<ALLOWANCES> (308) (288)
<INVENTORY> 1,261 1,641
<CURRENT-ASSETS> 24,639 18,961
<PP&E> 2,787 2,574
<DEPRECIATION> (589) (333)
<TOTAL-ASSETS> 33,778 27,906
<CURRENT-LIABILITIES> 7,770 7,710
<BONDS> 0 0
0 0
0 0
<COMMON> 42 40
<OTHER-SE> 24,755 19,319
<TOTAL-LIABILITY-AND-EQUITY> 33,778 24,906
<SALES> 11,165 9,725
<TOTAL-REVENUES> 11,165 9,725
<CGS> 5,658 5,338
<TOTAL-COSTS> 5,658 5,338
<OTHER-EXPENSES> 4,363 3,543
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (72) (86)
<INCOME-PRETAX> 1,216 930
<INCOME-TAX> 389 335
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 827 595
<EPS-PRIMARY> 0.22<F1> 0.17 <F3>
<EPS-DILUTED> 0.21<F2> 0.16 <F4>
<FN>
<F1> This amount represents basic earnings per share in accordance with
the requirements of Statement of Financial Accounting Standards No.
128 - "Earnings per Share."
<F2> This amount represents basic earnings per share in accordance with
the requirements of Statement of Financial Accounting Standards No.
128 - "Earnings per Share."
<F3> This amount represents basic earnings per share in accordance with
accordance with the requirements of Statement of Financial Accounting
Standards No. 128 - "Earnings per Share."
<F4> This amount represents basic earnings per share in accordance with
accordance with the requirements of Statement of Financial Accounting
Standards No. 128 - "Earnings per Share."
</FN>
</TABLE>
