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 December 31, 1999
Commission File No. 0-23306
PROPHET 21, INC.
------------------------------------------------------
(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 February 1, 2000:
Class Number of Shares
----- ----------------
Common Stock, $.01 par value 3,617,493
<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
December 31, 1999 (unaudited).............................. 2
Consolidated Statements of Operations
for the three months and the six months ended
December 31, 1998 and 1999 (unaudited)..................... 3
Consolidated Statements of Cash Flows
for the six months ended
December 31, 1998 and 1999 (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 4. Submission of Matters to a Vote of Security Holders........ 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.
- 1 -
<PAGE>
PROPHET 21, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Shares)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
--------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 2,520 $ 3,144
Marketable securities................................ 1,661 1,681
Accounts receivable, net of allowance for
doubtful accounts of $261 and $274, respectively.. 19,743 13,337
Advanced billings.................................... 2,140 2,322
Inventories.......................................... 666 1,173
Deferred income taxes................................ 156 156
Prepaid and other current assets..................... 1,230 1,511
-------- --------
Total current assets............................ 28,116 23,324
Long-term marketable securities......................... 3,175 4,670
Equipment and improvements, net......................... 3,100 3,026
Software development costs, net......................... 2,131 1,492
Other assets............................................ 35 27
-------- --------
Total assets.................................... $ 36,557 $ 32,539
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 2,737 $ 1,186
Accrued expenses and other liabilities .............. 1,715 1,160
Commissions payable.................................. 708 245
Taxes payable........................................ 1,206 427
Profit sharing plan contribution payable ............ 403 5
Deferred income ..................................... 2,959 3,045
-------- --------
Total current liabilities ...................... 9,728 6,068
-------- --------
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 4,216,883 shares issued, respectively; 42 42
3,593,613 and 3,616,893 shares outstanding,
respectively............................................
Additional paid-in capital........................... 10,734 10,881
Retained earnings ................................... 19,339 18,834
Treasury stock at cost, 599,990 (4,014) (4,014)
-------- --------
shares..........................................
Total stockholders' equity ..................... 26,101 25,743
-------- --------
Total liabilities and stockholders' equity ..... $ 36,557 $ 32,539
======== ========
</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 Six Months
Ended December 31, Ended December 31,
-------------------- -------------------
1998 1999 1998 1999
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Software and hardware sales..... $ 6,801 $ 4,589 $ 13,305 $ 7,527
Service and support............. 5,335 7,258 9,996 13,606
-------- -------- -------- --------
12,136 11,847 23,301 21,133
-------- -------- -------- --------
Cost of revenue:
Software and hardware sales..... 2,725 1,966 5,546 3,928
Service and support............. 3,053 3,847 5,860 7,619
-------- -------- -------- --------
5,778 5,813 11,406 11,547
-------- -------- -------- --------
Gross profit................ 6,358 6,034 11,895 9,586
-------- -------- -------- --------
Operating expenses:
Sales and marketing............. 3,063 3,004 5,407 5,500
Research and development........ 1,402 1,698 2,782 3,416
General and administrative...... 696 804 1,365 1,581
-------- -------- -------- --------
5,161 5,506 9,554 10,497
-------- -------- -------- --------
Operating income (loss)..... 1,197 528 2,341 (911)
Interest income................... 75 85 147 145
-------- -------- -------- --------
Income (loss) before taxes........ 1,272 613 2,488 (766)
Provision (benefit) for income
taxes............................ 405 208 794 (261)
-------- -------- -------- --------
Net income (loss)................. $ 867 $ 405 $ 1,694 $ (505)
======== ======== ======== ========
Basic earnings (loss) per share:
Net income (loss) per share....... $ 0.23 $ 0.11 $ 0.46 $ (0.14)
======== ======== ======== ========
Weighted average common
shares outstanding.............. 3,724 3,608 3,720 3,601
======== ======== ======== ========
Diluted earnings (loss) per share:
Net income (loss) per share....... $ 0.22 $ 0.11 $ 0.43 $ (0.14)
======== ======== ======== ========
Weighted average common
and common equivalent shares
outstanding..................... 4,014 3,816 4,036 3,601
======== ======== ======== ========
</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>
Six Months Ended December 31,
-----------------------------
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ 1,694 $ (505)
-------- --------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization........................... 1,194 1,401
Provision for losses on accounts receivable............. 155 225
Decreases (increases) in operating assets:
Accounts receivable..................................... 1,152 6,181
Advanced billings....................................... (306) (182)
Inventories............................................. (133) (507)
Prepaid expenses and other current assets............... 298 (281)
Other assets............................................ 50 8
(Decreases) increases in operating liabilities:
Accounts payable........................................ (1,341) (1,551)
Accrued expenses........................................ (979) (1,018)
Taxes payable........................................... (194) (779)
Profit sharing plan contribution payable................ (251) (398)
Deferred income......................................... 185 86
-------- --------
Total adjustments....................................... (170) 3,185
-------- --------
Net cash provided by operating activities.................... 1,524 2,680
-------- --------
Cash flows from investing activities:
Cash purchases of equipment and improvements............... (790) (708)
Purchase of marketable securities.......................... (2,600) (1,495)
Maturity of marketable securities.......................... 1,750 --
-------- --------
Net cash used by investing activities........................ (1,640) (2,203)
-------- --------
Cash flows from financing activities:
Stock options exercised.................................... 55 40
Employee stock purchase plan............................... 128 107
-------- --------
Net cash provided by financing activities.................... 183 147
-------- --------
Net increase in cash and cash equivalents.................... 67 624
Cash and cash equivalents at beginning of period............. 2,206 2,520
-------- --------
Cash and cash equivalents at end of period................... $ 2,273 $ 3,144
======== ========
Supplemental cash flow disclosures:
Income taxes paid.......................................... $ 823 $ 560
======== ========
</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 December 31, 1999, and for the three-month
and the six-month periods ended December 31, 1998 and 1999, 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 December 31, 1999 and the
results of its operations and its cash flows for the three-month and six-month
periods ended December 31, 1998 and 1999. 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.
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 $639 in the
six months ended December 31, 1999. 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 -- 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 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 Windows NT,
UNIX or AS/4000 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 Windows NT-based
client/server software suite. Prophet 21 Wholesale 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 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; (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 DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1999
Revenue. Revenue decreased by 2.4%, or $289,000 from $12,136,000 in the
three months ended December 31, 1998 ("Second Quarter of Fiscal 1999") to
$11,847,000 in the three months ended December 31, 1999 ("Second Quarter of
Fiscal 2000"). Software and hardware sales revenue decreased by 32.5%, or
$2,212,000 from $6,801,000 in the Second Quarter of Fiscal 1999 to $4,589,000 in
the Second Quarter 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 36.0%,
or $1,923,000, from $5,335,000 in the Second Quarter of Fiscal 1999 to
$7,258,000 in the Second 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 decreased by 5.1%, or $324,000,
from $6,358,000 in the Second Quarter of Fiscal 1999 to $6,034,000 in the Second
Quarter of Fiscal 2000. Gross profit margin decreased from 52.4% of revenue in
the Second Quarter of Fiscal 1999
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<PAGE>
to 50.9% of revenue in the Second Quarter of Fiscal 2000. Gross profit from
software and hardware sales decreased by 35.6%, or $1,453,000, from $4,076,000
in the Second Quarter of Fiscal 1999 to $2,623,000 in the Second Quarter of
Fiscal 2000. Gross profit margin attributable to software and hardware sales
decreased from 59.9% in the Second Quarter of Fiscal 1999 to 57.2% in the Second
Quarter 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 49.5%, or $1,129,000, from $2,282,000 in the
Second Quarter of Fiscal 1999 to $3,411,000 in the Second Quarter of Fiscal
2000. Gross profit margin attributable to service and support revenue increased
from 42.8% of service and support revenue in the Second Quarter of Fiscal 1999
to 47.0% of service and support revenue in the Second 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 by
1.9%, or $59,000, from $3,063,000 in the Second Quarter of Fiscal 1999 to
$3,004,000 in the Second Quarter of Fiscal 2000, and increased as a percentage
of revenue from 25.2% to 25.4%, respectively. Such expenses decreased in
absolute dollars due primarily to decreased compensation expenses associated
with decreased sales commission. Such expenses increased slightly as a
percentage of revenue due to decreased sales volume.
Research and development expenses. Research and development expenses
increased by 21.1%, or $296,000, from $1,402,000 in the Second Quarter of Fiscal
1999 to $1,698,000 in the Second Quarter of Fiscal 2000, and increased as a
percentage of revenue from 11.6% to 14.3%, 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 15.5%, or $108,000, from $696,000 in the Second Quarter of Fiscal
1999 to $804,000 in the Second Quarter of Fiscal 2000, and increased as a
percentage of revenue from 5.7% to 6.8%, respectively. General and
administrative expenses increased in absolute dollars due primarily to increased
operating expenses. Such expenses increased as a percentage of revenue due
primarily to increased operating expenses and decreased sales volume.
Income taxes. The Company's effective tax rate was 31.8% and 33.9% in the
Second Quarter of Fiscal 1999 and 2000, respectively.
SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO SIX MONTHS ENDED DECEMBER
31, 1999
Revenue. Revenue decreased by 9.3%, or $2,168,000 from $23,301,000 in the
first six months of fiscal 1999 to $21,133,000 in the first six months of fiscal
2000. Software and hardware sales revenue decreased by 43.4%, or $5,778,000 from
$13,305,000 in the first six
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<PAGE>
months of fiscal 1999 to $7,527,000 in the first six 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 36.1%, or $3,610,000 from $9,996,000 in the first
six months of fiscal 1999 to $13,606,000 in the first six 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 19.4%, or $2,309,000,
from $11,895,000 in the first six months of fiscal 1999 to $9,586,000 in the
first six months of fiscal 2000. Gross profit margin decreased from 51.0% of
revenue in the first six months of fiscal 1999 to 45.4% of revenue in the first
six months of fiscal 2000. Gross profit from software and hardware sales
decreased by 53.6%, or $4,160,000, from $7,759,000 in the first six months of
fiscal 1999 to $3,599,000 in the first six months of fiscal 2000. Gross profit
margin attributable to software and hardware sales decreased from 58.3% in the
first six months of fiscal 1999 to 47.8% in the first six 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 44.8%, or $1,851,000, from $4,136,000 in the first six months of fiscal 1999
to $5,987,000 in the first six months of fiscal 2000. Gross profit margin
attributable to service and support revenue increased from 41.4% of service and
support revenue in the first six months of fiscal 1999 to 44.0% of service and
support revenue in the first six 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 by
1.7%, or $93,000, from $5,407,000 in the first six months of fiscal 1999 to
$5,500,000 in the first six months of fiscal 2000, and increased as a percentage
of revenue from 23.2% to 26.0%, 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 22.8% or $634,000, from $2,782,000 in the first six months of
fiscal 1999 to $3,416,000 in the first six months of fiscal 2000, and increased
as a percentage of revenue from 11.9% to 16.2%, 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 15.8%, or $216,000, from $1,365,000 in the first six months of
fiscal 1999 to $1,581,000 in the first six months of fiscal 2000, and increased
as a percentage of revenue from 5.9% to 7.5%, respectively. Such expenses
increased as a percentage of revenue due to decreased sales volume.
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<PAGE>
Income taxes. The Company's effective tax rate was 31.9% and 34.1% in the
first six months of fiscal 1999 and 2000, 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 $1,524,000 and $2,680,000 for the six months
ended December 31, 1998 and 1999, respectively.
The Company's working capital was $16,593,000 and $17,256,000 at December
31, 1998 and 1999, respectively.
The Company invested $790,000 and $708,000 in capital equipment and
leasehold improvements in the six months ended December 31, 1998 and 1999,
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.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on October 21,
1999.
There were 3,407,811 shares present at the meeting in person or by proxy.
The results of the vote taken at such meeting with respect to each nominee for
director were as follows:
Nominee For Withheld
- ------- --- --------
John E. Meggitt, Ph.D. 3,364,940 42,871
Charles L. Boyle, III 3,364,940 42,871
Dorothy M. Meggitt 3,364,940 42,871
Louis J. Cissone 3,364,940 42,871
Mark A. Timmerman 3,364,940 42,871
Additionally, a vote was taken on the proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the independent accountants of the Company for the
fiscal year ending June 30, 2000. Of the 3,407,811 shares present at the meeting
in person or by proxy, 3,392,340 shares were voted in favor of such proposal,
10,171 shares were voted against such proposal, and 5,300 shares abstained from
voting.
ITEM 5. OTHER INFORMATION.
On November 19, 1999, the Company entered into a Royalty License and
Distribution Agreement (the "Agreement") with Microsoft Corporation
("Microsoft"). The Agreement became effective on November 29, 1999; however, the
Company did not begin to operate pursuant to such Agreement until its
announcement on February 1, 2000. The Agreement expires on December 31, 2001.
The Agreement permits the Company to bundle together its Prophet 21
Wholesale product with the Microsoft SQL Server 7.0, allowing the Company's
customers to secure both the Company's business software and Microsoft's
database platform in a single purchase from the Company.
ITEM 6. EXHIBITS.
(a) Exhibits.
27 Financial Data Schedule for the period ended December 31, 1999.
(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: February 7, 2000 By:/s/ Charles L. Boyle, III
---------------------------
Charles L. Boyle, III,
President and Chief
Executive Officer
(Principal Executive
Officer)
DATE: February 7, 2000 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
PERIOD ENDED DECEMBER 31, 1999 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,144
<SECURITIES> 1,681
<RECEIVABLES> 15,933
<ALLOWANCES> (274)
<INVENTORY> 1,173
<CURRENT-ASSETS> 23,324
<PP&E> 4,427
<DEPRECIATION> (1,401)
<TOTAL-ASSETS> 32,539
<CURRENT-LIABILITIES> 6,068
<BONDS> 0
0
0
<COMMON> 42
<OTHER-SE> 25,701
<TOTAL-LIABILITY-AND-EQUITY> 32,539
<SALES> 21,133
<TOTAL-REVENUES> 21,133
<CGS> 11,547
<TOTAL-COSTS> 11,547
<OTHER-EXPENSES> 10,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (145)
<INCOME-PRETAX> (766)
<INCOME-TAX> (261)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (505)
<EPS-BASIC> (0.14)<F1>
<EPS-DILUTED> (0.14)<F2>
<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 diluted earnings per share in accordance with
the requirements of Statement of Financial Accounting Standards No.
128 - "Earnings per Share."
</FN>
</TABLE>
