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

                                    FORM 10-K

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

                     For the fiscal year ended June 30, 1999
                         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:  $13,449,062 at August 31, 1999 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, 1999:


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

Common Stock, $.01 par value                                     3,593,613


     The  following  documents  are  incorporated  by reference  into the Annual
Report on Form 10-K: Portions of the Registrant's definitive Proxy Statement for
its 1999 Annual Meeting of Stockholders  are incorporated by reference into Part
III of this Report.




                                      -2-
<PAGE>

                                TABLE OF CONTENTS

               Item                                                        Page
               ----                                                        ----

PART I     1.  Business....................................................  4

           2.  Properties.................................................. 12

           3.  Legal Proceedings........................................... 12

           4.  Submission of Matters to a Vote of Security Holders......... 12


PART II    5.  Market for the Company's Common Equity
               and Related Stockholder Matters............................. 13

           6.  Selected Financial Data..................................... 14

           7.  Management's Discussion and Analysis of Financial
               Condition and Results of Operations......................... 15

           7A. Quantitative and Qualitative Disclosures
               About Market Risk........................................... 22

           8.  Financial Statements and Supplementary Data................. 22

           9.  Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure......................... 22


PART III   10. Directors and Executive Officers of the Company............. 23

           11. Executive Compensation...................................... 23

           12. Security Ownership of Certain Beneficial Owners and
               Management.................................................. 23

           13. Certain Relationships and Related Transactions.............. 23

PART IV    14. Exhibits, Financial Statement Schedules,
                      and Reports on Form 8-K.............................. 24

SIGNATURES................................................................. 25

EXHIBIT INDEX.............................................................. 27

FINANCIAL DATA AND SCHEDULE................................................F-1



                                      -3-
<PAGE>

                                     PART I


ITEM 1.   BUSINESS.


GENERAL

     Prophet  21,  Inc.  ("Prophet  21"  or  the  "Company")  is a  provider  of
distribution-centric business management solutions developed exclusively for use
by  distribution  and wholesale  oriented  businesses.  Prophet 21 Solutions are
enterprise-wide solutions consisting of business application software, EDI, VMI,
DMI, electronic commerce,  business application training,  consulting,  software
customization,  application  hardware (when desired),  system  installation  and
implementation services,  supported by a dedicated customer service organization
and educational services.

     The  Company  addresses  the  automation  needs  of its  customers  through
comprehensive,  feature-rich  and  user-friendly  solutions for UNIX,  Microsoft
Windows NT and AS/400  environments.  The Company's  UNIX offering is Prophet 21
Acclaim, a complete  distribution  industry  management  solution using Progress
Software Corporation's DBMS. Prophet 21 Acclaim is targeted for sales to new and
current Prophet 21 XL customers.  The Company's Microsoft Windows NT offering is
Prophet  21  Wholesale  (formerly  known as Prophet  21  Servent),  built on the
scalable  and fully  integrated  platform,  Microsoft  Windows NT  client/server
software,  with  Microsoft SQL Server 7.0.  Prophet 21 Wholesale is targeted for
large-sized companies (greater than $100m) looking to solve distribution-centric
business  requirements  with  a  Windows  SQL  Server  or  AS/400  client/server
solution.  These  companies  desire  a  transaction-intensive  sales  order  and
inventory  management  solution to meet customer service  requirements that meet
the needs of growing  companies.  They also require a solution  that  integrates
with an accounting  solution and can be implemented in a cost-effective  manner.
The Prophet 21 Wholesale product is suitable for distribution companies, as well
as businesses that have a distribution component of their operations.

     Prophet 21 markets its products and services to approximately 70,000 of the
roughly 300,000 distributors and wholesalers  operating in the United States and
Canada and, as of June 30, 1999,  has sold over 2,600 systems  across the United
States and Canada. The Company's  customers vary in size from small distributors
and wholesalers  with a few users to larger companies with several hundred users
linking  multiple  geographically  dispersed  branches.  The  Company  sells its
Prophet 21 Acclaim  and Prophet 21  Wholesale  solutions  through its  51-person
direct sales force located in sales and service  offices  throughout  the United
States to a wide range of industry segments  including  industrial  manufacturer
representative  organizations  ("MRO"),   automotive,   aerospace  and  defense,
electrical  supply,  electronics,  medical and  dental,  tile,  plumbing,  HVAC,
hardware, janitorial and general distribution.  The Company believes that one of
its  competitive  advantages is its  accumulated  knowledge of the  distribution
industry  gained  over  three  decades,  which  has  enabled  it to  develop  an
industry-focused solution to satisfy the needs of its customers.

                                      -4-
<PAGE>

     The Company is a holding company incorporated in Delaware in December 1993.
The  principal  operations  of the Company are  conducted  through its  indirect
wholly-owned subsidiary, Prophet 21 (New Jersey), Inc., a New Jersey corporation
incorporated in 1967 under the name Programmed Control Corporation.

     Prophet  21 System,  Prophet  21  Acclaim,  Prophet  21  Wholesale  and the
Company's  logo are  trademarks of the Company.  All other  trademarks and trade
names  referred to in this Form 10-K are the property of the  respective  owners
and are not the property of the Company.


PROPHET 21'S MARKET

     Of the roughly 300,000 distributors and wholesalers operating in the United
States and Canada, Prophet 21 markets its products and services to approximately
70,000  businesses  in a wide range of industry  segments  including  industrial
(MRO),  automotive,  aerospace  and  defense,  electrical  supply,  electronics,
medical and dental,  tile,  plumbing,  HVAC,  hardware,  janitorial  and general
distribution.  Distributors  and wholesalers  warehouse  products and handle the
movement of large  quantities of inventory across a wide range of industries and
play a critical  role in the flow of goods from  manufacturers  to retailers and
consumers.  The Company believes that as industry supply chains undergo changes,
distributors and wholesalers increasingly are finding that the changing business
environment  dictates the need for automated business  management  systems.  The
Company  believes  that it has the  ability  to  provide  "best of breed"  order
management and inventory  management to companies.  This unique ability provides
significant market opportunities beyond the existing pure wholesale distribution
market.

     The  Company's  target market is diverse,  consisting of companies  ranging
from  small   one-location   companies  to   multi-location   distributors   and
wholesalers.  Distributors and wholesalers,  regardless of size, tend to operate
with  relatively  low margins  and, in order to compete  effectively,  must move
goods quickly at the least possible  expense and maintain  minimal  inventories.
Distributors and wholesalers with multiple  locations also must manage inventory
in a  cost-effective  manner across their various  branches.  In addition to the
competitive  pressures  inherent in the  distribution  industry,  suppliers  and
customers   increasingly  require  that  distributors  and  wholesalers  possess
sophisticated  technology,  including EDI, XML, BizTalk and electronic  commerce
capabilities.   This   technology   enables  goods  to  be  ordered  and  billed
computer-to-computer,  and the addition of bar code labeling capabilities, which
allow for automated and accurate product tracking.

     The  Company  believes  that a majority  of  distributors  and  wholesalers
presently rely on ineffective or outmoded systems to manage their businesses. In
addition, changes in technology,  Year 2000 issues, Euro currency conversion and
compliance,  evolving  distributor  needs and  consolidation in the distribution
industry supply chain dictate that companies upgrade their computer systems on a
continuing basis in order to maintain a competitive edge.




                                      -5-
<PAGE>

PROPHET 21 ACCLAIM

     Prophet 21 Acclaim is an  enterprise-wide  solution  consisting of business
application  software,  business  application  training,  consulting,   software
customization,   hardware,  and  implementation  services.  These  products  are
supported by dedicated  customer  service and educational  training  teams.  The
Company has designed the system to address the  business  management  automation
needs of distributors and distribution-centric companies.

     Many of the features of Prophet 21 Acclaim  have been  designed to meet the
specific  needs  of  the  distribution  industry,   with  emphasis  on  features
automating order processing,  inventory  management and control,  communications
networking  and product  pricing.  In addition,  the Company  offers  electronic
commerce such as EDI, VMI, DMI and Internet enabling capabilities, which provide
links between its customers and an expanding  number of trading partners who are
their customers and suppliers.

     The Company provides a single, comprehensive,  feature-rich system. Prophet
21  believes  that this  standardization  enables  its  product to be  installed
rapidly and  supported  effectively  because  installers,  trainers and customer
support  personnel  have a high  level of  expertise  with a single  system.  In
addition,  this standardization permits its customers to incorporate readily the
Company's  periodic software  enhancements.  To facilitate the very specific and
unique needs of some of Prophet 21's customers,  the Company does provide custom
software modifications through a separate custom software department.

     Prophet  21  Acclaim's  design  facilitates  its  use by  distributors  and
wholesalers with multi-branch  operations.  The system permits  distributors and
wholesalers to determine  system-wide  inventory status  instantaneously  and to
ship  orders  efficiently.  Prophet  21  Acclaim  also  allows  for  centralized
purchasing,  inventory  control,  billing and  accounting,  thereby  eliminating
certain  branch-level  expenses and  permitting  goods to be moved quickly while
minimizing  inventories.   The  Company's  communications  capabilities  include
configuration of wide area networks and integration with local area networks.

     Prophet  21 Acclaim  is an open  system  that  allows  the  integration  of
third-party software products such as report writers, faxing software, warehouse
management,  forms creation and executive  information  systems. The Company has
successfully developed integrations to a number of third-party products.

PROPHET 21 WHOLESALE

     Prophet 21 Wholesale is an enterprise-wide solution,  extending through the
supply chain, consisting of business application software, application training,
consulting, software customization, and implementation services. This product is
supported by a dedicated customer support organization. The Company has designed
the system to address the business  management  automation needs of distributors
and  distribution-centric  companies who desire Microsoft  Backoffice  certified
product  supporting  Microsoft SQL Server 7.0, a leading  database for Microsoft
Windows NT environments or IBM's AS/400 platform using DB2/400.

                                      -6-
<PAGE>

     Many of the features of Prophet 21 Wholesale have been designed to meet the
specific needs of the distribution industry and distribution-centric  companies,
with emphasis on features  automating  order  management,  order  configuration,
inventory management and control,  product pricing and financials.  In addition,
the  Company  offers  electronic  commerce  such  as EDI and  Internet  enabling
capabilities,  which provide links between its customers and an expanding number
of trading partners who are their customers and suppliers.

     The Company  provides a single,  comprehensive,  feature-rich  system.  The
Company  believes  that this  standardization  allows  systems  to be  installed
rapidly  and  supported   effectively  because  trainers  and  customer  support
personnel have a high level of expertise with a single system. In addition, this
standardization  permits the  Company's  customers  to  incorporate  readily the
Company's  periodic software  enhancements.  To facilitate the very specific and
unique  needs  of  its   customers   the  Company   provides   custom   software
modifications.

     Prophet  21  Wholesale's   design   facilitates  its  use  by  wholesalers,
distributors and  distribution-centric  companies with multi-branch  operations.
The system permits these  companies to determine  system-wide  inventory  status
instantaneously and to ship orders efficiently. Prophet 21 Wholesale also allows
for centralized purchasing,  inventory control, billing and accounting,  thereby
eliminating  certain  branch-level  expenses  and  permitting  goods to be moved
quickly while minimizing inventories.  The Company's communications capabilities
include  configuration  of wide area  networks and  integration  with local area
networks.

     Prophet 21  Wholesale  is an open  system that  allows the  integration  of
third-party software products such as report writers, faxing software, warehouse
management,  forms creation and executive  information  systems. The Company has
successfully developed seamless integration to a number of third-party products.


SALES AND MARKETING

     The Company sells its products and services  through its  51-person  direct
sales force located in sales and service  offices  throughout the United States.
The field sales force is supervised by a Vice President of Sales.  The Company's
direct sales force  focuses on the  distribution  industry and  understands  the
specific needs and mission-critical applications of distributors and wholesalers
within  targeted  industry  segments.  The  Company  employs a solution  selling
methodology. All sales personnel are trained and managed in accordance with this
doctrine. The Company believes that its direct sales approach leads to long-term
relationships  with customers that increase  customer  satisfaction  and provide
opportunities  for follow-on  sales to its existing  customer  base. The Company
believes  that as the  distribution  industry  continues  to evolve and face new
challenges,  a knowledgeable and solutions oriented sales force will bring great
value to its customers.

     The Company's  marketing  strategy is to provide  focused  marketing on the
industry  segments served by the Company,  in particular,  the industrial (MRO),
automotive,  aerospace and defense, electrical supply, electronics,  medical and
dental, tile, plumbing, HVAC, hardware, janitorial and general distribution. The
Company  generates  leads  through  telemarketing,   direct  mail,  advertising,
national and regional trade shows and Company-sponsored seminars.

                                       -7-
<PAGE>

     The Company's  marketing  department has the  responsibility of identifying
the market to be served by the Company's  products and  services.  The marketing
department  further guides the direction and strategy of the Company's  products
and services.  Information is gathered  aggressively by the marketing department
from the Company's  customer  base,  distribution  market,  distribution-centric
companies and leading supply chain consultants and industry  experts.  This data
is then presented for  consideration in regard to enhancing current products and
for creating new products to serve new market opportunities.


CUSTOMERS

     The Company has, as of June 30, 1999, sold approximately 2,600 systems. The
Company's  customers vary in size from small  distributors or wholesalers with a
few  users to large  companies  with  several  hundred  users  linking  multiple
geographically  dispersed branches.  The Company serves a wide range of industry
segments,  including  industrial  (MRO),  automotive,   aerospace  and  defense,
electrical  supply,  electronics,  medical and  dental,  tile,  plumbing,  HVAC,
hardware,  janitorial  and general  distribution.  During the three fiscal years
ended June 30, 1999, no one customer  accounted for 10% or more of the Company's
revenue.


SYSTEMS TRAINING AND TECHNICAL SUPPORT SERVICES

     A key element of the Company's  business  strategy is to provide  extensive
training and support to its  customers.  The Company has  established a customer
service and support, and installation organization, consisting of 177 employees,
that provides  installation,  implementation  and post-sales support for systems
under warranty or maintenance contract. Additionally, commencing in fiscal 1998,
the  Company  began  providing   services   through  its  Educational   Services
department.

     Once  Prophet 21  receives  an order,  the Company  provides  training  and
consultation,  including  advice on how to best operate the customer's  business
using  the  Prophet  21  Solutions,   before  the  system  is  installed.  After
installation,  the  Company  typically  provides  applications  training  at the
customer's  location.  Customers  have telephone  access and Internet  access to
technical  specialists  who  respond  to  hardware,  software  and  applications
questions.  These  technical  support  specialists  diagnose and solve technical
problems  and assist  customers  with systems  integration  and use. The Company
tracks service  reports through a  state-of-the-art  customer  support  product,
which  maintains  current status reports as well as historical  logs of customer
interaction. The Company's Educational Services department develops a variety of
educational  tools and  programs to train  customers  in the Prophet 21 Systems.
Such programs include fully-interactive  computer-based training, video training
and nationwide instructor-based training seminars.

     The Company provides Prophet 21 Acclaim users a one-year  hardware warranty
and a 90-day software warranty.  Ninety days after the sale, customers typically
enter into a fee-based  support contract covering software and hardware support.
The Company offers software  enhancements at discounted  prices to customers who
have active support  contracts.  As of June 30, 1999,  approximately  85% of the
Company's customers were covered by support contracts

                                      -8-
<PAGE>

following the initial warranty period. There can be no assurance,  however, that
customers  will continue to enter into support  contracts at this rate.  Support
contracts  have an  initial  term of one year  and  continue  thereafter  unless
terminated.

     The  Company  provides  Prophet  21  Wholesale  users a  one-year  software
warranty.  The Company  offers to its  customers a  fee-based  support  contract
covering software support and product enhancements.  As of June 30, 1999, all of
the Company's active customers were covered by support  contracts  following the
initial warranty period. There can be no assurance, however, that customers will
enter into support contracts. Support contracts have terms of one year.

     Prophet  21  conducts  annual  international  user  conferences  to provide
training, exchange of ideas and demonstrations of new products and features. The
Company also conducts regional training and support conferences.


SOFTWARE DEVELOPMENT

     The  distribution  industry  is  characterized  by  changing  needs and the
Company's  success  depends,  to a large extent,  on its ability to  continually
modify and enhance its software to meet such changing needs.  The Company places
great  emphasis on  software  development  and expects to continue to  introduce
modifications  or enhancements to its software on a periodic basis.  The Company
presently  releases  a modified  or  enhanced  version  of  Prophet 21  software
(Prophet  21 Acclaim  and  Prophet 21  Wholesale)  approximately  every eight to
twelve months. The Company identifies  customer and marketplace product needs by
direct and  frequent  interaction  with users of  Prophet 21  software,  through
customer   satisfaction   surveys  and  by  understanding   the  trends  of  the
distribution  and  distribution-centric  marketplace.  In the second  quarter of
fiscal 1998, the Company  introduced a controlled release of its newest product,
Prophet 21  Wholesale,  a fully  integrated  Microsoft  Windows SQL Server based
client/server  software  suite.  Prophet  21  Wholesale  is  targeted  for large
companies   attempting   to  leverage  the  Windows  SQL  Server   client/server
environment and integrates their financial management with order,  inventory and
purchasing  management.  The  Prophet  21  Wholesale  product  is  suitable  for
distribution  companies and  distribution-centric  companies which should enable
the  Company  to  expand  its  market  beyond  the  pure  general   distribution
marketplace. In addition, the Company develops modifications and enhancements to
its  software to address  the  specific  needs of targeted  segments in order to
continue to increase  the number of features  and improve the  applications  for
such  industry  segments.  Seventy-eight  employees  are  directly  involved  in
programming  and software  development.  During fiscal year 1999,  the Wholesale
product  continued  under a  controlled  release  environment  as  staffing  and
education occurred and infrastructure was developed.

     During the third  quarter of fiscal 1999,  Prophet 21 announced  the future
availability of Wholesale on the IBM AS/400e.  This combination makes Prophet 21
Wholesale AS/400e Edition an excellent choice for wholesale distribution-centric
companies  looking for rapid  deployment,  low cost of ownership and easy-to-use
integrated  business software.  Prophet 21 Wholesale was upgraded to version 1.6
during  the  fourth  fiscal  quarter  of 1999.  The  upgraded  version  supports
Microsoft  SQL Server 7.0.  Additional  functionalities  included the ability to
purchase  commodity items from unlimited  suppliers,  enhanced  material receipt
reconciliation,

                                      -9-
<PAGE>

serialized multi-tiered  assemblies,  workflow alerts for automated notification
of customer orders on credit hold and pricing by customer part number.

     The Company's  research and development  expenses were  approximately  $3.0
million,  $3.8 million and $5.8 million in the fiscal years ended June 30, 1997,
1998 and 1999,  respectively.  In 1996,  the  Company  also  began  capitalizing
certain  software  development  costs in connection  with the general release of
Prophet 21 Wholesale.  Such capitalized  software  development costs amounted to
$458,000, $1,813,000, $1,565,000 and $0 in the fiscal years ended June 30, 1996,
1997, 1998 and 1999, respectively, of which $1,705,000 has been amortized.


ASSEMBLY AND SUPPLIERS

     The  Company  relies on  third-party  vendors to develop,  manufacture  and
supply all of the hardware components of Prophet 21 solutions.  Manufacturing by
the Company consists of light assembly and systems integration.

     The Company  believes that several vendors are capable of providing most of
the components and parts used in the Company's  systems.  In certain  instances,
despite the  availability  of multiple  sources,  the Company  elects to procure
certain  components or parts from a single source to maintain quality control or
to develop a strategic relationship with a supplier. The Company has not entered
into any  long-term  supply  contracts  with its  vendors,  electing to purchase
components and parts on a purchase order basis. As a result,  the Company has no
assurance  that  components  and parts will be available  as  required,  or that
prices of such  components  and parts will not  increase.  In addition,  certain
components of Prophet 21 Acclaim,  including IBM RS/6000  computers and Progress
software, are available only from a single source.

     In July 1991,  Prophet 21 entered into an  Authorized  Dealers and Industry
Remarketers   Agreement  with  IBM.  The  agreement  grants  to  the  Company  a
non-exclusive  right to purchase and license certain hardware products from IBM,
including IBM RS/6000  computers,  for  remarketing by the Company in the United
States.  Although the agreement contains no minimum purchase  requirements,  the
volume of  systems  purchased  by Prophet 21  affects  the  percentage  discount
received by the Company and may be a factor considered by IBM in connection with
Prophet  21's  continued  authorization  as  an  IBM  industry  remarketer.  The
agreement  is subject to annual  renewal  and may be  terminated  by IBM with or
without cause on three-months written notice. During the fiscal years ended June
30, 1997, 1998 and 1999, the Company's  hardware purchases from IBM totaled $5.4
million, $7.4 million and $5.1, respectively.


BACKLOG

     The Company  normally  ships  systems  within 30 days of receiving an order
and, therefore, does not customarily have a significant backlog.


                                      -10-
<PAGE>

COMPETITION

     The market for business management  automation systems for the distribution
industry is highly  competitive.  The Company believes that it has approximately
30 direct competitors, represented by a mix of small, closely-held companies and
divisions of larger companies that sell software or systems directly competitive
with  those of the  Company.  Certain of such  competitors  serve only a limited
number of industry segments within the distribution industry.

     The  Company  believes  that  the  principal  competitive  factors  in  the
distributor  and  wholesaler   automation  industry  include  product  features,
technical capabilities, system price/performance, vendor and product reputation,
financial  stability,  customer  service and support,  and timeliness of product
modifications and enhancements and that it competes  effectively with respect to
all of these factors.


INTELLECTUAL PROPERTY

     The Company's success is heavily dependent upon its intellectual  property,
including  its  software   technology.   Prophet  21  relies  principally  on  a
combination  of  copyright,  trademark  and  trade  secret  laws,  employee  and
third-party  non-disclosure  agreements,  and license  agreements to protect its
intellectual  property.  Nonetheless,  there can be no assurance  that the steps
taken by the Company to protect its  intellectual  property  will be adequate to
prevent  misappropriation  or  unlawful  copying of its  technology  or software
programs.  Copyright  and trade secret laws do not limit the rights of others to
independently  develop similar  technology and software  programs.  Although the
Company  believes  that its  software  products do not  infringe on any existing
proprietary rights of others,  there can be no assurance that third parties will
not assert infringement claims in the future.

     The Company  believes that, due to the rapid pace of innovation  within the
computer  industry,   factors  such  as  technological  and  creative  skill  of
personnel, knowledge and experience of management,  reputation,  maintenance and
support  and the  ability  to  develop,  enhance,  market and  acquire  software
products and services are more  important  for  establishing  and  maintaining a
competitive  position  within the industry than are patent,  copyright and other
legal protections for its technology.


EMPLOYEES

     As of June 30, 1999, the Company employed 369 persons full-time, of whom 74
were engaged in sales and  marketing;  177 were engaged in customer  service and
support,  and  installation;   78  were  engaged  in  programming  and  software
development   and   quality   assurance;   and  40  were   engaged  in  finance,
administration  and  management.  In addition,  32 were  employed on a part-time
basis  (16 of  whom  were  engaged  in  administrative  functions).  None of the
Company's employees are covered by collective bargaining agreements. The Company
believes  that  it  has  been  successful  in  attracting   skilled   personnel.
Competition  for  experienced   sales  and  marketing   personnel  and  software
programmers is intense.  The Company's future success will depend in part on its
ability to continue to attract,  retain and motivate highly qualified personnel.
The Company considers relations with its employees to be good.

                                      -11-
<PAGE>

ITEM 2.   PROPERTIES.

     The Company  leases  facilities in Yardley,  Pennsylvania  totaling  60,000
square feet from Dr. John E. Meggitt,  the Company's  Chairman of the Board, and
Mrs. Dorothy M. Meggitt, the Company's Secretary. This lease expires on June 30,
2003. The leased space in Pennsylvania is used for administration, a substantial
portion of sales and marketing,  customer service and support, assembly, quality
assurance  and software  development.  The Company also leases sales and service
offices in Atlanta and Chicago.


ITEM 3.   LEGAL PROCEEDINGS.

     There is no material  litigation pending to which the Company is a party or
to which any of its property is subject.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Not applicable.



                                      -12-
<PAGE>

                                     PART II


ITEM 5.   MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS.

     Prior to March  1994,  there was no  established  market for the  Company's
Common  Stock.  Since March 11, 1994,  the common stock has traded on the Nasdaq
National Market ("NNM") under the symbol "PXXI."

     The following table sets forth the high and low sales prices for the common
stock for each of the quarters  since the quarter  ended  September  30, 1997 as
reported on NNM. Such quotations  reflect  inter-dealer  prices,  without retail
mark-up, mark-down or commission and may not represent actual transactions.

          Quarter Ended                   High                     Low
     -----------------------           -----------             -----------

     September 30, 1997                 $15.50                   $ 5.375
     December 31, 1997                  $16.75                   $10.00
     March 31, 1998                     $17.625                  $10.00
     June 30, 1998                      $20.25                   $11.625
     September 30, 1998                 $18.75                   $ 9.00
     December 31, 1998                  $14.625                  $ 9.25
     March 31, 1999                     $14.00                   $ 9.875
     June 30, 1999                      $10.75                   $ 7.25

     As of August 31, 1999, the  approximate  number of holders of record of the
Common Stock was 185 and the  approximate  number of  beneficial  holders of the
common stock was 1,450.

     The Company has never declared or paid  dividends on its Common Stock.  The
Company currently intends to retain any future earnings to finance the growth of
the business and,  therefore,  does not anticipate  paying any cash dividends in
the foreseeable future.


                                      -13-
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA.

     The following table sets forth selected  consolidated  historical financial
data of the Company as of the dates and for the periods indicated.  The selected
financial  data set forth below for the Company as of June 30, 1998 and 1999 and
for each of the three years  ended June 30,  1999 are  derived  from the audited
financial  statements included elsewhere herein. The selected financial data set
forth below for the Company as of June 30,  1995,  1996 and 1997 and for each of
the years ended June 30, 1995 and 1996 are derived from the financial statements
not included elsewhere herein. The selected financial information should be read
in conjunction with the Consolidated  Financial Statements and the Notes thereto
appearing elsewhere herein. See "Item 7. Management's Discussion and Analysis of
Financial  Condition and Results of Operations," which are included elsewhere in
this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
                                                          FISCAL YEAR ENDED JUNE 30,
                                              1995        1996        1997        1998        1999
                                              ----        ----        ----        ----        ----
                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S>                                         <C>         <C>         <C>         <C>         <C>
Revenue:
 System sales.........................      $21,295     $20,905     $22,537     $30,157     $29,786
 Service and support..................        9,948      12,145      13,866      16,457      22,201
                                            -------     -------     -------     -------     -------
                                             31,243      33,050      36,403      46,614      51,987
                                            -------     -------     -------     -------     -------
Cost of revenue:
 System sales.........................       12,610      11,672      12,640      16,064      15,533
 Service and support..................        5,723       6,624       6,836       8,596      10,085
                                            -------     -------     -------     -------     -------
                                             18,333      18,296      19,476      24,660      25,618
                                            -------     -------     -------     -------     -------
   Gross profit.......................       12,910      14,754      16,927      21,954      26,369
                                            -------     -------     -------     -------     -------

Operating expenses:
 Sales and marketing..................        8,146       8,346       8,306      10,078      12,759
 Research and development.............        2,907       2,248       3,001       3,811       5,822
 General and administrative...........        2,251       2,296       2,434       2,839       3,017
 Severance expense....................          378          --          --          --          --
                                            -------     -------     -------     -------     -------
   Total operating expenses...........       13,682      12,890      13,741      16,728      21,598
                                            -------     -------     -------     -------     -------
   Operating (loss) income............         (772)      1,864       3,186       5,226       4,771
Interest income.......................          374         408         376         304         286
                                            -------     -------     -------     -------     -------
   (Loss) income before taxes.........         (398)      2,272       3,562       5,530       5,057
(Benefit) provision for income taxes..         (171)        922       1,275       1,991       1,664
                                            -------     -------     -------     -------     -------
   Net (loss) income..................      $  (227)    $ 1,350     $ 2,287     $ 3,539     $ 3,393
                                            =======     =======     =======     =======     =======
Basic earnings per share:
 Net (loss) income per share..........      $ (0.06)    $  0.34     $  0.60     $  0.98     $  0.92
                                            =======     =======     =======     =======     =======
 Weighted average common
  shares outstanding..................        4,002       4,003       3,813       3,601       3,705
                                            =======     =======     =======     =======     =======
Diluted earnings per share:
 Net (loss) income per share..........      $ (0.06)    $  0.34     $  0.60     $  0.90     $  0.85
                                            =======     =======     =======     =======     =======
 Weighted average common and
  common equivalent shares
  outstanding.........................        4,002       4,011       3,838       3,928       3,990
                                            =======     =======     =======     =======     =======
BALANCE SHEET DATA
(at period end):
Working capital.......................      $15,172     $14,797(1)  $11,720     $15,832     $18,388
Total assets..........................       23,145      25,832      27,681      34,615      36,557
Stockholders' equity..................       17,631      18,981      18,764      23,856      26,101
---------------------

<FN>
(1)  Certain items in prior years' financial statements have been reclassified for comparative purposes.
     See "Note 1.  Summary of Significant Accounting Policies," to the audited financial statements
     included elsewhere herein.
</FN>
</TABLE>


                                      -14-
<PAGE>

ITEM 7.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS.

GENERAL

     The Company provides  innovative  software solutions that meet the changing
business  demands of distribution  operations  within the extended supply chain.
Prophet  21  develops,  markets  and  supports  a  complete  suite of Year  2000
compliant,  distribution-centric  enterprise applications for either Windows NT,
UNIX or AS/4000 for finance, order management, inventory management,  purchasing
and electronic  commerce.  In addition,  Prophet 21 provides  industry-specific,
distribution-centric   enterprise   solutions  for  select   markets   including
industrial  (MRO),  automotive,   aerospace  and  defense,   electrical  supply,
electronics,  medical and dental, tile, plumbing, HVAC, hardware, janitorial and
general distribution.

     The Company's  revenue is derived primarily from the sale of either Prophet
21 Acclaim or Prophet 21 Wholesale software solutions.  Other sources of revenue
include:  customer support maintenance  contracts,  equipment  maintenance (when
purchased via Prophet 21), the sale of optional  third-party  software  products
and training services provided by the Company's  Educational Services department
which began operations in fiscal 1998. Each Prophet 21 Acclaim Solution includes
the  Prophet 21 Acclaim  Software,  an IBM RISC  System/6000  computer,  various
optional  third-party  software  products  and  hardware  components,  training,
support and  installation.  Each  Prophet 21  Wholesale  Solution  includes  the
Prophet 21 Wholesale Software, training, support and installation. The Company's
Educational  Services  department  develops a variety of  educational  tools and
programs to train  customers in the Prophet 21 Systems.  Such  programs  include
interactive  computer-based  training,  video training and remote training.  The
Company's  cost  of  revenue  consists  principally  of the  costs  of  hardware
components, customer support, installation and training and, to a lesser extent,
third-party software.

     In fiscal 1996, the Company  introduced its next  generation  UNIX product,
Prophet 21 Acclaim. A complete  distribution  industry  management solution that
combines  the  functionality  of the  traditional  Prophet  21  System  with the
technology  of  Progress  Software  Corporation's  DBMS.  Prophet  21 Acclaim is
targeted for sales to new customers and current Prophet 21 XL customers.  It has
been  designed  so that  current  XL users  can move to this new  product  while
preserving  their existing  technology  infrastructure.  The general  release of
Prophet 21 Acclaim began late in the second quarter of fiscal 1997.

     In fiscal 1998, the Company introduced and released Prophet 21 Wholesale, a
fully  integrated  Microsoft  Windows  NT-based  client/server  software  suite.
Prophet 21  Wholesale is targeted for  medium-sized  companies  looking to solve
their distribution-centric business requirements with a Windows NT client/server
solution.    These    companies    desire   a   solution    that    provides   a
transaction-intensive  sales order management and inventory  management solution
to meet  their  customer  service  needs.  They  also  require a  solution  that
integrates   with  an  accounting   solution  and  can  be   implemented   in  a
cost-effective manner. The Prophet 21 Wholesale product is

                                      -15-
<PAGE>

suitable for distribution-oriented  companies, as well as businesses that have a
distribution component of their own.

     The  statements  contained in this Annual  Report on Form 10-K that are not
historical facts are  forward-looking  statements (within the meaning of Section
21E of the  Securities  Exchange Act of 1934, as amended) that involve risks and
uncertainties. Such forward-looking statements may be identified by, among other
things,  the use of forward-looking  terminology such as "believes,"  "expects,"
"may,"  "will,"  "should"  or  "anticipates"  or the  negative  thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve  risks  and  uncertainties.  From  time  to  time,  the  Company  or its
representatives have made or may make forward-looking  statements,  orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Securities and Exchange Commission, or press releases or
oral statements made by or with the approval of an authorized  executive officer
of the Company. These forward-looking  statements,  such as statements regarding
anticipated future revenues, capital expenditures and other statements regarding
matters that are not historical facts, involve predictions. The Company's actual
results,  performance or achievements  could differ  materially from the results
expressed in, or implied by, these forward-looking  statements.  Potential risks
and  uncertainties  that could affect the  Company's  future  operating  results
include,  but are not limited to: (i) economic  conditions,  including  economic
conditions related to the computer industry; (ii) the availability of components
and parts from the  Company's  vendors at current  prices and levels;  (iii) the
intense competition in the markets for the Company's products and services; (iv)
the  Company's  ability to protect  its  intellectual  property;  (v)  potential
infringement claims against the Company for its software  development  products;
(vi) the Company's ability to obtain customer  maintenance  contracts at current
levels;  (vii) the Company's ability to develop,  market,  provide,  and achieve
market  acceptance  of new service  offerings to new and existing  clients;  and
(viii) Year 2000  compliance of the Company's  and other  vendors'  products and
related  issues,  including  impact of the Year 2000 problem on customer  buying
patterns.




                                      -16-
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth for the periods  indicated certain financial
data as a percentage of revenue and the  percentage  change in the dollar amount
of such data compared to the prior comparable period:
<TABLE>
<CAPTION>
                                         Percentage of Revenue         Percentage Increase (Decrease)
                                         ---------------------         ------------------------------
                                                                           Fiscal         Fiscal
                                           Fiscal Year Ended             1998 over      1999 over
                                                 June 30,                  Fiscal         Fiscal
                                   ---------------------------------
                                      1997       1998        1999           1997           1998
                                      ----       ----        ----         --------       --------
<S>                                   <C>        <C>         <C>            <C>            <C>
Revenue:
 System sales..................       61.9%      64.7%       57.3%          33.8%          (1.2)%
 Service and support...........       38.1       35.3        42.7           18.7           34.9
                                     -----      -----       -----
                                     100.0      100.0       100.0           28.0           11.5
                                     -----      -----       -----
Cost of revenue:
 System sales..................       34.7       34.5        29.9           27.1           (3.3)
 Service and support...........       18.8       18.4        19.4           25.7           17.3
                                     -----      -----       -----
                                      53.5       52.9        49.3           26.6            3.9
                                     -----      -----       -----
    Gross profit...............       46.5       47.1        50.7           29.7           20.1
                                     -----      -----       -----

Operating expenses:
 Sales and marketing...........       22.8       21.6        24.5           21.3           26.6
 Research and development......        8.2        8.2        11.2           27.0           52.8
 General and administrative....        6.7        6.1         5.8           16.6            6.3
                                     -----      -----       -----
    Total operating expenses...       37.7       35.9        41.5           21.7           29.1
                                     -----      -----       -----
    Operating income...........        8.8       11.2         9.2           64.0           (8.7)
Interest income................        1.0        0.7         0.6          (19.1)          (5.9)
    Income before income
    taxes......................        9.8       11.9         9.7           55.2           (8.6)
Provision for income taxes.....        3.5        4.3         3.2           56.2          (16.4)
                                     -----      -----       -----
    Net  income................        6.3%       7.6%       6.5%           54.7           (4.1)
                                    ======     ======     ======
</TABLE>



                                      -17-
<PAGE>

     Fiscal Year Ended June 30, 1999 Compared to Fiscal Year Ended June 30, 1998

     Revenue.  Revenue  increased by 11.5%, or $5,373,000,  from  $46,614,000 in
fiscal 1998 to  $51,987,000  in fiscal 1999.  System sales revenue  decreased by
1.2%, or $371,000,  from  $30,157,000  in fiscal 1998 to  $29,786,000  in fiscal
1999.  Such  decrease  was  attributable  primarily to the  reclassification  of
certain revenue items (application,  implementation and installation  consulting
services)  that were formerly  bundled into system sales in fiscal 1998.  Had it
not been for this reclassification, system sales revenue would have increased by
3.0%, or $915,000,  from  $30,157,000  in fiscal 1998 to  $31,072,000  in fiscal
1999.  This  decrease in systems sales was offset in part by the increase in the
number of systems  sold.  Service and support  revenue  increased  by 34.9%,  or
$5,744,000,  from $16,457,000 in fiscal 1998 to $22,201,000 in fiscal 1999. This
increase  was  attributable  primarily to an increase in the number of new users
who have entered into maintenance  contracts,  an increase in services performed
by the Company in connection with its educational  services department and sales
of consulting  services which were previously  included in system sales revenue.
However, had it not been for the  reclassification,  service and support revenue
would have only increased by 27.0%,  or $4,458,000,  from  $16,457,000 in fiscal
1998 to $20,915,000 in fiscal 1999.

     Gross profit. The Company's gross profit increased by 20.1%, or $4,415,000,
from  $21,954,000  in fiscal 1998 to  $26,369,000  in fiscal 1999.  Gross profit
margin  increased  from 47.1% of revenue in fiscal 1998 to 50.7% in fiscal 1999.
Gross profit from system sales increased by 1.1%, or $160,000,  from $14,093,000
in fiscal 1998 to $14,253,000 in fiscal 1999.  Gross profit margin  attributable
to system sales  increased  from 46.7% of system sales revenue in fiscal 1998 to
47.9% in fiscal 1999.  The increase in such gross profit and gross profit margin
were attributable  primarily to favorable sales mix, with a larger percentage of
revenue being derived from sales of the Company's  Prophet 21 Wholesale  product
and, to a lesser extent,  to increased sales of the Company's  optional software
offerings,  each of which carries higher margins.  Gross profit from service and
support revenue  increased by 54.1%,  or $4,255,000,  from $7,861,000 in 1998 to
$12,116,000  in 1999.  Gross profit margin  attributable  to service and support
revenue  increased  from 47.8% of service and support  revenue in fiscal 1998 to
54.6% in fiscal 1999.  The increase in such gross profit and gross profit margin
was  attributable  primarily  to an increase in the number of new users who have
entered into  maintenance  contracts,  an increase in services  performed by the
Company in connection  with the general  release of the Prophet 21 Wholesale and
Prophet 21 Acclaim  products,  and an  increase  in revenue  from the  Company's
education services.  These increases were offset in part by the costs associated
with increased staffing required by the Company's continued growth.

     Sales and marketing  expenses.  Sales and marketing  expenses  increased by
26.6%, or $2,681,000,  from  $10,078,000 in fiscal 1998 to $12,759,000 in fiscal
1999,   and   increased  as  a  percentage  of  revenue  from  21.6%  to  24.5%,
respectively. Such expenses increased in absolute dollars and as a percentage of
revenue  due  primarily  to  increased  compensation  expenses  associated  with
staffing and increased investment in marketing.

     Research  and  development  expenses.  Research  and  development  expenses
increased by 52.8%, or $2,011,000,  from $3,811,000 in fiscal 1998 to $5,822,000
in fiscal 1999,  and  increased  as a percentage  of revenue from 8.2% to 11.2%,
respectively.  Research and development

                                      -18-
<PAGE>

expenses  increased  in  absolute  dollars  and as a  percentage  of revenue due
primarily to an increase in salary  expenses and  professional  fees  associated
with the Company's new product release, Prophet 21 Wholesale.

     General and administrative  expenses.  General and administrative  expenses
increased by 6.3%, or $178,000,  from $2,839,000 in fiscal 1998 to $3,017,000 in
fiscal  1999,  and  decreased  as a  percentage  of  revenue  from 6.1% to 5.8%,
respectively.  Increases  in  compensation  expenses  were  offset  in  part  by
decreased  fees  paid  to  the  Company's  outside  professionals.  General  and
administrative  expenses  decreased  as a  percentage  of revenue as a result of
increased sales volume.

     Income  taxes.  The  Company's  effective  tax rate was  36.0% and 32.9% in
fiscal 1998 and 1999, respectively.

     Fiscal Year Ended June 30, 1998 Compared to Fiscal Year Ended June 30, 1997

     Revenue.  Revenue  increased by 28.0% or $10,211,000,  from  $36,403,000 in
fiscal 1997 to  $46,614,000  in fiscal 1998.  System sales revenue  increased by
33.8% or  $7,620,000,  from  $22,537,000 in fiscal 1997 to $30,157,000 in fiscal
1998. This increase was attributable primarily to sales of the Company's Prophet
21 Acclaim  product.  Also  contributing to the increase in system sales revenue
were sales of the  Company's  new  Wholesale  product,  which began in the Third
Quarter of Fiscal  1998 and,  to a lesser  extent,  the  increase in the sale of
optional Prophet 21 software.  Service and support revenue increased by 18.7% or
$2,591,000,  from $13,866,000 in fiscal 1997 to $16,457,000 in fiscal 1998. This
increase  was  attributable  primarily to an increase in the number of new users
who have entered into maintenance  contracts,  an increase in services performed
by the Company in connection with its new educational  services  department and,
to a lesser  extent,  sales of services  related to the  Company's new Wholesale
product.

     Gross profit. The Company's gross profit increased by 29.7%, or $5,027,000,
from  $16,927,000  in fiscal 1997 to  $21,954,000  in fiscal 1998.  Gross profit
margin  increased  from 46.5% of  revenue in fiscal  1997 to 47.1% of revenue in
fiscal 1998.  Gross profit from system sales  increased by 42.4%, or $4,196,000,
from  $9,897,000  in fiscal 1997 to  $14,093,000  in fiscal  1998.  Gross profit
margin attributable to system sales increased from 43.9% of system sales revenue
in fiscal 1997 to 46.7% in fiscal 1998.  The  increases in such gross profit and
gross profit margin were  attributable  primarily to the increased  sales of the
Company's  Prophet  21 Acclaim  product  and to the sales of the  Company's  new
Wholesale  product.  Gross profit from service and support revenue  increased by
11.8%, or $831,000,  from $7,030,000 in fiscal 1997 to $7,861,000 in 1998. Gross
profit margin  attributable to service and support revenue  decreased from 50.7%
of service  and  support  revenue in fiscal  1997 to 47.8% in fiscal  1998.  The
increase in such gross profit was  attributable  primarily to an increase in the
number of new users who have entered into maintenance contracts. The decrease in
such gross profit margin was attributable primarily to an increase in salary and
staffing expenses  associated with the Company's  education services  department
and Wholesale support division.

     Sales and marketing  expenses.  Sales and marketing  expenses  increased by
21.3%,  or $1,772,000,  from  $8,306,000 in fiscal 1997 to $10,078,000 in fiscal
1998, but decreased as a

                                      -19-
<PAGE>

percentage of revenue from 22.8% to 21.6%, respectively. Such expenses increased
in absolute dollars due primarily to increased  commission  expenses  associated
with the Company's  increased  sales,  and to a lesser extent,  increased  costs
associated  with the  Company's  annual User's  Conference.  Sales and marketing
expenses  decreased  as a percentage  of revenue as a result of increased  sales
volume.

     Research  and  development  expenses.  Research  and  development  expenses
increased by 27.0%, or $810,000, from $3,001,000 in fiscal 1997 to $3,811,000 in
fiscal 1998, but remained constant as a percentage of revenue at 8.2%.  Research
and  development  expenses  increased  in absolute  dollars due  primarily to an
increase in salary  expenses and  staffing.  Research and  development  expenses
remained  constant as a  percentage  of revenue as a result of  increased  sales
volume.  The  Company  also  capitalized   $1,565,000  in  software  development
expenditures during fiscal 1998.

     General and administrative  expenses.  General and administrative  expenses
increased by 16.6%, or $405,000, from $2,434,000 in fiscal 1997 to $2,839,000 in
fiscal  1998,  but  decreased  as a  percentage  of  revenue  from 6.7% to 6.1%,
respectively.  The  increase in absolute  dollars in general and  administrative
expenses  was due to  increases  in  compensation  expenses and fees paid to the
Company's outside professionals.  General and administrative  expenses decreased
as a percentage of revenue as a result of increased sales volume.

     Income  taxes.  The  Company's  effective  tax rate was  35.8% and 36.0% in
fiscal 1997 and 1998, respectively.


LIQUIDITY AND CAPITAL RESOURCES

     Since its inception,  the Company has funded its operations  primarily from
cash generated by operations and available  cash,  including funds raised in the
Company's  initial public  offering  completed in March 1994. The Company's cash
flow from (used by) operations was $5,773,000, ($638,000) and $3,448,000 for the
fiscal years ended June 30, 1997, 1998 and 1999, respectively.

     The Company's working capital was approximately $15,832,000 and $18,388,000
at June 30, 1998 and 1999, respectively.

     The Company  invested  $1,440,000,  $1,657,000  and  $1,714,000  in capital
equipment  and  leasehold  improvements  in fiscal  years  1997,  1998 and 1999,
respectively.  There are no other material  commitments for capital expenditures
currently  outstanding.  The Company also invested $1,565,000 and $0 in software
development costs which were capitalized  during the fiscal years ended June 30,
1998 and 1999.

     The Company does not have a significant  concentration  of credit risk with
respect to accounts  receivable due to the large number of customers  comprising
the Company's  customer base and their dispersion  across  different  geographic
regions. The Company performs on-going credit evaluations and generally does not
require collateral.  The Company maintains reserves for potential credit losses,
and, to date, such losses have been within the Company's expectations.

                                      -20-
<PAGE>

     In fiscal 1997, the Company's  Board of Directors  approved  resolutions to
repurchase  up to 600,000  shares of the  Company's  Common Stock in open market
purchases  not to exceed a purchase  price of $6.00 per share.  From the time of
such approval until the fourth  quarter of fiscal 1997, the Company  repurchased
an  aggregate  of  442,900  shares at a total cost of  $2,518,000.  In the third
quarter of fiscal 1999, the Company's Board of Directors approved resolutions to
repurchase the remaining  157,100  shares of the Company's  common stock in open
market  purchases not to exceed a purchase price of $13.00 per share,  including
commissions.  In the fourth quarter of fiscal 1999,  the Company  repurchased an
aggregate of 157,090 shares at a total cost of $1,496,000. Accordingly, to date,
the Company has  repurchased  an aggregate of 599,990  shares at a total cost of
$4,014,000.

     The Company  believes that available funds and the cash flow expected to be
generated  from  operations  will be adequate to satisfy its current and planned
operations for at least the next 24 months.

YEAR 2000 COMPLIANCE

     Historically,  certain computer programs have been written using two digits
rather  than four to define  the  applicable  year,  which  could  result in the
computer  recognizing a date using "00" as the year 1900 rather than 2000.  This
in turn,  could  result in major  system  failures  or  miscalculations,  and is
generally  referred to as the "Year 2000 Problem".  The Company believes that it
has  sufficiently  assessed its state of readiness with respect to its Year 2000
compliance. As the assessment was completed using internal personnel,  costs and
time for such personnel were not  specifically  tracked.  The Company,  however,
estimates that such costs were immaterial.

     There were no external costs  incurred by the Company  relating to its Year
2000  assessment.  Costs  incurred to date to address the Year 2000 problem have
been  immaterial and the Company does not believe that Year 2000 compliance will
result in material  investments  by the Company in the future.  The Company does
not believe that Year 2000 compliance will result in material investments by the
Company,  nor does the Company  anticipate  that the Year 2000 Problem will have
any adverse effects on the business  operations or financial  performance of the
Company.  The Company does not believe that it has any material  exposure to the
Year 2000 Problem with respect to its own information  systems and believes that
all  of its  business-critical  systems  correctly  define  the  Year  2000  and
subsequent years. There can be no assurance, however, that the Year 2000 Problem
will  not  adversely  affect  the  Company's  business,  operating  results  and
financial condition.

     Some of the Company's  older  products,  which are no longer sold,  are not
Year 2000 compliant,  however,  the Company offers  compliant  upgrades for such
products.  The Company  believes that each of its current  products is Year 2000
compliant, however, it has no control over whether software modification made by
third parties will be Year 2000  compliant.  There can be no assurance  that the
Company's  products  will not be  integrated  by the Company or its customers or
interact  with  non-compliant  software or other  products  which may expose the
Company to claims.  Additionally,  there can be no assurance that such potential
instances of  non-compliance  will not adversely affect the Company's  business,
operating results and financial condition. The

                                      -21-
<PAGE>

Company has  established  no reserve for auditing  its software  products or for
correcting Year 2000 compliance issues with such products.

     Although the Company  believes its  products are Year 2000  compliant,  the
purchasing  patterns of customers  and  potential  customers  may be affected by
issues  associated with the Year 2000 Problem.  As companies expend  significant
resources to correct their current data storage  solutions,  these  expenditures
may result in reduced  funds to purchase  products  such as those offered by the
Company. There can be no assurance that the Year 2000 Problem will not adversely
affect the  Company's  business,  operating  results  and  financial  condition.
Conversely,  the Year 2000  Problem  may cause  other  companies  to  accelerate
purchases,  thereby  causing an increase in  short-term  demand and a consequent
decrease in long-term demand for the Company's products.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Not applicable.

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 list of the financial  statements
filed herewith is found at "Item 14. Exhibits,  Financial  Statement  Schedules,
and Reports on Form 8-K."


ITEM 9.   CHANGES IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE.

     Not applicable.





                                      -22-
<PAGE>

                                    PART III


ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

     The information relating to the Company's directors,  nominees for election
as directors and executive  officers under the headings  "Election of Directors"
and "Executive  Officers" in the Company's  definitive  proxy  statement for the
1999 Annual Meeting of Stockholders is incorporated  herein by reference to such
proxy statement.


ITEM 11.     EXECUTIVE COMPENSATION.

     The discussion under the heading "Executive  Compensation" in the Company's
definitive  proxy  statement  for the 1999  Annual  Meeting of  Stockholders  is
incorporated herein by reference to such proxy statement.


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

     The discussion under the heading "Security  Ownership of Certain Beneficial
Owners and Management" in the Company's  definitive proxy statement for the 1999
Annual Meeting of Stockholders is incorporated herein by reference to such proxy
statement.


ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The  discussion  under  the  heading  "Certain  Relationships  and  Related
Transactions"  in the Company's  definitive  proxy statement for the 1999 Annual
Meeting  of  Stockholders  is  incorporated  herein by  reference  to such proxy
statement.




                                      -23-
<PAGE>

                                     PART IV


Item 14.       Exhibits, Financial Statement Schedule, and Reports on Form 8-K.

(a)   (1)      Financial Statements.

               Reference  is made  to the  Index  to  Financial  Statements  and
               Schedule on Page F-1.

(a)   (2)      Financial Statement Schedule.

               Reference  is made  to the  Index  to  Financial  Statements  and
               Schedule on Page F-1.

(a)    (3)     Exhibits.

               Reference is made to the Index to Exhibits on Page 27.

(b)            Reports on Form 8-K.

               No  reports on Form 8-K have been  filed  during the fiscal  year
               ended June 30, 1999.





                                      -24-
<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 15th day of
September, 1999.


                                             PROPHET 21, INC.



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



                                      -25-
<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.

         Signature                     Title                       Date
         ---------                     -----                       ----

/s/Charles L. Boyle, III       President, Chief Executive    September 15, 1999
--------------------------
  Charles L. Boyle, III        Officer and Director
                               (Principal Executive Officer)


/s/Thomas M. Giuliani          Chief Financial Officer and   September 15, 1999
--------------------------
  Thomas M. Giuliani           Treasurer (Principal
                               Financial and Accounting
                               Officer)

/s/John E. Meggitt, Ph.D.      Chairman of the Board and     September 15, 1999
--------------------------
  John E. Meggitt, Ph.D.       Director



/s/Dorothy M. Meggitt          Secretary and  Director       September 15, 1999
--------------------------
  Dorothy M. Meggitt



/s/Louis J. Cissone            Director                      September 15, 1999
--------------------------
  Louis J. Cissone



/s/Mark A. Timmerman           Director                      September 15, 1999
--------------------------
  Mark A. Timmerman






                                      -26-
<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*           Employment  Agreement  dated as of July 1, 1993  between the
                    Company  and  Neil  Jaffe.  (Incorporated  by  reference  to
                    Exhibit 10.4 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 April 20,
                    1995, such amendments filed herewith.

    10.4*           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.)

                                      -27-
<PAGE>

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

    10.5*           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.)

    10.6*           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.)

    10.7*           Indemnification  Agreement  dated  as of  December  6,  1993
                    between  the Company  and Thomas F. Ward.  (Incorporated  by
                    reference  to  Exhibit  10.9 to the  Company's  Registration
                    Statement  on Form S-1 (File Number  33-74276)  which became
                    effective on March 10, 1994.)

    10.8*           Indemnification  Agreement  dated  as of  December  6,  1993
                    between  the  Company  and  Neil  Jaffe.   (Incorporated  by
                    reference  to Exhibit  10.10 to the  Company's  Registration
                    Statement  on Form S-1 (File Number  33-74276)  which became
                    effective on March 10, 1994.)

    10.9*           Indemnification  Agreement  dated  as of  December  6,  1993
                    between the Company and  Richard  Hercus.  (Incorporated  by
                    reference  to Exhibit  10.11 to the  Company's  Registration
                    Statement  on Form S-1 (File Number  33-74276)  which became
                    effective on March 10, 1994.)

    10.10           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.)

    10.11           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.)

    10.12           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.)

    10.13           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.)

                                      -28-
<PAGE>
   Exhibit
     No.            Description of Exhibit
--------------      -----------------------

    10.14           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.)

    10.15*          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.)

    10.16*          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.)

    10.17*          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.)

    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+             Consent of PricewaterhouseCoopers LLP

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

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

    27.3+           Financial Data Schedule for the year ended June 30, 1997.

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

*       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.


                                      -29-
<PAGE>

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


                                                                          Page
                                                                          ----

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

Consolidated Balance Sheets as of
  June 30, 1998 and 1999...................................................F-3

Consolidated Statements of Operations for the
  years ended June 30, 1997, 1998 and 1999.................................F-4

Consolidated Statements of Stockholders'
  Equity for the years ended
  June 30, 1997, 1998 and 1999.............................................F-5

Consolidated Statements of Cash Flows for the
  years ended June 30, 1997, 1998 and 1999.................................F-6

Notes to Consolidated Financial Statements.................................F-7

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

Schedule II................................................................S-2





                                      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  sheets  and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows  present  fairly,  in all material  respects,  the  financial  position of
Prophet  21, Inc.  and its  Subsidiaries  as of June 30, 1999 and 1998,  and the
results of their  operations and their cash flows for each of the three years in
the period ended June 30, 1999, in conformity with generally accepted accounting
principles.  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 in  accordance  with
generally accepted auditing standards 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 our opinion.


PricewaterhouseCoopers LLP
August 11, 1999



                                      F-2
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                          (In Thousands, Except Shares)
<TABLE>
<CAPTION>
                                                                           JUNE 30,
                                                                 ---------------------------
                                                                    1998             1999
                                                                    ----             ----
                                     ASSETS
<S>                                                              <C>             <C>
Current assets
  Cash and cash equivalents..............................        $    2,206      $    2,520
  Marketable securities..................................             1,555           1,661
  Accounts receivable, net of allowance for
    doubtful accounts of $240 and $261, respectively.....            17,201          19,743
  Advanced billings......................................             2,016           2,140
  Inventories............................................             1,402             666
  Deferred income taxes..................................               203             156
  Prepaid and other current assets.......................               797           1,230
                                                                 ----------      ----------
     Total current assets................................            25,380          28,116
Long-term marketable securities..........................             2,825           3,175
Equipment and improvements, net..........................             2,887           3,100
Software development costs, net..........................             3,410           2,131
Other assets.............................................               113              35
                                                                 ----------      ----------
      Total assets.......................................        $   34,615      $   36,557
                                                                 ==========      ==========

                          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Accounts payable.......................................        $    3,690      $    2,737
  Accrued expenses and other liabilities.................             1,540           1,715
  Commissions payable....................................               808             708
  Taxes payable..........................................               668           1,206
  Profit sharing plan contribution payable...............               391             403
  Deferred income........................................             2,451           2,959
                                                                 ----------      ----------
     Total current liabilities...........................             9,548           9,728
                                                                 ----------      ----------

Deferred income taxes....................................             1,211             728
                                                                 ----------      ----------

Commitments and contingent liabilities

Stockholders' equity
  Preferred stock--$0.01 par value, 1,500,000 shares
    authorized; no shares issued or outstanding..........                --              --
  Common stock--$0.01 par value, 10,000,000 shares
    authorized; 4,153,642 and 4,193,603 shares issued,
    respectively; 3,710,742 and 3,593,613 outstanding,
    respectively.........................................                42              42
  Additional paid-in capital.............................            10,386          10,734
  Retained earnings......................................            15,946          19,339
  Treasury stock at cost, 442,900 and 599,990 shares.....            (2,518)         (4,014)
                                                                 ----------      ----------
     Total stockholders' equity..........................            23,856          26,101
                                                                 ----------      ----------
     Total liabilities and stockholders' equity..........        $   34,615      $   36,557
                                                                 ==========      ==========
</TABLE>

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


                                      F-3
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In Thousands, Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                YEAR ENDED JUNE 30,
                                                 ------------------------------------------------
                                                       1997             1998            1999
                                                       ----             ----            ----
<S>                                                  <C>              <C>             <C>
Revenue:
  System sales...............................        $22,537          $30,157         $29,786
  Service and support........................         13,866           16,457          22,201
                                                     -------          -------         -------
                                                      36,403           46,614          51,987
                                                     -------          -------         -------
Cost of revenue:
  System sales...............................         12,640           16,064          15,533
  Service and support........................          6,836            8,596          10,085
                                                     -------          -------         -------
                                                      19,476           24,660          25,618
                                                     -------          -------         -------
  Gross profit...............................         16,927           21,954          26,369
                                                     -------          -------         -------

Operating expenses:
  Sales and marketing........................          8,306           10,078          12,759
  Research and development...................          3,001            3,811           5,822
  General and administrative.................          2,434            2,839           3,017
                                                     -------          -------         -------
                                                      13,741           16,728          21,598
                                                     -------          -------         -------
    Operating income.........................          3,186            5,226           4,771
Interest income..............................            376              304             286
                                                     -------          -------         -------
Income before taxes..........................          3,562            5,530           5,057
Provision for income taxes...................          1,275            1,991           1,664
                                                     -------          -------         -------
Net income...................................        $ 2,287          $ 3,539         $ 3,393
                                                     =======          =======         =======
Basic earnings per share:
  Net income per share.......................        $  0.60          $  0.98         $  0.92
                                                     =======          =======         =======
  Weighted average common shares
     outstanding.............................          3,813            3,601           3,705
                                                     =======          =======         =======
Diluted earnings per share:
  Net income per share.......................        $  0.60          $  0.90         $  0.85
                                                     =======          =======         =======
  Weighted average common and common
     equivalent shares outstanding
                                                       3,838            3,928           3,990
                                                     =======          =======         =======
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                      F-4
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                         Additional                                Total
                                        Common Stock      Paid-In     Retained     Treasury     Stockholders'
                                       ------------
                                     Shares     Amount    Capital     Earnings       Stock         Equity
                                     ------     ------    -------     --------     --------     -------------
<S>           <C> <C>                 <C>       <C>       <C>          <C>         <C>            <C>
Balance, June 30, 1996..........      4,002     $  40     $ 8,821      $10,120     $    --        $ 18,981
Repurchase of common stock......       (443)                                        (2,518)         (2,518)
Stock option transactions.......                               14                                       14
Net income......................                                         2,287                       2,287
                                     ------     -----     -------      -------     -------        --------
Balance, June 30, 1997..........      3,559        40       8,835       12,407      (2,518)         18,764
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
Net income......................                                         3,539                       3,539
                                     ------     -----     -------      -------     -------        --------
Balance, June 30, 1998..........      3,711        42      10,386       15,946      (2,518)         23,856
Repurchase of common stock......       (157)                                        (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
Net income......................                                         3,393                       3,393
                                     ------     -----     -------      -------     -------        --------
Balance, June 30, 1999..........      3,594     $  42     $10,734     $ 19,339     $(4,014)       $ 26,101
                                     ======     =====     =======     ========     =======        ========
</TABLE>

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

                                      F-5
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                 Year Ended June 30,
                                                        --------------------------------------
                                                              1997           1998          1999
                                                              ----           ----          ----
<S>                                                         <C>            <C>           <C>
 Cash flows from operating activities:
 Net income...........................................      $ 2,287        $ 3,539       $ 3,393
                                                            -------        -------       -------
 Adjustments to reconcile net income to
  net cash provided (used) by operating activities:
   Depreciation and amortization......................        1,047          1,778         2,677
   Gain on sale of equipment..........................          (13)            (3)          (2)
   Provision for losses on accounts receivable........          233            259           845
   Deferred taxes.....................................          693            334          (437)
 (Increases) decreases in operating assets:
   Accounts receivable................................         (243)        (7,266)       (3,387)
   Advanced billings..................................         (133)           (38)         (124)
   Inventories........................................          429           (285)          736
   Prepaid expenses and other current assets..........          181           (360)         (433)
 Increase (decreases) in operating liabilities:
   Accounts payable...................................          445            323          (953)
   Accrued expenses...................................          407            634            75
   Taxes payable......................................          197             48           538
   Profit sharing plan contribution payable...........           40            101            12
   Deferred income....................................          203            298           508
                                                            -------        -------       -------
   Total adjustments..................................        3,486         (4,177)           55
                                                            -------        -------       -------
 Net cash provided (used) by operating activities.....        5,773           (638)        3,448
                                                            -------        -------       -------
 Cash flows from investing activities:
   Net purchases of equipment and improvements........       (1,440)        (1,657)       (1,714)
   Software development costs.........................       (1,813)        (1,565)           --
   Purchase of marketable securities..................       (5,550)        (2,975)       (2,600)
   Maturity of marketable securities..................        4,540          5,470         2,250
   Other assets.......................................           26            126            78
                                                            -------        -------       -------
 Net cash used by investing activities................       (4,237)          (601)       (1,986)
                                                            -------        -------       -------
 Cash flows from financing activities:
   Purchase of treasury stock.........................       (2,518)            --        (1,496)
   Stock option transactions..........................          (49)            49            --
   Employee stock purchase plan.......................           --            101           262
   Stock options exercised including tax benefits.....           --          1,466            86
                                                            -------        -------       -------
 Net cash (used) provided by financing activities.....       (2,567)         1,616        (1,148)
                                                            -------        -------       -------
 Net (decrease) increase in cash and cash equivalents.       (1,031)           377           314
 Cash and cash equivalents at beginning of period.....        2,860          1,829         2,206
                                                            -------        -------       -------
 Cash and cash equivalents at end of period...........      $ 1,829        $ 2,206       $ 2,520
                                                            =======        =======       =======

 Supplemental cash flow disclosures:
   Income taxes paid..................................      $   395        $ 1,468       $ 1,528
                                                            =======        =======       =======
</TABLE>

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


                                      F-6
<PAGE>

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


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 amounts of revenue and expenses  during the
reporting  period.  Actual  results could differ from those  estimates.  Certain
items  in  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. At various times throughout the year, the
Company maintains cash balances in excess of FDIC limits.

     Marketable Securities:

     Marketable  securities  consist  primarily of governmental debt instruments
with an initial  maturity  of three  months or more.  The Company  accounts  for
investments in accordance with Statement of Financial Accounting Standards Board
("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.

     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-7
<PAGE>

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

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.   Leasehold
improvements  are amortized over the shorter of their estimated  useful lives or
remaining lease term. 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 income statement 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, 1998 and 1999  represents  amounts
billed in advance to customers  for  maintenance  in  accordance  with  contract
terms.

     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.



                                      F-8
<PAGE>

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


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     Capitalized Software:

     The Company  capitalizes  software  development costs associated with a new
product  pursuant  to SFAS No.  86.  Such  costs  were  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 is charged to cost of sales. At June 30,
1998 and 1999, the Company had capitalized $1,565 and $0 of software development
costs. All other research and development costs have been expensed.

     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.

     Net Income Per Share:

     In 1997,  the  Financial  Accounting  Standards  Board  issued SFAS No. 128
"Earnings  per Share"  ("SFAS  128")  which has  replaced  the former  rules for
earnings  per  share  computations,   presentation  and  disclosure.  Under  the
standard, basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares  outstanding  for the period.  Diluted  earnings  per share  reflects the
potential  dilution that could occur if  securities or other  contracts to issue
Common Stock were exercised or converted into Common Stock.  SFAS 128 requires a
dual  presentation  of basic and diluted  earnings  per share on the face of the
income statement.

     The Company  adopted SFAS 128 during 1998 and, as required by the standard,
has restated all prior period  earnings per share data.  The  Company's  diluted
earnings  per share  amounts as  calculated  under  SFAS 128 are not  materially
different from those computed under the former accounting standard.





                                      F-9
<PAGE>

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


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     The  following  table  sets  forth the  computation  of basic and  dilutive
earnings per share:
<TABLE>
<CAPTION>
                                                              YEARS ENDED,
                                                                JUNE 30,
                                                    1997           1998            1999
                                                    ----           ----            ----
<S>                                             <C>             <C>             <C>
Net Income..................................    $   2,287       $   3,539       $   3,393
Weighted average common shares outstanding..        3,813           3,601           3,705
Basic earnings per share...............         $    0.60       $    0.98       $    0.92
Effect of dilutive securities:
  Stock Options.............................           25             327             285

Weighted average common and common
 equivalent shares outstanding..............        3,838           3,928           3,990
Diluted earnings per share..................    $    0.60       $    0.90       $    0.85
</TABLE>



2.  EQUIPMENT AND IMPROVEMENTS:

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

                                                                JUNE 30,
                                                         ----------------------
                                                            1998         1999
                                                            ----         ----

Equipment...........................................     $  2,123     $  2,042
Computer systems....................................        5,196        6,554
Furniture and fixtures..............................          929        1,051
Leasehold improvements..............................          627          771
                                                         --------     --------
                                                            8,875       10,418
Accumulated depreciation
 and amortization...................................       (5,988)      (7,318)
                                                         --------     --------
                                                         $  2,887     $  3,100
                                                         ========     ========

     Depreciation  and  amortization  expense of  $1,047,  $1,778 and $2,677 was
charged  to  operations  for the  years  ended  June 30,  1997,  1998 and  1999,
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, 1999 are:


                                      F-10
<PAGE>

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

3.  LEASING ARRANGEMENTS (CONTINUED):

FISCAL YEAR                RELATED PARTY       THIRD PARTY           TOTAL
-----------                -------------       -----------           -----

2000....................    $   446             $     39            $   485
2001....................        461                   40                501
2002....................        475                   13                488
2003....................        490                   --                490
                            -------             --------            -------
                            $ 1,872             $     92            $ 1,964
                            =======             ========            =======


        Rent expense, including related party transactions,  for the years ended
June 30, 1997, 1998 and 1999 was $539, $542 and $537, respectively.


4.  INCOME TAXES:

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

                                                YEAR ENDED JUNE 30,
                                     ------------------------------------------
                                         1997          1998           1999
                                         ----          ----           ----
Federal:
  Current.........................      $  611        $1,559         $1,926
  Deferred........................         569           334           (395)
                                         -----         -----          -----
                                         1,180         1,893          1,531
                                         -----         -----          -----
State:
  Current.........................           2            98            175
  Deferred........................         124            --            (42)
                                         -----         -----          -----
                                           126            98            133
                                         -----         -----          -----
Foreign:
  Current.........................         (31)           --             --
                                         -----         -----          -----

                                        $1,275        $1,991         $1,664
                                         =====         =====          =====


     The income tax benefits related to the exercise of stock options  amounting
to $26 and $413 for 1999 and 1998, respectively,  reduce taxes currently payable
and is 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  classified  as current or  non-current
depending  on the  classification  of the assets and  liabilities  to which they
relate.



                                      F-11
<PAGE>


                              PROPHET 21, INC. AND SUBSIDIARIES
                        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



4.  INCOME TAXES (CONTINUED):

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


                                                         YEAR ENDED JUNE 30,
                                                  ------------------------------

                                                   1997        1998        1999
                                                   ----        ----        ----
Statutory tax rate............................       34%         34%         34%
State taxes, net of Federal benefit...........        2           1           3
Prior period tax..............................        3          --          --
Non-deductible expense........................       (1)          1          --
Other.........................................       (2)         --          (4)
                                                  -----       -----       -----
                                                     36%         36%         33%
                                                  =====       =====       =====





                                      F-12
<PAGE>

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


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. Amounts giving rise to deferred
income taxes are as follows:


                                                                    June 30,
                                                            --------------------
                                                               1998        1999
Current deferred tax assets:
  Allowance for doubtful accounts......................     $    88      $   99
  Accrued vacation.....................................          89          45
  Inventory capitalization.............................          26          12
                                                            -------      ------
                                                                203         156

Non-current deferred tax asset:
  Depreciation.........................................          46          88

Non-current deferred tax liability:
  Software development costs...........................      (1,257)       (816)
                                                            --------     -------

     Total.............................................     $(1,008)     $ (572)
                                                            =======      =======



5.  RELATED PARTY TRANSACTIONS:

     The Company rents 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, 1997, 1998 and 1999 was $452, $467 and $481, respectively.



                                      F-13
<PAGE>

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

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, 1997, 1998 and 1999.

     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, 1997, 1998 and 1999 were $290, $378 and $380 respectively.


8.  STOCKHOLDERS' EQUITY:

     Preferred Stock:

     The Company has an authorized  class of 1,500,000 shares of Preferred Stock
which  may be  issued  by the  Board of  Directors  on such  terms and with such
rights, preferences and designations as the Board may determine.

     Stock Option Plan:

     Under the Company's 1993 Stock Plan (the "Plan"),  the Company has reserved
1,000,000   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


                                      F-14
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


8.  STOCKHOLDERS' EQUITY (CONTINUED):

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   granted  stock  options  in  1995  under  the  Plan  in  the  form  of
non-qualified stock options.

     The Company  applies APB Opinion No. 25,  "Accounting  for Stock  Issued to
Employees" ("APB25") 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 methods
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 and
1999 are required by SFAS 123 and are presented below.

     The Company granted stock options in 1997, 1998 and 1999 for employees. The
stock options granted in 1997, 1998 and 1999 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 grant date. The options  granted
in 1997,  1998  and 1999  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 1997, 1998 and 1999.





                                      F-15
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


8.  STOCKHOLDERS' EQUITY (CONTINUED):

     A summary of the status of the Company's stock options as of June 30, 1997,
1998 and 1999 and the changes during the years then ended is presented below:

<TABLE>
---------------------------------------------------------------------------------------------
<CAPTION>
                                                            Exercise Price        Weighted
                                               Shares(1)      Per Share            Average
---------------------------------------------------------------------------------------------
<S>                                             <C>         <C>                      <C>
Options outstanding at June 30, 1996            572,500     $4.125 to $7.00          $6.27

                             Granted            140,000               $5.25          $5.25
                            Canceled            (15,000)     $5.00 to $7.00          $6.71
---------------------------------------------------------------------------------------------

Options outstanding at June 30, 1997            697,500     $4.125 to $7.00          $5.95

                             Granted             98,000     $8.50 to $15.25          $9.71
                            Canceled            (22,500)    $5.25 to $12.75         $11.92
                           Exercised           (136,600)     $4.75 to $7.00          $6.83
Non-qualified Options in 1997
                             Granted             10,000              $5.375         $5.375
---------------------------------------------------------------------------------------------

Options outstanding at June 30, 1998            646,400    $4.125 to $15.25          $6.14

                             Granted            125,000   $16.125 to $16.25         $16.19
                            Canceled             (3,500)            $16.125        $16.125
                           Exercised            (13,700)     $5.00 to $7.00          $6.72
---------------------------------------------------------------------------------------------

Options outstanding at June 30, 1999            754,200     $4.75 to $16.25          $7.91

Options exercisable at June 30,
                                1997            400,000     $4.125 to $7.00          $6.31
                                1998            332,580     $4.125 to $7.00          $5.83
                                1999            531,823    $4.125 to $15.25          $6.16
=============================================================================================
</TABLE>

(1)     Not reported in thousands




                                      F-16
<PAGE>

                        PROPHET 21, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


9.  STOCKHOLDERS' EQUITY (CONTINUED):

     The following  table  summarizes  information  concerning  outstanding  and
exercisable options as of June 30, 1999:
<TABLE>

---------------------------------------------------------------------------------------------------------
<CAPTION>
                                    OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE

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

                                        WEIGHTED      WEIGHTED AVERAGE                       WEIGHTED
      RANGE OF         NUMBER OF        AVERAGE        EXERCISE PRICE       NUMBER OF         AVERAGE
  EXERCISE PRICES      OPTIONS(1)    REMAINING LIFE                          OPTIONS      EXERCISE PRICE
---------------------------------------------------------------------------------------------------------
<S>                      <C>                <C>               <C>             <C>               <C>
    $4.125 to $6.00      321,700            6.81              $5.11           272,511           $5.08
     $7.00 to $8.50      303,000            5.35              $7.36           254,312           $7.14
   $15.25 to $16.25      129,500            9.04             $16.15             5,000          $15.25
---------------------------------------------------------------------------------------------------------
   $4.125 to $15.25      754,200            6.61              $7.91           531,823           $6.16
---------------------------------------------------------------------------------------------------------
(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:

                                                       JUNE 30,
                                     -------------------------------------------
                                         1997           1998           1999
                                     -----------    -----------    -----------
Net Income:          As reported        $2,287         $3,539         $3,393
                     Pro forma           2,200          3,317          3,212

Income per Share:    As reported         $0.60          $0.90          $0.85
                     Pro forma            0.57           0.84           0.81

     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 1999:  dividend  yield of  0.00%;
risk-free  interest rate of 5.47%;  the expected life of options is estimated to
be 4 years; and a volatility of 45.66% for all grants.

     The weighted  average fair value of options  granted during the fiscal year
of 1999 was $6.83.


                                      F-17
<PAGE>


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


9.  STOCKHOLDERS' EQUITY (CONTINUED):

     Stock Repurchase Program:

     In fiscal 1997, the Company's  Board of Directors  approved  resolutions to
repurchase  up to 600,000  shares of the  Company's  Common Stock in open market
purchases.  As of June 30, 1999, the Company had repurchased 599,990 shares at a
cost of $4,014.

     1997 Employee Stock Purchase Plan:

     In fiscal 1997, the Company's Board of Directors and shareholders  approved
the adoption of the 1997 Employee Stock Purchase Plan to make available  100,000
shares of the Company's Common Stock for purchase by the Company's employees. As
of June 30, 1999, the Company's  employees had purchased 40,803 shares at a cost
of $362.



                                      F-18
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


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


     Our report on the consolidated financial statements of Prophet 21, Inc. and
Subsidiaries  is included on page F-2 of this Form 10-K. In connection  with our
audits of such financial statements,  we have also audited the related financial
statement schedule listed in the index on page F-1 of this Form 10-K.

     In our opinion,  the financial  statement  schedule referred to above, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
present  fairly,  in all  material  respects,  the  information  required  to be
included therein.





PricewaterhouseCoopers LLP
August 11, 1999




                                       S-1
<PAGE>
                                                                   SCHEDULE II


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


Allowance for Doubtful Accounts
<TABLE>
<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>
  1997.................        $   209,397          $   232,660          $   223,946         $   218,111
  1998.................            218,111              259,404              237,515             240,000
  1999.................            240,000              845,054              824,063             260,991
</TABLE>








                                       S-2