SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File No. 0-23306
PROPHET 21, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-2746447
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
19 West College Ave., Yardley, Pennsylvania 19067
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(Address of Principal Executive Offices) (Zip Code)
(215) 493-8900
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(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 May 1, 2000:
Class Number of Shares
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Common Stock, $.01 par value 3,658,993
<PAGE>
PROPHET 21, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION....................................... 1
Item 1. Financial Statements........................................ 1
Consolidated Balance Sheets
as of June 30, 1999 and
March 31, 2000 (unaudited).................................. 2
Consolidated Statements of Operations
for the three months and the nine months ended
March 31, 1999 and 2000 (unaudited)......................... 3
Consolidated Statements of Cash Flows
for the nine months ended
March 31, 1999 and 2000 (unaudited)......................... 4
Notes to Consolidated Financial Statements (unaudited)...... 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition............... 7
Results of Operations....................................... 8
Liquidity and Capital Resources............................. 11
Year 2000 Compliance........................................ 11
PART II. OTHER INFORMATION........................................... 12
Item 5. Other Information........................................... 12
Item 6. Exhibits and Reports on Form 8-K............................ 12
SIGNATURES .............................................................. 13
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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)
<TABLE>
<CAPTION>
June 30, March 31,
1999 2000
--------- ---------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 2,520 $ 3,906
Marketable securities................................ 1,661 4,141
Accounts receivable, net of allowance for
doubtful accounts of $261 and $705, respectively.. 19,743 13,426
Advanced billings.................................... 2,140 2,010
Inventories.......................................... 666 1,128
Deferred income taxes................................ 156 156
Prepaid and other current assets..................... 1,230 1,461
-------- ---------
Total current assets............................ 28,116 26,228
Long-term marketable securities......................... 3,175 3,170
Equipment and improvements, net......................... 3,100 2,971
Software development costs, net......................... 2,131 1,172
Other assets............................................ 35 3
-------- ---------
Total assets.................................... $ 36,557 $ 33,544
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 2,737 $ 1,654
Accrued expenses and other liabilities .............. 1,715 1,075
Commissions payable.................................. 708 207
Taxes payable........................................ 1,206 449
Profit sharing plan contribution payable ............ 403 1
Deferred income ..................................... 2,959 3,193
-------- ---------
Total current liabilities ...................... 9,728 6,579
-------- ---------
Deferred income taxes................................... 728 728
-------- ---------
Commitments and contingent liabilities
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; 4,193,603 and 4,242,554 shares
issued, respectively; 3,593,613 and 3,642,564
shares outstanding, respectively.................. 42 42
Additional paid-in capital........................... 10,734 11,038
Retained earnings ................................... 19,339 19,171
Treasury stock at cost, 599,990 shares............... (4,014) (4,014)
-------- ---------
Total stockholders' equity ..................... 26,101 26,237
-------- ---------
Total liabilities and stockholders' equity ..... $ 36,557 $ 33,544
======== =========
</TABLE>
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)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
---------------------- -----------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software and hardware sales......... $ 6,039 $ 4,845 $ 19,344 $ 12,372
Service and support................. 5,496 6,696 15,492 20,302
--------- --------- --------- ---------
11,535 11,541 34,836 32,674
--------- --------- --------- ---------
Cost of revenue:
Software and hardware sales......... 2,681 2,111 8,227 6,039
Service and support................. 3,250 3,719 9,110 11,338
--------- --------- --------- ---------
5,931 5,830 17,337 17,377
--------- --------- --------- ---------
Gross profit.................... 5,604 5,711 17,499 15,297
--------- --------- --------- ---------
Operating expenses:
Sales and marketing................. 2,921 2,906 8,328 8,406
Research and development............ 1,748 1,623 4,530 5,039
General and administrative.......... 715 774 2,080 2,355
--------- --------- --------- ---------
5,384 5,303 14,938 15,800
--------- --------- --------- ---------
Operating income (loss)......... 220 408 2,561 (503)
Interest income....................... 74 103 221 248
--------- --------- --------- ---------
Income (loss) before taxes............ 294 511 2,782 (255)
Provision (benefit) for income taxes.. 96 174 890 (87)
--------- --------- --------- ---------
Net income (loss)..................... $ 198 $ 337 $ 1,892 $ (168)
========= ========= ========= =========
Basic earnings per share:
Net income (loss) per share........... $ 0.05 $ 0.09 $ 0.51 $ (0.05)
========= ========= ========= =========
Weighted average common
shares outstanding.................. 3,733 3,618 3,725 3,607
========= ========= ========= =========
Diluted earnings per share:
Net income (loss) per share........... $ 0.05 $ 0.08 $ 0.48 $ (0.05)
========= ========= ========= =========
Weighted average common
and common equivalent shares
outstanding......................... 4,040 4,020 4,037 3,607
========= ========= ========= =========
</TABLE>
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)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ 1,892 $ (168)
-------- ---------
Adjustments to reconcile net income (loss) to net
cash provided by (used by) operating activities:
Depreciation and amortization........................... 1,893 2,156
Gain on sale of equipment............................... (3) --
Provision for losses on accounts receivable............. 261 444
Decreases (increases) in operating assets:
Accounts receivable..................................... 1,438 5,873
Advanced billings....................................... (380) 130
Inventories............................................. (438) (462)
Prepaid expenses and other current assets............... (371) (231)
Other assets............................................ 75 32
(Decreases) increases in operating liabilities:
Accounts payable........................................ (1,709) (1,083)
Accrued expenses........................................ (1,161) (1,141)
Taxes payable........................................... (228) (757)
Profit sharing plan contribution payable................ (378) (402)
Deferred income......................................... 199 234
-------- ---------
Total adjustments....................................... (802) 4,793
-------- ---------
Net cash provided by operating activities.................... 1,090 4,625
-------- ---------
Cash flows from investing activities:
Cash purchases of equipment and improvements............... (1,354) (1,048)
Purchase of marketable securities.......................... (2,600) (2,495)
Maturity of marketable securities.......................... 1,750 --
-------- ---------
Net cash used by investing activities........................ (2,204) (3,543)
-------- ---------
Cash flows from financing activities:
Stock options exercised.................................... 54 145
Employee stock purchase plan............................... 204 159
-------- ---------
Net cash provided by financing activities.................... 258 304
-------- ---------
Net (decrease) increase in cash and cash equivalents......... (856) 1,386
Cash and cash equivalents at beginning of period............. 2,206 2,520
-------- ---------
Cash and cash equivalents at end of period................... $ 1,350 $ 3,906
======== =========
Supplemental cash flow disclosures:
Income taxes paid.......................................... $ 1,393 $ 646
======== =========
</TABLE>
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
------------------------------------------
(unaudited)
(dollars in thousands, except shares)
NOTE 1 -- BASIS OF PRESENTATION:
The information presented for March 31, 2000, and for the three-month and
the nine-month periods ended March 31, 1999 and 2000, 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 March 31, 2000 and the
results of its operations and its cash flows for the three-month and nine-month
periods ended March 31, 1999 and 2000. 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, 1999, which were included as part of the Company's Annual
Report on Form 10-K.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances have been
eliminated.
Certain items in prior period financial statements have been reclassified
for comparative purposes.
There were no items of other comprehensive income for any of the periods
presented in the accompanying financial statements.
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:
The Company has capitalized certain software development costs in
accordance with the Statement of Financial Accounting Standards Board ("SFAS")
No. 86. Such costs were capitalized after technological feasibility was
demonstrated. Beginning when the products were offered for sale, the software
development costs were and are continuing to be 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 amounted to $959,000 in
the nine months ended March 31, 2000. All other research and development costs
have been expensed.
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<PAGE>
PROPHET 21, INC. AND SUBSIDIARIES
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
(dollars in thousands, except shares)
NOTE 3 -- 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 599,990 shares at a total
cost of $4,014. Such shares are held in treasury. The Company's last Common
Stock repurchase occurred in the fourth quarter of fiscal 1999.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
GENERAL
The Company provides 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 Microsoft Win
2000, UNIX or AS/400 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, dental and medical, tile, plumbing and HVAC.
The Company's revenue is derived from the sale of either Prophet 21 Acclaim
or Prophet 21 Wholesale 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 Wholesale Solution includes the Prophet 21
Wholesale 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.
Prophet 21 Acclaim is 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 customers 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.
Prophet 21 Wholesale is a fully integrated Microsoft Win 2000-based
client/server software suite. Prophet 21 Wholesale is targeted for medium-sized
companies looking to solve their distribution-centric business requirements with
a Microsoft Win 2000 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 Prophet 21 Wholesale product is suitable for
distribution-oriented companies, as well as businesses that have a distribution
component of their own.
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
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<PAGE>
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; and (vii) the Company's ability to develop, market, provide, and achieve
market acceptance of new service offerings to new and existing clients.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Revenue. Revenue increased slightly by 0.1%, or $6,000, from $11,535,000 in
the three months ended March 31, 1999 ("Third Quarter of Fiscal 1999") to
$11,541,000 in the three months ended March 31, 2000 ("Third Quarter of Fiscal
2000"). Software and hardware sales revenue decreased by 19.8%, or $1,194,000,
from $6,039,000 in the Third Quarter of Fiscal 1999 to $4,845,000 in the Third
Quarter of Fiscal 2000. This decrease was attributable primarily to a change in
the product mix in which more software was sold without corresponding hardware.
Another factor contributing to the decrease included a carryover effect from a
slowdown in software market sales caused by potentially new and existing
customer concerns relating to issues in connection with the Year 2000. Service
and support revenue increased by 21.8%, or $1,200,000, from $5,496,000 in the
Third Quarter of Fiscal 1999 to $6,696,000 in the Third Quarter of Fiscal 2000.
This increase was attributable primarily to an increase in the number of new
users who have entered into maintenance contracts and in consulting services
performed by the Company.
Gross profit. The Company's gross profit increased by 1.9%, or $107,000,
from $5,604,000 in the Third Quarter of Fiscal 1999 to $5,711,000 in the Third
Quarter of Fiscal 2000. Gross profit margin increased from 48.6% of revenue in
the Third Quarter of Fiscal 1999 to 49.5% of revenue in the Third Quarter of
Fiscal 2000. Gross profit from software and hardware sales decreased by 18.6%,
or $624,000, from $3,358,000 in the Third Quarter of Fiscal 1999 to $2,734,000
in the Third Quarter of Fiscal 2000. Gross profit margin attributable to
software and
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<PAGE>
hardware sales increased from 55.6% in the Third Quarter of Fiscal 1999 to 56.4%
in the Third Quarter of Fiscal 2000. The decrease in such gross profit was
attributable primarily to a decrease in sales volume. The increase in such gross
profit margin was attributable to a change in product mix to include more
software sales and less hardware sales. Sales of software products carry higher
margins than sales of hardware products. Gross profit from service and support
revenue increased by 32.5%, or $731,000, from $2,246,000 in the Third Quarter of
Fiscal 1999 to $2,977,000 in the Third Quarter of Fiscal 2000. Gross profit
margin attributable to service and support revenue increased from 40.9% of
service and support revenue in the Third Quarter of Fiscal 1999 to 44.5% of
service and support revenue in the Third Quarter of Fiscal 2000. The increase in
such gross profit and gross profit margin was attributable primarily to
increased revenues which increased faster than the expenses associated with the
delivery of service and support.
Sales and marketing expenses. Sales and marketing expenses decreased
slightly by 0.5%, or $15,000, from $2,921,000 in the Third Quarter of Fiscal
1999 to $2,906,000 in the Third Quarter of Fiscal 2000, and decreased slightly
as a percentage of revenue from 25.3% to 25.2%, respectively. Such expenses
decreased slightly in absolute dollars and as a percentage of revenue due
primarily to decreased compensation expenses associated with decreased sales
commission, offset in part by an increase in marketing expenses.
Research and development expenses. Research and development expenses
decreased by 7.2%, or $125,000, from $1,748,000 in the Third Quarter of Fiscal
1999 to $1,623,000 in the Third Quarter of Fiscal 2000, and decreased as a
percentage of revenue from 15.2% to 14.1%, respectively. Research and
development expenses decreased in absolute dollars and as a percentage of
revenue due primarily to a decrease in outside consulting expenses.
General and administrative expenses. General and administrative expenses
increased by 8.3%, or $59,000, from $715,000 in the Third Quarter of Fiscal 1999
to $774,000 in the Third Quarter of Fiscal 2000, and increased as a percentage
of revenue from 6.2% to 6.7%, respectively. General and administrative expenses
increased in absolute dollars and as a percentage of revenue due primarily to
increased salary and professional fees.
Income taxes. The Company's effective tax rate was 32.7% and 33.9% in the
Third Quarter of Fiscal 1999 and 2000, respectively.
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO NINE MONTHS ENDED MARCH 31, 2000
Revenue. Revenue decreased by 6.2%, or $2,162,000, from $34,836,000 in the
first nine months of fiscal 1999 to $32,674,000 in the first nine months of
fiscal 2000. Software and hardware sales revenue decreased by 36.0%, or
$6,972,000, from $19,344,000 in the first nine months of fiscal 1999 to
$12,372,000 in the first nine months of fiscal 2000. This decrease was
attributable primarily to a slowdown in software market sales caused by
potentially new and existing customer concerns relating to issues in connection
with the Year 2000. Other factors contributing to the decrease included the
Company's focus on larger accounts which typically require a longer sales cycle
than traditionally targeted Prophet 21 customers. Service and support revenue
increased by 31.0%, or $4,810,000 from $15,492,000 in the first nine months of
fiscal
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<PAGE>
1999 to $20,302,000 in the first nine months of fiscal 2000. This increase was
attributable primarily to an increase in the number of new users who have
entered into maintenance contracts.
Gross profit. The Company's gross profit decreased by 12.6%, or $2,202,000,
from $17,499,000 in the first nine months of fiscal 1999 to $15,297,000 in the
first nine months of fiscal 2000. Gross profit margin decreased from 50.2% of
revenue in the first nine months of fiscal 1999 to 46.8% of revenue in the first
nine months of fiscal 2000. Gross profit from software and hardware sales
decreased by 43.0%, or $4,784,000, from $11,117,000 in the first nine months of
fiscal 1999 to $6,333,000 in the first nine months of fiscal 2000. Gross profit
margin attributable to software and hardware sales decreased from 57.5% in the
first nine months of fiscal 1999 to 51.2% in the first nine months of fiscal
2000. The decrease in such gross profit was attributable primarily to a decrease
in sales volume. The decrease in such gross profit margin was attributable to a
change in product mix. Gross profit from service and support revenue increased
by 40.5%, or $2,582,000, from $6,382,000 in the first nine months of fiscal 1999
to $8,964,000 in the first nine months of fiscal 2000. Gross profit margin
attributable to service and support revenue increased from 41.2% of service and
support revenue in the first nine months of fiscal 1999 to 44.2% of service and
support revenue in the first nine months of fiscal 2000. The increase in such
gross profit and gross profit margin was attributable primarily to increased
revenues which increased faster than the expenses associated with the delivery
of service and support.
Sales and marketing expenses. Sales and marketing expenses increased
slightly by 0.9%, or $78,000, from $8,328,000 in the first nine months of fiscal
1999 to $8,406,000 in the first nine months of fiscal 2000, and increased as a
percentage of revenue from 23.9% to 25.7%, respectively. Such expenses increased
in absolute dollars due primarily to increased compensation expenses associated
with staffing and increased investment in marketing. Such expenses increased as
a percentage of revenue due to decreased sales volume.
Research and development expenses. Research and development expenses
increased by 11.2%, or $509,000, from $4,530,000 in the first nine months of
fiscal 1999 to $5,039,000 in the first nine months of fiscal 2000, and increased
as a percentage of revenue from 13.0% to 15.4%, respectively. Research and
development expenses increased in absolute dollars due primarily to an increase
in salary expenses related to increased staffing as the Company continues to
invest in product development. Such expenses increased as a percentage of
revenue due to decreased sales volume.
General and administrative expenses. General and administrative expenses
increased by 13.2%, or $275,000, from $2,080,000 in the first nine months of
fiscal 1999 to $2,355,000 in the first nine months of fiscal 2000, and increased
as a percentage of revenue from 6.0% to 7.2%, respectively. General and
administrative expenses increased in absolute dollars due primarily to increased
salary and professional fees. Such expenses increased as a percentage of revenue
due to decreased sales volume.
Income taxes. The Company's effective tax rate was 32.0% and 34.1% in the
first nine months of fiscal 1999 and 2000, respectively.
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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 $1,090,000 and $4,625,000 for the nine months
ended March 31, 1999 and 2000, respectively.
The Company's working capital was $18,388,000 and $19,649,000 at March 31,
1999 and 2000, respectively.
The Company invested $1,354,000 and $1,048,000 in capital equipment and
leasehold improvements in the nine months ended March 31, 1999 and 2000,
respectively. 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.
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.
YEAR 2000 COMPLIANCE
The Company did not experience any significant computer or systems problems
relating to the Year 2000. Upon review of the Company's internal and external
systems during 1999, the Company determined that it did not have any material
exposure to such computer problems and that the software and systems required to
operate its business and provide its services were Year 2000 compliant. As a
result, the Company did not incur, and does not expect to incur, any material
expenditures relating to Year 2000 systems remediation.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedge Activities." This
standard requires all derivatives be measured at fair value and be recognized as
assets and liabilities in the statement of financial position. FASB 133 sets
forth the accounting for changes in fair value of a derivative depending on the
intended use and designation of the derivative. In June 1999, the FASB issued
FASB 137, "Accounting for Derivative Instruments and Hedging Activities
- --Deferral of the Effective Date of FASB No. 133, an Amendment of FASB 133."
FASB 133, as amended, is now effective for all fiscal quarters and fiscal years
beginning after June 15, 2000. Implementation of FASB 133 is not expected to
have a significant impact on the financial position or results of operations of
the Company.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On January 26, 2000, the Company dismissed PricewaterhouseCoopers LLP
("PWC"), as its independent accountants. In connection with its audits for each
of the two years in the period ended June 30, 1999 and through January 26, 2000,
there were no disagreements with PWC on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which
caused disagreements if not resolved to the satisfaction of PWC would have
caused them to make reference thereto in their reports on the financial
statements of the Company for such years. The report of PWC on the Company's
financial statements for each of the two years in the period ended June 30, 1999
contained no adverse opinion or disclaimer of opinion and was not modified or
qualified as to uncertainty, audit scope, or accounting principle. The decision
to dismiss PWC was approved by both the Audit Committee of the Board of
Directors and by the full Board of Directors of the Company. PWC has furnished
the Company with a letter addressed to the Securities and Exchange Commission
stating their agreement with the above statements.
On February 1, 2000, the Company retained KPMG LLP as its independent
accountants.
Subsequent to the end of the quarter, on April 19, 2000, the Company
announced the establishment of its new division, TradingPartnerConnectTM
("TPCx"), through which distributors and manufacturers will be able to transact
business in a dynamic on-line environment. Through TPCx, the Company will
provide its existing base of more than 2,000 customers and potential customers
with the ability to buy and sell goods in a digital marketplace. As part of the
TPCx rollout, the Company intends to coordinate a beta program in July 2000 with
approximately 50 customers.
ITEM 6. EXHIBITS.
(a) Exhibits.
27 Financial Data Schedule for the period ended March 31, 2000.
(b) Reports on Form 8-K.
On February 8, 2000 and February 25, 2000, the Company filed a report
on Form 8-K and Form 8-K/A, respectively, relating to its change of
independent accountants from PWC to KPMG LLP.
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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: May 11, 2000 By:/s/ Charles L. Boyle, III
-------------------------
Charles L. Boyle, III,
President and Chief
Executive Officer
(Principal Executive
Officer)
DATE: May 11, 2000 By:/s/ Thomas M. Giuliani
----------------------
Thomas M. Giuliani,
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
- 13 -
<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
PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000917823
<NAME> Prophet 21, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 3,906
<SECURITIES> 4,141
<RECEIVABLES> 16,141
<ALLOWANCES> (705)
<INVENTORY> 1,128
<CURRENT-ASSETS> 26,228
<PP&E> 5,127
<DEPRECIATION> (2,156)
<TOTAL-ASSETS> 33,544
<CURRENT-LIABILITIES> 6,579
<BONDS> 0
0
0
<COMMON> 42
<OTHER-SE> 26,195
<TOTAL-LIABILITY-AND-EQUITY> 33,544
<SALES> 32,674
<TOTAL-REVENUES> 32,674
<CGS> 17,377
<TOTAL-COSTS> 17,377
<OTHER-EXPENSES> 15,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (248)
<INCOME-PRETAX> (255)
<INCOME-TAX> (87)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (168)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
