SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                 ---------------

                                   FORM 10-K/A

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 2000
                         Commission file number 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 Avenue, Yardley, Pennsylvania 19067
--------------------------------------------------------------------------------
              (Address of Principal Executive Offices) (Zip Code)


                                 (215) 493-8900
                       ---------------------------------
                        (Registrant's Telephone Number,
                              Including Area Code)

           Securities registered pursuant to Section 12(b) of the Act:


                                                        Name of each exchange
Title of each class                                      on which registered
---------------------                               ----------------------------


---------------------------                         ----------------------------


---------------------------                         ----------------------------

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 par value
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------


<PAGE>

     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 by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     State the aggregate market value of the voting stock held by non-affiliates
of the Registrant:  $26,024,994 at August 31, 2000 based on the last sales price
on that date.

     Indicate  the  number of  shares  outstanding  of each of the  Registrant's
classes of common stock, as of August 31, 2000:

Class                                                       Number of Shares
-----                                                       ----------------

Common Stock, $.01 par value                                    3,721,377


     The  following  documents  are  incorporated  by reference  into the Annual
Report on Form 10-K:   None



                                       -i-
<PAGE>



                                EXPLANATORY NOTE

     Prophet 21, Inc. (the "Company")  hereby amends Item 8 of Part II and Items
10, 11, 12 and 13 of Part III of its Annual Report on Form 10-K, which was filed
with the Securities and Exchange  Commission on September 27, 2000, by including
the disclosures set forth herein.




                                      -ii-
<PAGE>


                                     PART II

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


     The financial  statements  required to be filed pursuant to this Item 8 are
appended  to  this  Annual  Report  on  Form  10-K/A.  A list  of the  financial
statements  filed herewith is found at "Item 14. Exhibits,  Financial  Statement
Schedules, and Reports on Form 8-K."





                                      -1-
<PAGE>

                                    PART III

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.


     At the Company's  Annual  Meeting of  Stockholders  (the  "Meeting"),  five
Directors are to be elected  (which number shall  constitute the entire Board of
Directors  of the  Company)  to hold  office  until the next  Annual  Meeting of
Stockholders and until their successors shall have been elected and qualified.

     All of the persons whose names and biographies  appear below are at present
Directors  of the  Company.  In the  event  any of the  nominees  should  become
unavailable or unable to serve as a Director,  it is intended that votes will be
cast for a substitute nominee designated by the Board of Directors. The Board of
Directors  has no reason to believe  that the  nominees  named will be unable to
serve if elected.  Each of the  nominees  has  consented  to being named in this
Proxy Statement and to serve if elected.

     The current  Board of Directors  and nominees for election to the Board are
as follows:

                                   SERVED AS A             POSITIONS WITH
NAME                      AGE     DIRECTOR SINCE            THE COMPANY
----                      ---     --------------            -----------

John E. Meggitt, Ph.D     69            1967        Chairman  of the  Board  and
                                                    Director

Charles L. Boyle, III     47            1993        President,  Chief  Executive
                                                    Officer and Director

Dorothy M. Meggitt        66            1967        Secretary and Director

Louis J. Cissone          65            1994        Director

Mark A. Timmerman         39            1994        Director

     Other than Dr. John E. Meggitt and Dorothy M. Meggitt,  who are husband and
wife, there are no family  relationships  among any of the Directors,  executive
officers and key employees of the Company.

     The principal  occupations and business  experience,  for at least the past
five years, of each Director and nominee is as follows:

     Dr. Meggitt founded the Company and has served as a Director of the Company
since its inception in 1967.  From the Company's  inception  through  August 13,
1996,  he was also  President  and Chief  Executive  Officer of the Company.  In
addition,  Dr.  Meggitt  served as Treasurer  of the Company from its  inception
through  December  1993.  Prior to founding  the  Company,  he  directed  system
programming operations for Electronic Associates,  Inc. and, earlier,  conducted
computer research for IBM.



                                      -2-
<PAGE>


     Mr. Boyle joined the Company in 1984 and,  effective  August 13, 1996,  was
elected to the  offices  of  President  and Chief  Executive  Officer.  Prior to
serving in his current capacities,  Mr. Boyle served as Executive Vice President
from September 1992 to August 1996, Chief Financial  Officer from September 1992
to December 1995, Chief Operating  Officer from December 1995 to August 1996 and
Treasurer  from  December  1993 to August  1996.  He has been a Director  since
December 1993.  Prior to joining the Company,  Mr. Boyle held various  financial
and management positions with Colt Industries, Inc.

     Mrs.  Meggitt  joined the Company upon its inception in 1967 and has served
as Secretary and a Director since that time. Mrs.  Meggitt managed the Company's
human resources and facilities departments from 1967 through 1987.

     Mr.  Cissone has been on the Board of Directors  since May 1994.  From 1986
until his  retirement  in  December  1995,  Mr.  Cissone  served as Senior  Vice
President  and Chief  Financial  Officer of Sun  Distributors  L.P., a wholesale
distributor of industrial products.  In addition,  Mr. Cissone has served on the
Board of  Directors  of Robec,  Inc.,  a  national  value-added  distributor  of
micro-computer systems, since 1991.

     Mr.  Timmerman  has been on the Board of  Directors  since May 1994.  Since
1986,  Mr.  Timmerman  has  worked  for  and  currently  is  a  partner  in  the
Chicago-based  investment  banking firm of William Blair & Company which managed
the  Company's  initial  public  offering  of  Common  Stock in March  1994.  In
addition,  Mr.  Timmerman  has  served  on the  Board of  Directors  of DIY Home
Warehouse, a retailer of home products, since 1993.

COMPENSATION OF DIRECTORS

     Non-employee  Directors receive an annual fee of $5,000 for services on the
Board of Directors or any  committee  thereof plus $1,000 and  reimbursement  of
their expenses for each quarterly meeting attended and $500 and reimbursement of
their expenses for each special meeting  attended.  The Company may from time to
time,  and at the  discretion of the Board of Directors,  grant stock options to
Directors for their service on the Board of Directors.  During fiscal 2000, each
non-employee  Director  (consisting  solely of Messrs.  Timmerman  and  Cissone)
received options to purchase 2,000 shares of the Company's Common Stock, each at
an exercise  price of $9.125 per share,  the fair market value of the  Company's
Common Stock on the date of the grant.



                                      -3-
<PAGE>


                               EXECUTIVE OFFICERS

     The  following  table  identifies  the  current  executive  officers of the
Company:
<TABLE>
<CAPTION>
                                                 CAPACITIES IN             IN CURRENT
NAME                              AGE             WHICH SERVED           POSITION SINCE
----                              ---             ------------           --------------

<S>                               <C>     <C>                                 <C>
John E. Meggitt, Ph.D             69      Chairman  of the  Board and         1967
                                          Director

Charles L. Boyle, III             47      President, Chief Executive          1996
                                          Officer and Director

Thomas M. Giuliani, CPA (1)       43      Chief   Financial   Officer         1996
                                          and Treasurer

Dorothy M. Meggitt                66      Secretary and Director              1967
</TABLE>

------------

(1)  Mr. Giuliani  joined the Company in 1989 and currently  serves as its Chief
     Financial Officer and Treasurer. Prior to joining the Company, Mr. Giuliani
     held various  accounting  and  financial  positions  for Deloitte & Touche,
     Commodore  International  Ltd.,  Fox Chase Cancer Center and Robinson Alarm
     Company.

     Other than Dr. John E. Meggitt and Dorothy M. Meggitt,  who are husband and
wife, there are no family  relationships  among any of the Directors,  executive
officers and key employees of the Company. Executive officers of the Company are
elected  annually by the Board of Directors and serve until their successors are
duly elected and qualified.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the  Securities  and Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's Directors, officers and stockholders who
beneficially own more than 10% of any class of equity  securities of the Company
registered  pursuant  to  Section  12 of the  Exchange  Act  (collectively,  the
"Reporting  Persons")  to file initial  statements  of  beneficial  ownership of
securities and statements of changes in beneficial  ownership of securities with
respect to the Company's  equity  securities  with the  Securities  and Exchange
Commission (the "SEC").  All Reporting Persons are required by SEC regulation to
furnish the Company with copies of all reports that such Reporting  Persons file
with the SEC pursuant to Section 16(a).

     Based solely on the Company's  review of the copies of such forms  received
by the Company  and upon  written  representations  of the  Company's  Reporting
Persons  received  by the  Company,  the  Company  believes  that there has been
compliance  with  all  Section  16(a)  filing  requirements  applicable  to such
Reporting Persons.



                                      -4-
<PAGE>

ITEM 11.       EXECUTIVE COMPENSATION.


SUMMARY OF COMPENSATION IN FISCAL 2000, 1999 AND 1998.

     The following Summary Compensation Table sets forth information  concerning
compensation for services in all capacities awarded to, earned by or paid to (i)
each person who served as the Company's Chief Executive  Officer for fiscal 2000
and (ii) the most highly  compensated  executive  officer of the  Company  whose
aggregate cash  compensation  exceeded $100,000 and who was serving as executive
officer at the end of fiscal 2000 (collectively,  the "Named Executives") during
the years ended June 30, 2000, 1999 and 1998.

<TABLE>
----------------------------------------------------------------------------------------------------
                                    SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------------
<CAPTION>
                                                         Annual           Long-Term
                                                      Compensation       Compensation
                                                 ---------------------------------------------------
                                                                            Awards
                                                                         -------------
                                                                          Securities
                                                                          Underlying    All Other
     Name and Principal Position         Year      Salary      Bonus       Options     Compensation
                 (a)                     (b)       ($)(c)      ($)(d)       (#)(g)      ($)(i)(1)
----------------------------------------------------------------------------------------------------
<S>                                      <C>       <C>        <C>           <C>          <C>
Charles L. Boyle, III, President and
   Chief Executive Officer............   2000      $230,198   $55,000       15,000       $  9,733
                                         1999      $200,000   $90,000       14,000        $14,096
                                         1998      $199,643   $90,000       20,000       $  9,698

Thomas M. Giuliani, Chief
   Financial Officer and Treasurer....   2000      $143,279   $18,750       10,000       $  5,747
                                         1999      $124,949   $31,050       10,000       $  6,431
                                         1998      $114,577   $30,950       10,000       $  4,628

----------------------------------------------------------------------------------------------------
</TABLE>
----------
(1)     Includes Company  contributions to its 401(k) plan and supplemental life
        insurance  and  long-term  disability  premiums  paid by the  Company on
        behalf of its executive officers.



                                      -5-
<PAGE>


OPTION GRANTS IN FISCAL 2000

     The following table sets forth information  concerning individual grants of
stock options made pursuant to the Company's  1993 Stock Plan during fiscal 2000
to each of the  Named  Executives.  The  Company  has  never  granted  any stock
appreciation rights.

<TABLE>
------------------------------------------------------------------------------------------------------
                                  OPTION GRANTS IN LAST FISCAL YEAR
------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                Potential Realizable
                              Individual Grants                                   Value at Assumed
                                                                                Annual Rates of Stock
                                                                                Price Appreciation for
                                                                                    Option Term(2)
------------------------------------------------------------------------------------------------------
                         Number of
                         Securities     % of Total
                         Underlying      Options
                          Options        Granted       Exercise or
                          Granted      to Employees     Base Price    Expiration
         Name              (#)(1)     in Fiscal Year     ($/Sh)          Date        5%($)      10%($)
         (a)                (b)            (c)            (d)             (e)         (f)        (g)
------------------------------------------------------------------------------------------------------
<S>                        <C>             <C>           <C>           <C>          <C>       <C>
Charles L. Boyle, III      15,000          10.1          $9.125        7/27/09      $86,081   $218,138


Thomas M. Giuliani...      10,000           6.8          $9.125        7/27/09      $57,387   $145,425

------------------------------------------------------------------------------------------------------
</TABLE>
---------
(1)     The options disclosed herein were granted pursuant to the Company's 1993
        Stock Plan and become  exercisable  to the  extent of  one-third  of the
        options on the first  anniversary from the date of grant (July 27, 1999)
        with an additional one-third of the options granted becoming exercisable
        on each of the second and third  anniversary  of the date of grant.  The
        options terminate on the expiration date, subject to earlier termination
        on the optionee's  death,  disability or termination of employment  with
        the Company. Options are not assignable or otherwise transferable except
        by will or the laws of descent and distribution.

(2)     Based on a grant date fair market value of $9.125.




                                      -6-
<PAGE>



AGGREGATED OPTION EXERCISES IN FISCAL 2000 AND FISCAL YEAR END OPTION VALUES

     The  following  table sets forth  information  concerning  each exercise of
options  during  fiscal  2000 by each of the Named  Executives  and the year end
value of unexercised in-the-money options.

<TABLE>
------------------------------------------------------------------------------------------------------
                           AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                                  AND FISCAL YEAR END OPTION VALUES
------------------------------------------------------------------------------------------------------
<CAPTION>
                                                               Number of        Value of Unexercised
                                                              Securities        In-The-Money Options
                                                              Underlying             at Fiscal
                                                              Unexercised             Year-End
                                                           Options at Fiscal           ($)(1)
                                                               Year-End
                                                                  (#)
                                 Shares
                              Acquired on      Value         Exercisable/           Exercisable/
            Name                Exercise    Realized($)      Unexercisable         Unexercisable
            (a)                  (#)(b)         (c)               (d)                   (e)
------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>        <C>                 <C>
Charles L. Boyle, III.....         --            --         197,999 / 31,001    $1,589,998 / 120,627

Thomas M. Giuliani........         --            --          40,999 / 20,001      $339,416 / 73,754

----------------------------- ------------- ------------- -------------------- -----------------------
</TABLE>
-----------
(1)     Based on a closing price of  $14.50 per share of Common Stock as  listed
        on the Nasdaq  National  Market at June 30, 2000.

EMPLOYMENT ARRANGEMENTS AND TERMINATION OF EMPLOYMENT

     Each of Dr. Meggitt, Mr. Boyle and Mr. Giuliani are employed by the Company
as employees at will. In fiscal 2000, Messrs.  Boyle and Giuliani earned bonuses
of $55,000 and $18,750,  respectively.  Such bonuses were paid to such executive
officers subsequent to June 30, 2000.

     In  addition to the  requirement  of each of Dr.  Meggitt and Mr.  Boyle to
maintain the confidentiality of Company information and assign inventions to the
Company,  each of such executive officers has agreed that during the term of his
respective  employment and thereafter for the greater of two years or the period
of time for  which  such  executive  officer  is being  compensated  under  such
employment,  such person  will not  compete  with the Company by engaging in any
capacity in any business which is competitive with the business of the Company.

     The  Company  has  executed  indemnification  agreements  with  each of its
executive  officers  and  Directors  pursuant to which the Company has agreed to
indemnify such parties to the full extent  permitted by law,  subject to certain
exceptions,  if such party becomes  subject to an action because such party is a
Director, officer, employee, agent or fiduciary of the Company.

     The  Company has  executed  change in control  agreements  with each of Mr.
Boyle and Mr.  Giuliani.  The terms and  conditions  of such  agreements  become
effective only if a change in control occurs on or before December 31, 2000. If,
during the three-month period immediately preceding a



                                      -7-
<PAGE>


change in control or during the three-year period immediately following a change
in control,  such executive officer's  employment with the Company is terminated
by (i) the  Company  for no reason or any  reason  other than cause or (ii) such
executive  officer for good reason,  then such  executive  officer  receives (a)
three  times base  salary in the case of Mr.  Boyle and two times base salary in
the case of Mr. Giuliani, (b) continuation of health care benefits for 36 months
and (c) immediate vesting of all stock options owned.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Compensation Committee is comprised of John E. Meggitt,  Ph.D., Charles
L. Boyle, III, Mark A. Timmerman and Louis J. Cissone.

     The  Company's  headquarters  in  Yardley,  Pennsylvania  are leased to the
Company by John E.  Meggitt,  Ph.D.,  the Chairman of the Board,  and Dorothy M.
Meggitt,  his wife and Secretary of the Company.  Dr. and Mrs.  Meggitt also are
Directors and majority  stockholders of the Company.  See "Security Ownership of
Certain  Beneficial Owners and Management." On July 1, 1998, the Company and Dr.
and Mrs.  Meggitt  entered  into a five-year  lease for the Yardley  facilities.
Under such lease  arrangement,  the Company made rental payments to Dr. and Mrs.
Meggitt totaling $446,400 during the year ended June 30, 2000. In addition,  the
Company paid $63,261  during the year ended June 30, 2000 for property taxes due
on such property.  The Company believes that the terms of the lease are at least
as  favorable  to the  Company  as the terms that may have been  available  from
unrelated third parties. In addition, the Company has determined that any future
transactions  between  the  Company  and  its  officers,  Directors,   principal
stockholders  and their  affiliates  shall be on terms no less  favorable to the
Company than could be obtained from unrelated third parties.

     In fiscal  2000,  the  Company  paid  $83,359  in  salary  and  $58,915  in
compensation from stock options  exercised to Peter Meggitt,  the son of Dr. and
Mrs. Meggitt. Mr. Meggitt serves as a systems programmer for the Company.



                                      -8-
<PAGE>


PERFORMANCE GRAPH

     The following graph compares the cumulative total shareholder return on the
Company's  Common Stock with the cumulative total return on the Nasdaq Composite
Index and the S&P  Computer  Systems  Index  (capitalization  weighted)  for the
period beginning on June 30, 1995.

                COMPARISON OF CUMULATIVE TOTAL RETURN (1)(2)(3)
Among the Company, the Nasdaq Composite Index and the S&P Computer Systems Index






 [THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]






<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                             06/30/95   06/30/96    06/30/97   06/30/98   06/30/99   06/30/00
-----------------------------------------------------------------------------------------------
<S>                          <C>        <C>         <C>        <C>        <C>        <C>
Prophet 21, Inc.             $ 100.00   $ 138.89    $ 119.44   $ 325.00   $ 161.11   $ 322.22
-----------------------------------------------------------------------------------------------
Nasdaq Composite Index       $ 100.00   $ 126.95    $ 154.49   $ 202.98   $ 287.76   $ 424.89
-----------------------------------------------------------------------------------------------
S&P Computer Systems Index   $ 100.00   $ 111.51    $ 169.04   $ 239.57   $ 434.93   $ 614.44
-----------------------------------------------------------------------------------------------
</TABLE>



(1)     Graph assumes $100.00 invested on June 30, 1995 in the Company's  Common
        Stock, the Nasdaq Composite Index and the S&P Computer Systems Index.
(2)     Total return assumes reinvestment of dividends.
(3)     Fiscal year ending June 30.



                                      -9-
<PAGE>


COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee has furnished the following report:

     The  Company's  executive  compensation  policy is  designed to attract and
retain highly qualified  individuals for its executive  positions and to provide
incentives  for such  executives  to  achieve  maximum  Company  performance  by
aligning the executives'  interest with that of shareholders by basing a portion
of compensation on corporate performance.

     The  Compensation  Committee  generally  determines  base salary levels for
executive  officers  of the  Company,  who  are  not  subject  to an  employment
agreement,  at or about  the  start of the  fiscal  year and  determines  actual
bonuses  after the end of the  fiscal  year based upon  Company  and  individual
performance. Each of Dr. Meggitt, Mr. Boyle and Mr. Giuliani are employed by the
Company as employees at will.

     The Company's executive officer  compensation  program is comprised of base
salary, conditional cash bonuses, stock options granted at the discretion of the
Option  Committee and various other benefits,  including stock purchase  rights,
medical  insurance  and a 401(k)  Plan  which  are  generally  available  to all
employees of the Company.

     Salaries,  whether  established  pursuant  to contract  or  otherwise,  are
established  in accordance  with industry  standards  through review of publicly
available  information  concerning  the  compensation  of officers of comparable
companies.  Consideration is also given to relative  responsibility,  seniority,
individual  experience and  performance.  Salaries for each of Dr. Meggitt,  Mr.
Boyle  and Mr.  Giuliani  are  determined  by the  Board  of  Directors.  Salary
increases  for other  executives  are  generally  made based on increases in the
industry  for  similar  companies  with  similar  performance   profiles  and/or
attainment of certain division or Company goals.

     The stock  option  and  stock  purchase  programs  are  designed  to relate
executives'  long-term  interests to stockholders'  long-term  interests.  Stock
options and stock  purchase  rights  will be awarded on the basis of  individual
performance and/or the achievement of internal strategic objectives.

     Based on review of available  information,  the Committee believes that the
Chief  Executive   Officer's   total  annual   compensation  is  reasonable  and
appropriate  given  the  size,  complexity  and  historical  performance  of the
Company's  business,  the  Company's  position  as  compared to its peers in the
industry, and the specific challenges faced by the Company during the year, such
as changes in the market for computer products and manufacturers' product lines,
as well as variations in prices and  distribution  channels,  and other industry
factors.  No specific weight was assigned to any of the criteria relative to the
Chief Executive Officer's compensation.

     Compensation Committee Members

     John E. Meggitt, Ph.D.
     Charles L. Boyle, III
     Louis J. Cissone
     Mark A. Timmerman


                                      -10-
<PAGE>

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.


     There are, as of September  11, 2000,  approximately  151 holders of record
and 1,772 beneficial  holders of the Company's Common Stock. The following table
sets  forth  certain  information,  as of  September  11,  2000,  regarding  the
beneficial  ownership  of the  Company's  Common Stock by (i) each person who is
known to the  Company to own  beneficially  more than 5% of the total  number of
shares of Common Stock  outstanding as of such date,  (ii) each of the Company's
current Directors (which includes all nominees) and Named Executives,  and (iii)
all Directors and executive officers as a group.

<TABLE>
<CAPTION>
Name and Address                                      Amount and Nature              Percent
of Beneficial Owner(1)                            of Beneficial Ownership(1)         of Class(2)
-------------------                               -----------------------            --------
<S>                                                  <C>                                <C>
(i)   Certain Beneficial Owners:

      John E. Meggitt, Ph.D. and
        Dorothy M. Meggitt                            2,179,020 (3)(8)                  58.5

(ii)  Directors (which includes all
        nominees) and Named Executives:

      Charles L. Boyle, III                             221,795 (4)(8)                   5.6

      Thomas M. Giuliani                                 52,512 (5)(8)                   1.4

      Louis J. Cissone                                    4,332 (6)(8)                    *

      Mark A. Timmerman                                   5,832 (7)(8)                    *

(iii) All current Directors and executive
        officers as a group (6 persons)               2,463,491 (3)(4)(5)(6)(7)         61.6
</TABLE>

---------------
*       Less than one percent.

(1)     Except as set  forth in the  footnotes  to this  table  and  subject  to
        applicable  community  property law, the persons named in the table have
        sole voting and investment power with respect to all shares.

(2)     Applicable  percentage  of  ownership  is based on  3,726,377  shares of
        Common Stock outstanding on September 11,  2000.

(3)     John E.  Meggitt,  Ph.D.,  Chairman  of  the  Board  and  Director,  and
        Dorothy M.  Meggitt,  Secretary  and  Director,  are  husband and  wife.
        Includes  1,787,692  shares of  Common  Stock held by  Dr.  Meggitt  and
        391,328 shares of  Common Stock held by  Mrs. Meggitt.  Does not include
        shares of Common Stock owned of record by  Dr. and Mrs. Meggitt's  adult
        children (and their  spouses) and grandchildren,  as to which shares Dr.
        and Mrs. Meggitt disclaim beneficial ownership.

(4)     Represents  7,462  shares of Common  Stock  owned of record and  214,333
        shares of Common Stock subject to options which were  exercisable  as of
        September 11, 2000 or which will become exercisable within 60 days after
        such date.  Excludes  39,667  shares  underlying  options  which  become
        exercisable over time after such period.

(5)     Represents  1,513  shares of Common  Stock  owned of record  and  50,999
        shares of Common Stock subject to options which were  exercisable  as of
        September 11, 2000 or which will become exercisable within 60 days after
        such date.  Excludes  25,001  shares  underlying  options  which  become
        exercisable over time after such period.

(6)     Represents  500 shares of Common  Stock owned of record and 3,832 shares
        of  Common  Stock  subject  to  options  which  were  exercisable  as of
        September 11, 2000 or which will become exercisable within 60 days after
        such  date.  Excludes  4,168  shares  underlying  options  which  become
        exercisable over time after such period.


                                      -11-
<PAGE>


(7)     Represents 2,000 shares of Common Stock owned of record and 3,832 shares
        of  Common  Stock  subject  to  options  which  were  exercisable  as of
        September 11, 2000 or which will become exercisable within 60 days after
        such  date.  Excludes  4,168  shares  underlying  options  which  become
        exercisable over time after such period.

(8)     The  address for  each of the  persons noted is  19 West College Avenue,
        Yardley, PA 19067.



ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


        The Company has  executed  indemnification  agreements  with each of its
Directors  and  executive  officers  pursuant to which the Company has agreed to
indemnify such parties to the full extent  permitted by law,  subject to certain
exceptions,  if such party becomes  subject to an action because such party is a
Director, officer, employee, agent or fiduciary of the Company.

        Transactions  involving Dr. and Mrs.  Meggitt are reported in "Executive
Compensation  -- Compensation Committee Interlocks and Insider Participation."




                                      -12-
<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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  this 27th day of
October, 2000.

                                            PROPHET 21, INC.



                                            By:/s/Charles L. Boyle, III
                                               -------------------------------
                                               Charles L. Boyle, III, President
                                                  and Chief Executive Officer


                                      -13-
<PAGE>


        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         Signature                              Title                             Date
         ---------                              -----                             ----

<S>                                   <C>                                     <C>
/s/Charles L. Boyle, III              President, Chief Executive              October 27, 2000
-------------------------
  Charles L. Boyle, III               Officer and Director
                                      (Principal Executive Officer)


/s/Thomas M. Giuliani                 Chief Financial Officer  and            October 27, 2000
-------------------------
  Thomas M. Giuliani                  Treasurer (Principal Financial
                                      and Accounting Officer)


/s/John E. Meggitt, Ph.D.             Chairman of the Board and               October 27, 2000
-------------------------
  John E. Meggitt, Ph.D.              Director


/s/Dorothy M. Meggitt                 Secretary and  Director                 October 27, 2000
-------------------------
  Dorothy M. Meggitt


/s/Louis J. Cissone                   Director                                October 27, 2000
-------------------------
  Louis J. Cissone


/s/Mark A. Timmerman                  Director                                October 27, 2000
-------------------------
  Mark A. Timmerman
</TABLE>


                                      -14-
<PAGE>

                                  EXHIBIT INDEX

   Exhibit
     No.            Description of Exhibit
--------------      -----------------------

     3.1            Certificate of Incorporation.  (Incorporated by reference to
                    Exhibit 3.1 to the Company's  Registration Statement on Form
                    S-1 (File Number  33-74276) which became  effective on March
                    10, 1994.)

     3.2            By-laws.  (Incorporated  by  reference to Exhibit 3.2 to the
                    Company's  Registration  Statement  on Form S-1 (File Number
                    33-74276) which became effective on March 10, 1994.)

     4.1*           1993 Stock Plan, as amended.

     4.2*           1997  Employee  Stock  Purchase   Plan.   (Incorporated   by
                    reference to Exhibit 4.1 to the Company's  Quarterly  Report
                    on Form 10-Q for the quarter ended December 31, 1997.)

    10.1*           Employment  Agreement  dated as of July 1, 1993  between the
                    Company and John E. Meggitt.  (Incorporated  by reference to
                    Exhibit 10.1 to the Company's Registration Statement on Form
                    S-1 (File Number  33-74276) which became  effective on March
                    10,  1994.)  Employment  Agreement  amended by Amendments to
                    Employment  Agreement dated January 26, 1995 and February 3,
                    1995, such amendments filed herewith.

    10.2*           Employment  Agreement  dated as of July 1, 1993  between the
                    Company  and  Charles  L.  Boyle,   III.   (Incorporated  by
                    reference  to  Exhibit  10.2 to the  Company's  Registration
                    Statement  on Form S-1 (File Number  33-74276)  which became
                    effective on March 10, 1994.)  Employment  Agreement amended
                    by Amendments to Employment Agreement dated January 27, 1995
                    and April 20, 1995, such amendments filed herewith.

    10.3*           Indemnification  Agreement  dated  as of  December  6,  1993
                    between the Company and John E.  Meggitt.  (Incorporated  by
                    reference  to  Exhibit  10.6 to the  Company's  Registration
                    Statement  on Form S-1 (File Number  33-74276)  which became
                    effective on March 10, 1994.)

    10.4*           Indemnification  Agreement  dated  as of  December  6,  1993
                    between the Company and Dorothy M. Meggitt. (Incorporated by
                    reference  to  Exhibit  10.7 to the  Company's  Registration
                    Statement  on Form S-1 (File Number  33-74276)  which became
                    effective on March 10, 1994.)

    10.5*           Indemnification  Agreement  dated  as of  December  6,  1993
                    between the Company and Charles L. Boyle, III. (Incorporated
                    by reference to Exhibit 10.8 to the  Company's  Registration
                    Statement  on Form S-1 (File Number  33-74276)  which became
                    effective on March 10, 1994.)


                                      -15-
<PAGE>

    10.6            Lease dated July 1, 1998 by and between  John E. Meggitt and
                    Dorothy M. Meggitt as Landlord,  and the Company, as Tenant.
                    (Incorporated by reference to exhibit 10.10 to the Company's
                    Annual  Report  on Form  10-K  for the year  ended  June 30,
                    1998.)

    10.7            Form of Employment  Agreement by and between the Company and
                    each salesman.  (Incorporated  by reference to Exhibit 10.13
                    to the  Company's  Registration  Statement on Form S-1 (File
                    Number 33-74276) which became effective on March 10, 1994.)

    10.8            Form of Employee's Invention Assignment, Non-Competition and
                    Confidential   Information   Agreement.   (Incorporated   by
                    reference  to Exhibit  10.14 to the  Company's  Registration
                    Statement  on Form S-1 (File Number  33-74276)  which became
                    effective on March 10, 1994.)

    10.9            International  Business Machines  Corporation  Agreement for
                    Authorized  Dealers and  Industry  Remarketers,  as amended,
                    with exhibits.  (Incorporated  by reference to Exhibit 10.17
                    to the  Company's  Registration  Statement on Form S-1 (File
                    Number 33-74276) which became effective on March 10, 1994.)

    10.10           Progress   Software   Value   Added   Reseller    Agreement.
                    (Incorporated by reference to Exhibit 10.18 to the Company's
                    Registration  Statement on Form S-1 (File  Number  33-74276)
                    which became effective on March 10, 1994.)

    10.11*          Indemnification  Agreement  dated as of May 18, 1994 between
                    the Company and Louis J. Cissone. (Incorporated by reference
                    to Exhibit 10.19 to the Company's Annual Report on Form 10-K
                    for the year ended June 30, 1994.)

    10.12*          Indemnification  Agreement  dated as of May 18, 1994 between
                    the  Company  and  Mark  A.  Timmerman.   (Incorporated   by
                    reference to Exhibit 10.20 to the Company's Annual Report on
                    Form 10-K for the year ended June 30, 1994.)

    10.13*          Indemnification  Agreement  dated as of  September  24, 1996
                    between the Company and Thomas M. Giuliani. (Incorporated by
                    reference to Exhibit 10.17 to the Company's Annual Report on
                    Form 10-K for the year ended June 30, 1996.)


    10.14*          Change in Control  Severance Pay Agreement  dated as of July
                    25,  2000 by and  between  the Company and Charles L. Boyle,
                    III.

    10.15*          Change in Control  Severance Pay Agreement  dated as of July
                    25, 2000 by and between the Company and Thomas M. Giuliani.



                                      -16-
<PAGE>

    21              List  of  subsidiaries  of  the  Company.  (Incorporated  by
                    reference  to  Exhibit  21  to  the  Company's  Registration
                    Statement  on Form S-1 (File Number  33-74276)  which became
                    effective on March 10, 1994.)

    23.1+           Consent of KPMG LLP.

    23.2+           Consent of PricewaterhouseCoopers LLP.


    27.1            Financial Data Schedule for the year ended June 30, 2000.

    27.2            Financial Data Schedule for the year ended June 30, 1999.

    27.3            Financial Data Schedule for the year ended June 30, 1998.


------------
*       A management contract or compensatory plan or arrangement required to be
        filed as an exhibit pursuant to Item 14(c) of Form 10-K.

+       Filed herewith.  All other exhibits previously filed.



                                      -17-
<PAGE>


                        PROPHET 21, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                  AND SCHEDULE

                                                                          Page
                                                                          ----

Report of Independent Accountants......................................... F-2

Independent Auditors' Report.............................................. F-3

Consolidated Balance Sheets as of
  June 30, 1999 and 2000.................................................. F-4

Consolidated Statements of Operations for the
  years ended June 30, 1998, 1999 and 2000................................ F-5

Consolidated Statements of Stockholders'
  Equity for the years ended
  June 30, 1998, 1999 and 2000............................................ F-6

Consolidated Statements of Cash Flows for the
  years ended June 30, 1998, 1999 and 2000................................ F-7

Notes to Consolidated Financial Statements................................ F-8

Report of Independent Accountants......................................... S-1

Independent Auditors' Report.............................................. S-2

Schedule II............................................................... S-3





                                      F-1
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders
Prophet 21, Inc. and Subsidiaries:

In our opinion, the accompanying  consolidated balance sheet as of June 30, 1999
and the related consolidated statements of operations,  stockholders' equity and
cash flows for each of the two years in the period  ended June 30, 1999  present
fairly, in all material respects, the financial position,  results of operations
and cash flows of Prophet 21, Inc. and its Subsidiaries at June 30, 1999 and for
each of the two years in the period  ended June 30,  1999,  in  conformity  with
accounting principles generally accepted in the United States of America.  These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable  basis for the  opinion  expressed  above.  We have not  audited  the
consolidated  financial  statements of Prophet 21, Inc. and its Subsidiaries for
any period subsequent to June 30, 1999.



PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
August 11, 1999



                                      F-2
<PAGE>

                          Independent Auditors' Report

The Board of Directors and Stockholders
Prophet 21, Inc. and Subsidiaries

We have audited the accompanying  consolidated balance sheet of Prophet 21, Inc.
and subsidiaries as of June 30, 2000 and the related consolidated  statements of
operations,  stockholders' equity, and cash flows for the year then ended. These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Prophet 21, Inc. and
subsidiaries as of June 30, 2000, and the results of their  operations and their
cash  flows for the year then ended in  conformity  with  accounting  principles
generally accepted in the United States of America.



KPMG LLP
Philadelphia, Pennsylvania
September 15, 2000



                                      F-3
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                          (IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
                                                                           JUNE 30,
                                                                  ---------------------------
                                                                     1999             2000
                                                                     ----             ----
                                     ASSETS
<S>                                                               <C>               <C>
Current assets
  Cash and cash equivalents..............................         $   2,520         $   8,219
  Marketable securities..................................             1,661             2,415
  Accounts receivable, net of allowance for
    doubtful accounts of $261 and $398, respectively.....            19,743            12,869
  Advanced billings......................................             2,140             2,084
  Inventories............................................               666               698
  Deferred income taxes..................................               156               711
  Prepaid and other current assets.......................             1,148               978
                                                                  ---------         ---------
     Total current assets................................            28,034            27,974
Long-term marketable securities..........................             3,175             4,620
Equipment and improvements, net..........................             3,100             3,078
Software development costs, net..........................             2,131             1,233
Other assets.............................................                35               268
                                                                  ---------         ---------
      Total assets.......................................         $  36,475         $  37,173
                                                                  =========         =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Accounts payable.......................................         $   2,737         $   2,385
  Accrued expenses and other liabilities.................             1,715             1,714
  Commissions payable....................................               708               549
  Taxes payable..........................................             1,206               819
  Profit sharing plan contribution payable...............               403               158
  Deferred income........................................             2,959             3,697
                                                                  ---------         ---------
     Total current liabilities...........................             9,728             9,322
                                                                  ---------         ---------

Deferred income taxes....................................               728               244
                                                                  ---------         ---------

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 4,320,808 shares issued,
    respectively; 3,593,613 and 3,720,818 shares
    outstanding, respectively............................                42                43
  Additional paid-in capital.............................            10,734            11,764
  Retained earnings......................................            19,339            19,935
  Accumulated other comprehensive loss...................               (82)             (121)
  Treasury stock at cost, 599,990 shares.................            (4,014)           (4,014)
                                                                  ----------        ----------
     Total stockholders' equity..........................            26,019            27,607
                                                                  ---------         ---------
     Total liabilities and stockholders' equity..........         $  36,475         $  37,173
                                                                  =========         =========
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                      F-4
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
                                                                   Year Ended June 30,
                                                      ------------------------------------------
                                                          1998            1999            2000
                                                          ----            ----            ----
<S>                                                     <C>             <C>             <C>
Revenue:
  Software and hardware sales...................        $30,157         $29,786         $18,014
  Service and support...........................         16,457          22,201          28,101
                                                        -------         -------         -------
                                                         46,614          51,987          46,115
                                                        -------         -------         -------
Cost of revenue:
  Software and hardware sales..................          15,805          11,866           8,792
  Service and support..........................           8,596          12,783          14,971
                                                        -------         -------         -------
                                                         24,401          24,649          23,763
                                                        -------         -------         -------
  Gross profit.................................          22,213          27,338          22,352
                                                        -------         -------         -------

Operating expenses:
  Sales and marketing..........................          10,078          12,559          11,598
  Research and development.....................           3,811           6,109           6,700
  General and administrative...................           3,098           3,899           4,346
                                                        -------         -------         -------
                                                         16,987          22,567          22,644
                                                        -------         -------         -------
    Operating income (loss) ...................           5,226           4,771            (292)
Interest income................................             304             286             397
                                                        -------         -------         -------
Income before taxes............................           5,530           5,057             105
Provision (benefit) for income taxes............          1,991           1,664            (491)
                                                        -------         -------         -------
Net income.....................................         $ 3,539         $ 3,393         $   596
                                                        =======         =======         =======
Basic earnings per share:
  Net income per share.........................         $  0.98         $  0.92         $  0.16
                                                        =======         =======         =======
  Weighted average common shares outstanding...           3,601           3,705           3,627
                                                        =======         =======         =======
Diluted earnings per share:
  Net income per share..........................        $  0.90         $  0.85         $  0.15
                                                        =======         =======         =======
  Weighted average common and common
   equivalent shares outstanding...............           3,928           3,990           3,913
                                                        =======         =======         =======
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                      F-5
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                              Accumulated
                                                                                 Other                              Total
                                                      Additional                 Compre-                Compre-    Stock-
                                      Common Stock     Paid-In     Retained      hensive    Treasury    hensive    holders'
                                     Shares  Amount    Capital     Earnings       Loss       Stock      Income     Equity
                                     ------  ------    -------     --------   ------------  --------    -------    --------

<S>                                  <C>     <C>      <C>          <C>          <C>         <C>         <C>        <C>
Balance, June 30, 1997...........    4,002   $  40    $  8,835     $ 12,407     $  (21)     $(2,518)               $18,743
Issuance of common stock in
  connection with exercise of
  stock options..................      142       1       1,038                                                       1,039
Income tax benefit from stock
  options exercised..............                          413                                                         413
Employee stock purchase plan.....       10       1         100                                                         101
Other comprehensive loss.........                                                  (46)                 $   (46)       (46)
Net income.......................                                     3,539                               3,539      3,539
                                                                                                         ------
Comprehensive income.............                                                                         3,493
                                   -------   -----    --------     --------     -------     -------      ======    -------
Balance, June 30, 1998...........    4,154      42      10,386       15,946        (67)      (2,518)                23,789
Repurchase of common stock.......                                                            (1,496)                (1,496)
Issuance of common stock in
  connection with exercise of
  stock options..................        9                  60                                                          60
Income tax benefit from stock
  options exercised..............                           26                                                          26
Employee stock purchase plan.....       31                 262                                                         262
Other comprehensive loss.........                                                  (15)                     (15)       (15)
Net income.......................                                     3,393                               3,393      3,393
                                                                                                         ------
Comprehensive income.............                                                                         3,378
                                   -------   -----    --------     --------     -------     -------      ======    -------
Balance, June 30, 1999...........    4,194      42      10,734       19,339        (82)      (4,014)                26,019
Issuance of common stock in
  connection with exercise of
  stock options..................      101       1         669                                                         670
Income tax benefit from stock
  options exercised..............                          144                                                         144
Employee stock purchase plan.....       26                 217                                                         217
Other comprehensive loss.........                                                  (39)                     (39)       (39)
Net income.......................                                       596                                 596        596
                                                                                                         ------
Comprehensive income.............                                                                       $   557
                                   -------   -----    --------     --------     -------     -------      ======    -------
Balance, June 30, 2000               4,321   $  43    $ 11,764     $ 19,935     $ (121)     $(4,014)               $27,607
                                   =======   =====    ========     ========     ======      =======                =======
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                      F-6
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                YEAR ENDED JUNE 30,
                                                          ----------------------------------
                                                            1998           1999        2000
                                                            ----           ----        ----
 <S>                                                       <C>            <C>         <C>
Cash flows from operating activities:
 Net income...........................................    $ 3,539        $ 3,393     $   596
                                                          -------        -------     -------
 Adjustments to reconcile net income to
  net cash (used) provided by operating activities:
   Depreciation and amortization......................      1,778          2,677       3,105
   Gain on sale of equipment..........................         (3)            (2)         (2)
   Provision for losses on accounts receivable........        259            845         904
   Deferred taxes.....................................        334           (437)     (1,039)
   Tax benefit deriving from exercise and sale of
      stock option shares.............................        413             26         144
 (Increases) decreases in operating assets:
   Accounts receivable................................     (7,266)        (3,387)      5,970
   Advanced billings..................................        (38)          (124)         56
   Inventories........................................       (285)           736         (32)
   Prepaid expenses and other current assets..........       (314)          (418)        170
   Other assets.......................................        126             78        (233)
 Increases (decreases) in operating liabilities:
   Accounts payable...................................        323           (953)       (352)
   Accrued expenses...................................        634             75        (160)
   Taxes payable......................................         48            538        (387)
   Profit sharing plan contribution payable...........        101             12        (245)
   Deferred income....................................        298            508         738
                                                          -------        -------     -------
   Total adjustments..................................     (3,592)           174       8,637
                                                          -------        -------     -------
 Net cash (used) provided by operating activities.....        (53)         3,567       9,233
                                                          -------        -------     -------
 Cash flows from investing activities:
   Purchases of equipment and improvements, net.......     (1,657)        (1,714)     (1,711)
   Software development costs.........................     (1,565)            --        (381)
   Purchase of marketable securities..................     (2,975)        (2,600)     (4,690)
   Maturity of marketable securities..................      5,470          2,250       2,400
                                                          -------        -------     -------
 Net cash used by investing activities................       (727)        (2,064)     (4,382)
                                                          -------        -------     -------
 Cash flows from financing activities:
   Purchase of treasury stock.........................         --         (1,496)         --
   Stock option transactions..........................         49             --          --
   Employee stock purchase plan.......................        101            262         217
   Stock options exercised............................      1,053             60         670
                                                          -------        -------     -------
 Net cash  provided (used) by financing activities....      1,203         (1,174)        887
                                                          -------        -------     -------
 Effect of exchange rate changes on cash..............        (46)           (15)        (39)
                                                          -------        -------    --------
 Net  increase in cash and cash equivalents...........        377            314       5,699
 Cash and cash equivalents at beginning of period.....      1,829          2,206       2,520
                                                          -------        -------    --------
 Cash and cash equivalents at end of period...........    $ 2,206        $ 2,520     $ 8,219
                                                          =======        =======     =======

 Supplemental cash flow disclosures:
   Income taxes paid..................................    $ 1,468        $ 1,528     $   647
                                                          =======        =======     =======
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                      F-7
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Basis of Presentation:

     The consolidated  financial  statements include the accounts of Prophet 21,
Inc.  and  its  wholly-owned  subsidiaries  (the  "Company").  All  intercompany
transactions  have been  eliminated.  The Company is a leading provider of fully
integrated, on-line business management systems developed exclusively for use by
distributors and wholesalers.

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and amounts of revenue and  expenses  during the  reporting  period.
Actual  results  could differ from those  estimates.  Certain items in the prior
years' financial statements have been reclassified for comparative purposes.

     Cash and Cash Equivalents:

     For purposes of the  statements  of cash flows,  the Company  considers all
highly  liquid  debt  instruments  purchased  with an initial  maturity of three
months or less to be cash equivalents.

     Marketable Securities:

     Marketable   securities   consist  primarily  of  state  governmental  debt
instruments  with an initial  maturity  of more than three  months.  The Company
accounts for  investments in accordance  with Statement of Financial  Accounting
Standards  ("SFAS") No. 115,  "Accounting  for Certain  Investments  in Debt and
Equity  Securities."  The  Company's  policy  is to  protect  the  value  of its
investment  portfolio and to minimize principal risk by earning returns based on
current  interest  rates.  All  of  the  Company's  marketable   securities  are
classified as  held-to-maturity as of the balance sheet date and are reported at
cost plus an adjustment for amortization,  which approximates fair market value.
The  Company's  marketable  securities  are scheduled to mature over the next 38
months.

     Inventories:

     Inventories   primarily   consist  of  purchased   hardware  and  software.
Inventories are stated at the lower of cost or market.  Cost is determined using
the average cost on a first-in, first-out method.



                                      F-8
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     Equipment and Improvements:

     Equipment and improvements  are recorded at cost and are depreciated  using
the  straight  line method  over their  estimated  useful  lives of three to ten
years.  Leasehold improvements are amortized over the shorter of their estimated
useful  lives or  remaining  lease term  (including  renewal  periods in certain
instances).  When  assets are  retired or  otherwise  disposed  of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in the  statement of  operations  for the period.  The
cost of  maintenance  and  repairs is charged  to expense as  incurred,  whereas
significant renewals and betterments are capitalized.

     Revenue Recognition and Deferred Income:

     In 1997,  the American  Institute of Certified  Public  Accountants  issued
Statement  of  Position  (SOP)  97-2,  "Software  Revenue   Recognition,"  which
stipulates that revenue  recognized  from software  arrangements 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
customer  support,  installation  or  training.  The Company  offers the various
elements  individually,  and has  used  the  individual  prices  as a basis  for
allocation of revenues.  SOP 97-2 was adopted by the Company  effective  July 1,
1998  and did  not  result  in  significant  changes  to the  Company's  revenue
recognition policy.

     Revenue from software is recognized when a contract has been executed,  the
product  has  been  shipped  to  customers,   uncertainty  surrounding  customer
acceptance  becomes  insignificant  and collection of the related  receivable is
probable.  Maintenance  revenues  from  hardware and  software  support fees are
deferred and recognized  ratably over the contract period.  As the functionality
of the hardware is not dependent on any other services  provided by the Company,
hardware sales are recognized upon shipment. Deferred income represents accruals
for billed and  unearned  maintenance  and  advance  payments by  customers  for
maintenance.  Advanced  billings  at June 30,  1999 and 2000  represent  amounts
billed in advance to customers  for  maintenance  in  accordance  with  contract
terms.

     In December 1999, the Securities and Exchange Commission Staff issued Staff
Accounting   Bulletin   ("SAB")  No.  101  "Revenue   Recognition  in  Financial
Statements."  SAB No.  101,  as amended  by SAB No.  101A and SAB No.  101B,  is
required to be  implemented  in the quarter ended June 30, 2001.  The Company is
currently  analyzing  the  potential  impact of SAB No. 101 (as  amended) on its
revenue  recognition  policies.  Although the Company  believes  its  historical
accounting  policies and practices  conform with generally  accepted  accounting


                                      F-9
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

principles,  there can be no assurance that the formal implementation of SAB No.
101 (as  amended)  will not  result  in  changes  to its  historical  accounting
policies  and  practices  or to the  manner in which  certain  transactions  are
presented and disclosed in the consolidated financial statements.

     Warranty:

     The Company  provides  warranties on its hardware and proprietary  software
against  design  defects.  A provision for future claims is recorded  based upon
historical experience.

     Capitalized Software:

     The Company  capitalizes  software  development costs associated with a new
product  pursuant to SFAS No. 86 "Accounting for the Costs of Computer  Software
to be Sold, Leased or Otherwise Marketed". Such costs are capitalized only after
technological  feasibility has been demonstrated.  Such capitalized  amounts are
amortized   commencing  with  product  introduction  on  a  straight-line  basis
utilizing  the  estimated   economic  life  of  three  years.   Amortization  of
capitalized  software  development costs ($426,  $1,279 and $1,279 for the years
ended June 30, 1998, 1999 and 2000,  respectively)  is charged to cost of sales.
For the years ended June 30, 1999 and 2000, the Company capitalized $0 and $381,
respectively,  of software development costs. All other research and development
costs have been expensed.

     When  events  or  circumstances  so  indicate,  the  Company  assesses  the
potential  impairment of its intangible assets and other long-lived assets based
on  anticipated  undiscounted  cash  flows  from  operations.  Such  events  and
circumstances  include  a sale of all or a  significant  part of the  operations
associated with the long-lived asset, or a significant  decline in the operating
performance  of  the  asset.  If an  impairment  is  indicated,  the  amount  of
impairment  charge would be calculated by comparing the  anticipated  discounted
future cash flows to the carrying  value of the  long-lived  asset.  At June 30,
2000, no impairment was indicated.

     Comprehensive Income

     Statement   of  Financial   Accounting   Standards   No.  130,   "Reporting
Comprehensive   Income"  requires  net  foreign  exchange  gains  or  losses  on
translation  to be  included  in  accumulated  other  comprehensive  loss in the
consolidated  balance sheet and in the disclosure of comprehensive  income.  The
totals  of other  comprehensive  loss  items  and  comprehensive  income  (which
includes net income) are displayed separately in the consolidated  statements of
stockholders' equity.



                                      F-10
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     Income Taxes:

     The Company  utilizes  the asset and  liability  approach  for income taxes
which requires the  recognition of deferred tax  liabilities  and assets for the
expected future tax consequences of temporary  differences  between the carrying
amount and the tax basis of assets and  liabilities  and operating  loss and tax
credit carryforwards.

     Net Income Per Share:

     Net earnings per common share is computed in accordance  with the Financial
Accounting  Standards  Board  ("FASB")  SFAS No. 128 "Earnings per Share" ("SFAS
128").  Under  SFAS 128,  basic  earnings  per share  excludes  dilution  and is
computed by dividing net income by the weighted  average number of common shares
outstanding for the period.  Diluted  earnings per share is computed by dividing
net earnings by the weighted  average  number of common  shares and common share
equivalents  outstanding  during each year. The dilutive effect of stock options
is calculated using the treasury stock method.

     The  following  table  sets  forth the  computation  of basic and  dilutive
earnings per share:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED JUNE 30,
                                                        1998            1999           2000
                                                        ----            ----           ----
<S>                                                   <C>             <C>            <C>
Net income...................................         $ 3,539         $ 3,393        $   596
Weighted average common shares outstanding...           3,601           3,705          3,627
Effect of dilutive securities:
  Stock options..............................             327             285            286
                                                     --------        --------       --------
Weighted average common and common
  equivalent shares outstanding..............           3,928           3,990          3,913
                                                     ========        ========       ========
Basic earnings per share.....................         $  0.98         $  0.92        $  0.16
Diluted earnings per share...................         $  0.90         $  0.85        $  0.15
</TABLE>


                                      F-11
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


2.  EQUIPMENT AND IMPROVEMENTS:

     A summary of the major  components  of equipment  and  improvements  are as
follows:

<TABLE>
<CAPTION>
                                                                     JUNE 30,
                                                         ------------------------------
                                                            1999                  2000
                                                            ----                  ----
<S>                                                       <C>                  <C>
Equipment..........................................       $  2,042             $  2,000
Computer systems...................................          6,554                7,618
Furniture and fixtures.............................          1,051                1,275
Leasehold improvements.............................            771                  813
                                                          --------             --------
                                                            10,418               11,706
Accumulated depreciation and amortization..........         (7,318)              (8,628)
                                                          --------             ---------
                                                          $  3,100             $  3,078
                                                          ========             ========
</TABLE>

     Depreciation  and  amortization  expense of  $1,352,  $1,398 and $1,826 was
charged  to  operations  for the  years  ended  June 30,  1998,  1999 and  2000,
respectively.


3.  LEASING ARRANGEMENTS:

     The Company leases certain facilities and equipment under various operating
lease  agreements  with  initial  terms  greater than one year.  Future  minimum
payments under noncancelable operating leases at June 30, 2000 are:

<TABLE>
<CAPTION>
FISCAL YEAR                          RELATED PARTY         THIRD PARTY               TOTAL
-----------                          -------------         -----------               -----
<S>                                   <C>                  <C>                    <C>
2001........................          $        461         $       40             $     501
2002........................                   475                 13                   488
2003........................                   490                 --                   490
                                      ------------         ----------             ---------
                                      $      1,426         $       53             $   1,479
                                      ============         ==========             =========
</TABLE>

     Rent expense,  including  related party  transactions,  for the years ended
June 30, 1998, 1999 and 2000 was $542, $537 and $562, respectively.



                                      F-12
<PAGE>


                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


4.  INCOME TAXES:

     The components of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED JUNE 30,
                                                       ----------------------------------------
                                                           1998          1999           2000
                                                           ----          ----           ----
<S>                                                      <C>           <C>             <C>
Federal:
  Current......................................          $ 1,559       $ 1,926         $  402
  Deferred.....................................              334          (395)          (893)
                                                         -------       -------         ------
                                                           1,893         1,531           (491)
                                                         -------       -------         ------
State:
  Current......................................               98           175            129
  Deferred.....................................               --           (42)          (129)
                                                         -------       -------         ------
                                                              98           133             --
                                                         -------       -------         ------
                                                         $ 1,991       $ 1,664         $ (491)
                                                         =======       =======         ======
</TABLE>

     The income tax benefits  related to the exercise of stock options  amounted
to $413, $26 and $144 for 1998, 1999 and 2000,  respectively,  and were credited
to additional paid-in capital.

     Deferred  income  taxes arise from  temporary  differences  resulting  from
income and expense items  reported for financial  accounting and tax purposes in
different  periods.  Deferred  taxes are  primarily  classified  as  current  or
non-current  depending on the  classification  of the assets and  liabilities to
which they relate.

     The provision  (benefit) for income taxes differs from the amount  computed
using the statutory Federal income tax rate as follows:

<TABLE>
<CAPTION>
                                                                       Year ended June 30,
                                                                ---------------------------------
                                                                  1998        1999        2000
                                                                  ----        ----        ----
<S>                                                                 <C>         <C>         <C>
Statutory tax rate......................................            34%         34%         34%
State taxes, net of Federal benefit.....................             1           3         (41)
Research and development credit.........................            --          --        (371)
Provision to return adjustment..........................            --          --         (95)
Non-deductible expense..................................             1          --           5
Other...................................................            --          (4)         --
                                                                 -----       -----       -----
                                                                    36%         33%       (468)%
                                                                 =====       =====       =====
</TABLE>




                                      F-13
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


4.  INCOME TAXES (CONTINUED):

     Deferred  income  taxes  reflect  the tax impact of  temporary  differences
between the assets and  liabilities  for financial  reporting  purposes and such
amounts as  measured  by tax laws and  regulations  and  operating  loss and tax
credit  carryforwards.  Amounts  giving  rise to  deferred  income  taxes are as
follows:

<TABLE>
<CAPTION>
                                                                            June 30,
                                                                    ----------------------
                                                                       1999          2000
                                                                    ----------   -----------
<S>                                                                  <C>            <C>
Current deferred tax assets:
  Allowance for doubtful accounts.........................           $   99         $  152
  Accrued vacation........................................               45             72
  Inventory capitalization................................               12             13
  State net operating loss carryforward...................               --             82
  Research and development credit carryforward............               --            392
                                                                     ------         ------
                                                                        156            711
Non-current deferred tax asset:
  Depreciation............................................               88            227

Non-current deferred tax liability:
  Software development costs..............................             (816)          (471)
                                                                     -------        ------

     Total................................................           $ (572)        $  467
                                                                     =======        ======
</TABLE>

     In assessing  the ability to realize the  deferred  tax assets,  management
considers  whether it is more  likely  than not that some  portion or all of the
deferred tax assets will not be realized.  The ultimate  realization of deferred
tax assets is dependent  upon the  generation  of future  taxable  income during
periods in which  those  temporary  differences  become  deductible.  Management
considers the scheduled  reversal of deferred tax liabilities,  projected future
taxable income and tax planning  strategies in making this assessment.  In order
to fully  realize  the total  deferred  tax  assets,  the  Company  will need to
generate future taxable income prior to the expiration of net operating loss and
credit carryforwards, which expire at various years through 2020. Based upon the
level of historical  taxable  income and  projections  for future taxable income
over the periods in which the temporary  differences are deductible,  management
believes it is more likely than not the Company  will realize the benefit of the
deferred  tax  asset at June 30,  2000.  The  amount of the  deferred  tax asset
considered  realizable,  however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.


                                      F-14
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


5.  RELATED PARTY TRANSACTIONS:

     The Company leases office space from its principal stockholders under lease
terms  expiring  on June 30,  2003.  The lease  agreement  includes a  five-year
renewal provision at the Company's option.  Rent expense under the lease for the
years ended June 30, 1998, 1999 and 2000 was $467, $481 and $510, respectively.


6.  CONCENTRATION OF CREDIT RISK:

     Financial   instruments   which   potentially   subject   the   Company  to
concentration  of credit risk consist of cash and cash  equivalents,  marketable
securities  and  accounts  receivable.  The  Company  places  its  cash and cash
equivalents  with high  quality  financial  institutions,  thereby  limiting its
credit  exposure.   The  Company   currently  invests  primarily  in  government
obligations.  The Company  believes that no significant  credit risk exists with
respect to these  investments.  There is no 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  such  losses  have  been  within   management's
expectations.


7.  EMPLOYEE BENEFIT PLANS:

     The Company has a qualified profit sharing plan covering employees who meet
certain  eligibility  requirements.  Contributions  are at the discretion of the
Board of Directors and may not exceed the maximum  amount  allowable for federal
income  tax  deduction.  The  Company  did not  make  any  contributions  to its
qualified profit sharing plan for the years ended June 30, 1998, 1999 and 2000.

     The Company  maintains a 401(k)  Retirement  Savings  Plan.  The  Company's
contributions  are at the  discretion of management and for the years ended June
30, 1998, 1999 and 2000 were $378, $380 and $150, respectively.


8.  STOCKHOLDERS' EQUITY:

     Preferred Stock:

     The Company has an  authorized  class of 1,500  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 may determine.



                                      F-15
<PAGE>


                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


8.  STOCKHOLDERS' EQUITY (CONTINUED):

     Stock Option Plan:

     Under the Company's 1993 Stock Plan (the "Plan"),  the Company has reserved
1,000 shares of Common Stock for issuance of both  incentive  and  non-qualified
options.  Under the Plan,  options  to  purchase  shares of Common  Stock may be
granted to key  employees and  consultants.  The Plan provides that the exercise
price of incentive  options  shall not be less than the fair market value of the
shares  on the date of the  grant,  that  the  exercise  price of  non-qualified
options shall not be less than 75% of the fair market value of the shares on the
date of grant  and,  in either  case,  that no portion  of such  options  may be
exercised beyond ten years from the date of grant.

     Under the Plan,  the Company is  authorized to issue shares of Common Stock
pursuant to awards granted in various forms,  including  incentive stock options
(intended to qualify under Section 422 of the Internal  Revenue Code of 1986, as
amended), non-qualified stock options, and other similar stock-based awards.

     The Company  applies APB Opinion No. 25,  "Accounting  for Stock  Issued to
Employees" ("APB 25") and related interpretations in accounting for the Plan. In
1995, the FASB issued SFAS No. 123,  "Accounting for  Stock-Based  Compensation"
("SFAS 123") which, if fully adopted by the Company, would change the method the
Company  applies  in  recognizing  the cost of the  Plan.  Adoption  of the cost
recognition  provisions  of SFAS 123 is  optional  and the Company did not elect
these provisions of SFAS 123.  However,  pro forma disclosures as if the Company
adopted the cost  recognition  provisions of SFAS 123 in fiscal years 1998, 1999
and 2000 are required by SFAS 123 and are presented below.

     The Company granted stock options in 1998, 1999 and 2000 for employees. The
stock options granted in 1998, 1999 and 2000 have contractual terms of 10 years.
All options  granted to the employees and  directors  have an exercise  price no
less than the fair  market  value of the stock at the grant  date.  The  options
granted in 1998, 1999 and 2000 vest one-third each year,  beginning on the first
anniversary of the date of grant.

     In accordance with APB 25, the Company has not recognized any  compensation
cost for these stock options granted in 1998, 1999 and 2000.



                                      F-16
<PAGE>


                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


8.  STOCKHOLDERS' EQUITY (CONTINUED):

     A summary of the status of the Company's stock options as of June 30, 1998,
1999 and 2000 and the changes during the years then ended is presented below:

<TABLE>
<CAPTION>
                                                                                     Weighted
                                                              Exercise Price          Average
                                              Shares(1)          Per Share         Exercise Price
-------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>                     <C>
Options outstanding at June 30, 1997            697,500        $4.125 to $7.000        $5.950

                                Granted          98,000       $8.500 to $15.250        $9.710
                               Canceled         (22,500)      $5.250 to $12.750       $11.920
                              Exercised        (136,600)       $4.750 to $7.000        $6.830
Non-qualified Options in 1997
                                Granted          10,000                  $5.375        $5.375
-------------------------------------------------------------------------------------------------

Options outstanding at June 30, 1998            646,400       $4.125 to $15.250        $6.140

                                Granted         125,000      $16.000 to $16.125       $16.065
                               Canceled          (3,500)                $16.125       $16.125
                              Exercised         (13,700)       $5.000 to $7.000        $6.720
-------------------------------------------------------------------------------------------------

Options outstanding at June 30, 1999            754,200       $4.750 to $16.000        $7.910

                                Granted         148,000       $9.250 to $22.375       $13.948
                               Canceled          57,500                 $16.000       $16.000
                              Exercised         100,688       $4.500 to $16.125        $6.470
-------------------------------------------------------------------------------------------------

Options outstanding at June 30, 2000            744,012       $4.125 to $22.375        $8.585

Options exercisable at June 30,
                                   1998         332,580        $4.125 to $7.000        $5.830
                                   1999         531,823       $4.125 to $15.250        $6.160
                                   2000         532,567       $4.125 to $22.375        $6.500
=================================================================================================

(1)     Not reported in thousands
</TABLE>




                                      F-17
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


8.  STOCKHOLDERS' EQUITY (CONTINUED):

     The following  table  summarizes  information  concerning  outstanding  and
exercisable options as of June 30, 2000:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                    Options Outstanding                  Options Exercisable
                        ------------------------------------------------------------------------------
                                        Weighted
                                        Average       Weighted                       Weighted
       Range of          Number of     Remaining       Average       Number of         Average
   Exercise Prices       Options(1)       Life      Exercise Price   Options(1)    Exercise Price
------------------------------------------------------------------------------------------------------
<S>                       <C>             <C>          <C>            <C>             <C>
   $4.125 to $5.375       265,245         5.82          $4.950        265,245          $4.950
   $7.000 to $9.250       334,100         5.33          $7.750        243,601          $7.260
 $15.250 to $18.125       126,167         8.85         $16.600         23,721         $16.000
 $20.000 to $22.375        18,500         9.77         $21.090              0          $0.000
------------------------------------------------------------------------------------------------------
  $4.125 to $22.375       744,012         6.21          $8.585        532,567          $6.500
------------------------------------------------------------------------------------------------------
(1)     Not reported in thousands
</TABLE>

     Had compensation cost for the Company's stock-based  compensation plan been
determined consistent with SFAS 123, the Company's net income and net income per
common share would approximate the pro forma amounts below:

<TABLE>
<CAPTION>
                                                                    June 30,
                                                 -----------------------------------------------
                                                     1998             1999              2000
                                                 -------------   --------------    -------------
<S>                                                 <C>              <C>                <C>
Net Income:                     As reported         $3,539           $3,393             $596
                                Pro forma            3,317            3,212              533

Basic earnings per share:       As reported          $0.98            $0.92            $0.16
                                Pro forma             0.92             0.87             0.15

Diluted earnings per share:     As reported          $0.90            $0.85            $0.15
                                Pro forma             0.84             0.81             0.14
</TABLE>

     The  effects  of  applying  SFAS 123 in this pro forma  disclosure  are not
indicative of future amounts. SFAS 123 does not apply to awards granted prior to
the 1996 fiscal year.

     The fair value of each stock  option  granted is  estimated  on the date of
grant  using  the   Black-Scholes   option-pricing   model  with  the  following
weighted-average  assumptions  for grants in fiscal  years ended June 30,  1998,
1999 and 2000: dividend yield of 0.00%;  risk-free interest rate of 6.05%, 5.47%
and 6.30%,  respectively;  the  expected  life of options is  estimated  to be 4
years; and a volatility of 32.75%, 45.66% and 60.61%, respectively.


                                      F-18
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Share Amounts)


8.  STOCKHOLDERS' EQUITY (CONTINUED):

     The weighted  average fair value of options granted during the fiscal years
ending June 30, 1998, 1999 and 2000 was $3.31, $6.83 and $7.29, respectively.

     Stock Repurchase Program:

     In fiscal 1997, the Company's  Board of Directors  approved  resolutions to
repurchase  up to 600  shares  of the  Company's  Common  Stock  in open  market
purchases. As of June 30, 2000, the Company had repurchased 600 shares at a cost
of $4,014.

     1997 Employee Stock Purchase Plan:

     In fiscal 1997, the Company's Board of Directors and stockholders  approved
the adoption of the 1997  Employee  Stock  Purchase  Plan to make  available 100
shares of the Company's Common Stock for purchase by the Company's employees. As
of June 30, 2000,  the Company's  employees had purchased 67 shares at a cost of
$580.



                                      F-19
<PAGE>


9.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

     The  following  table  presents  certain  condensed   unaudited   quarterly
consolidated financial information for each of the most recent eight quarters in
the period  ended June 30, 2000.  This  information  is derived  from  unaudited
consolidated financial statements of the Company that include, in the opinion of
the Company,  all adjustments  (consisting  only of normal  recurring  accruals)
necessary for a fair presentation of results of operations for such periods. The
operating  results  for any quarter are not  necessarily  indicative  of results
which may be  obtained  for any future  period.  Although  the  Company  has not
experienced fluctuations in quarterly results due to seasonality,  the Company's
quarterly  results may  fluctuate as a result of other  factors,  including  the
timing of orders,  delays of shipments to customers due to delays in delivery of
hardware  components by the Company's vendors,  delays in new software releases,
new product  introductions by the Company or its competitors or levels of market
acceptance  for new products,  or the hiring of additional  staff.  Furthermore,
certain  of  the  Company's  costs,  including  personnel  and  facilities,  are
relatively  fixed in nature and,  therefore,  a decline in revenue in any fiscal
quarter typically results in lower profitability in that quarter.

<TABLE>
<CAPTION>
                                              QUARTER ENDED
                     SEPT. 30,   DEC. 31,   MAR. 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MAR. 31,   JUNE 30,
                       1998        1998       1999       1999       1999        1999       2000       2000

<S>                   <C>        <C>        <C>        <C>         <C>        <C>        <C>        <C>
Revenue............   $11,165    $12,136    $11,535    $17,151     $9,286     $11,847    $11,541    $13,441
Gross profit.......     5,507      6,326      5,574      8,962      3,552       6,034      5,711      6,736
Operating income
(loss).............     1,144      1,197        220      2,210     (1,438)        528        408        210
Net income (loss)..       827        867        198      1,501       (910)        405        337        763
Basic net income
(loss) per share...     $0.22      $0.23      $0.05      $0.42     $(0.25)      $0.11      $0.09      $0.21
Diluted net income
(loss) per share...     $0.21      $0.22      $0.05      $0.39     $(0.25)      $0.11      $0.08      $0.21
</TABLE>




                                      F-20
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


The Board of Directors and Stockholders
of Prophet 21, Inc. and Subsidiaries:


Our audits of the consolidated  financial  statements  referred to in our report
dated  August 11, 1999  included on page F-2 of this Form 10-K also  included an
audit of the financial statement schedule as of and for each of the two years in
the period  then ended  June 30,  1999,  listed in the index on page F-1 of this
Form 10-K. In our opinion,  this financial statement schedule as of and for each
of the two years in the period then ended June 30, 1999 presents fairly,  in all
material  respects,  the  information set forth therein when read in conjunction
with the related consolidated financial statements.



PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
August 11, 1999



                                      S-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Prophet 21, Inc. and Subsidiaries:


     Under date of September 15, 2000, we reported on the  consolidated  balance
sheet of Prophet 21, Inc. and  subsidiaries as of June 30, 2000, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the year then ended,  which are included herein. In connection with our audit of
the aforementioned  consolidated financial statements,  we have also audited the
related financial  statement schedule included herein.  This financial statement
schedule is the responsibility of the Company's  management.  Our responsibility
is to  express  an opinion on this  financial  statement  schedule  based on our
audit.

     In our opinion,  such  financial  statement  schedule,  when  considered in
relation  to the  basic  consolidated  financial  statements  taken  as a whole,
presents fairly, in all material respects, the information set forth therein.



KPMG LLP
Philadelphia, Pennsylvania
September 15, 2000


                                      S-2
<PAGE>

                                                                     SCHEDULE II

                                PROPHET 21, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
Allowance for Doubtful Accounts
<CAPTION>
                                 Balance at           Charged to
Year Ended                      Beginning of          Costs and           Deductions           Balance at
 June 30,                          Period              Expenses           Write-Offs         End of Period
----------                      ------------          ----------          ----------         -------------

<S>                              <C>                  <C>                  <C>                 <C>
1998..................           $ 218,111            $ 259,404            $ 237,515           $ 240,000
1999..................             240,000              845,054              824,063             260,991
2000..................             260,991              904,415              767,166             398,240

</TABLE>






                                       S-3