<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q
(Mark One)
  X     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934

        For the quarterly period ended February 28, 1998

                                      OR

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

   For the transition period from ___________ to ____________

                            Commission File Number
                                    0-22703


                          GREAT PLAINS SOFTWARE, INC.
            (Exact name of registrant as specified in its charter)


           MINNESOTA                              45-0374871
(State or other jurisdiction of               (I.R.S. Employer
incorporation or organization)               Identification No.)




1701 S.W. 38TH STREET, FARGO, NORTH DAKOTA          58103
 (Address of principal executive offices)        (Zip Code)


                                (701) 281-0550
             (Registrant's telephone number, including area code)


   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

   Yes    X       No
       ----------    ----------

  As of March 16, 1998, the number of shares outstanding of the registrant's
Common Stock, par value $.01 per share, was 13,704,889.

<PAGE>

                        PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          GREAT PLAINS SOFTWARE, INC.

                     CONSOLIDATED CONDENSED BALANCE SHEET
                                (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                     February 28,        May 31,
                                                          1998             1997
                                                     ------------        -------
                                                      (unaudited)
<S>                                                  <C>                 <C>
Assets:
 Current assets:
  Cash and cash equivalents.......................        $16,923        $12,101
  Investments.....................................         54,899          4,142
  Accounts receivable, net........................          7,038          5,452
  Deferred income taxes...........................          3,718          3,279
  Other current assets............................          3,569          1,731
                                                          -------        -------
   Total current assets...........................         86,147         26,705

 Property and equipment, net......................          7,528          5,821
 Goodwill, net....................................            351            438
 Other assets.....................................          2,612            250
                                                          -------        -------
 Total assets.....................................        $96,638        $33,214
                                                          -------        -------
                                                          -------        -------

Liabilities and stockholders' equity (deficit)
 Current liabilities:
  Accounts payable................................        $ 2,979        $ 1,788
  Accrued expenses................................          8,488          7,811
  Deferred revenue................................         13,162         10,448
                                                          -------        -------
   Total current liabilities......................         24,629         20,047
                                                          -------        -------
                                                          -------        -------

 Long-term liabilities:
  Deferred tax liability..........................            838            746
                                                          -------        -------
   Total liabilities..............................         25,467         20,793

 Mandatorily redeemable convertible
  preferred stock.................................                        28,698

 Stockholders' equity (deficit):
  Convertible preferred stock.....................                           199
  Common stock....................................            137             81
  Additional paid-in capital......................         67,698        (13,843)
  Retained earnings (deficit).....................          3,336         (2,714)
                                                          -------        -------
   Total stockholders' equity (deficit)...........         71,171        (16,277)

 Total liabilities and stockholders'
   equity (deficit)...............................        $96,638        $33,214
                                                          -------        -------
                                                          -------        -------

</TABLE>

  See accompanying notes to the consolidated condensed financial statements.

                                      -2-

<PAGE>

                          GREAT PLAINS SOFTWARE, INC.

                  CONSOLIDATED CONDENSED STATEMENT OF INCOME
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                             Three Months Ended          Nine months Ended
                                                                February 28,                February 28,
                                                          1998              1997      1998                1997
                                                          ----------------------      ------------------------
                                                                (unaudited)                 (unaudited)
<S>                                                       <C>           <C>           <C>            <C>
Revenues:
 License............................................      $13,816        $ 9,224        $36,433        $24,357
 Service............................................        8,791          5,475         22,993         15,096
                                                          -------        -------        -------        -------
  Total revenues....................................       22,607         14,699         59,426         39,453

Cost of revenues:
 License............................................        3,266          1,832          7,855          4,552
 Service............................................        2,723          2,050          7,483          5,699
                                                          -------        -------        -------        -------
  Total cost of revenues............................        5,989          3,882         15,338         10,251
                                                          -------        -------        -------        -------
  Gross profit......................................       16,618         10,817         44,088         29,202

Operating expenses:
 Sales and marketing................................        8,416          5,702         22,325         15,416
 Research and development...........................        3,030          2,414          8,718          6,903
 General and administrative.........................        2,086          1,540          5,641          3,973
                                                          -------        -------        -------        -------
  Total operating expenses..........................       13,532          9,656         36,684         26,292
                                                          -------        -------        -------        -------

Operating income....................................        3,086          1,161          7,404          2,910
Other income, net...................................          878            103          2,681            305
                                                          -------        -------        -------        -------
Income before income taxes..........................        3,964          1,264         10,085          3,215
Income tax provision................................        1,587            470          4,035          1,220
                                                          -------        -------        -------        -------
  Net income........................................      $ 2,377        $   794        $ 6,050        $ 1,995
                                                          -------        -------        -------        -------
                                                          -------        -------        -------        -------

Basic net income per share                                $  0.17        $  0.06        $  0.46        $  0.12

Shares used in computing basic net income per share    13,626,934      7,755,385     13,269,032      7,489,826

Diluted net income per share                              $  0.17        $  0.08        $  0.43        $  0.20

Shares used in computing diluted net income per share  14,253,808     10,113,218     13,963,303      9,847,658

</TABLE>

   See accompanying notes to the consolidated condensed financial statements.

                                      -3-

<PAGE>

                           GREAT PLAINS SOFTWARE, INC.

                 CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                              Nine months ended February 28,
                                                                1998                  1997
                                                                ----                  ----
                                                            (unaudited)           (unaudited)
<S>                                                            <C>                   <C>
Cash flows from operating activities:
   Net income................................................  $  6,050               $ 1,995

 Adjustments to reconcile net income to net cash provided
 by operating activities:
  Depreciation and amortization..............................     2,019                 1,565
  Deferred taxes.............................................       239                 1,213

  Changes in operating assets and liabilities:
   Accounts receivable.......................................    (1,586)                  594
   Accounts payable..........................................     1,191                   427
   Accrued expenses..........................................       677                  (168)
   Deferred revenue..........................................     2,714                   727
   Other current assets......................................    (1,838)                 (668)
                                                                 ------                 -----
    Net cash provided by operating activities................     9,466                 5,685

Cash flows from investing activities:
 Purchase of property, plant and equipment and other assets..    (5,929)               (2,031)
  Purchase of investments....................................   (50,757)               (2,102)
                                                                 ------                 -----
   Net cash used by investing activities.....................   (56,686)               (4,133)

Cash flows from financing activities:
 Principal payments on long-term debt and capital
  leases obligations.........................................         -                  (847)
 Sale (repurchase) of stock..................................    50,243                   (54)
 Exercise of stock options...................................     1,799                 1,215
                                                                 ------                 -----
  Net cash provided (used) by financing activities...........    52,042                   314


Net increase in cash.........................................     4,822                 1,866

Cash at beginning of period..................................    12,101                 8,256
                                                                 ------                 -----

Cash at end of period........................................  $ 16,923               $10,122
                                                                 ------                 -----
                                                                 ------                 -----

</TABLE>

   See accompanying notes to the consolidated condensed financial statements.

                                      -4-

<PAGE>

                          GREAT PLAINS SOFTWARE, INC.

             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                  (UNAUDITED)


1.   Basis of Presentation

     The information at February 28, 1998 and 1997 and for the three and nine 
month periods then ended is unaudited, but includes all adjustments 
(consisting only of normal recurring adjustments) which the Company's 
management believes to be necessary for the fair presentation of the 
financial position, results of operations and changes in cash flows for the 
periods presented.  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 at the date of the financial statements and the reported amounts 
of revenues and expenses during the reported period.  Despite management's 
best effort to establish good faith estimates and assumptions, actual results 
may differ.

     The accompanying interim financial statements should be read in 
conjunction with the financial statements and related notes included in the 
Company's Annual Report on Form 10-K for the year ended May 31, 1997. Certain 
information and footnote disclosures normally included in annual financial 
statements prepared in accordance with generally accepted accounting 
principles have been condensed or omitted as permitted by rules and 
regulations of the Securities and Exchange Commission.  Interim results of 
operations for the three and nine month periods ended February 28, 1998 are 
not necessarily indicative of operating results for the full fiscal year.

2.   Earnings per Share

     In February 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" 
("SFAS No. 128"). SFAS No.128 applies to entities with publicly held common 
stock or potential common stock and is effective for financial statements 
issued for periods ending after December 15, 1997. Under SFAS No. 128, the 
presentation of primary earnings per share is replaced with a presentation of 
basic earnings per share.  SFAS No. 128 requires dual presentation of basic 
and diluted earnings per share for entities with complex capital structures.  
Basic earnings per share includes no dilution and is computed by dividing net 
income available to common stockholders by the weighted average number of 
common shares outstanding for the period.  Diluted earnings per share 
reflects the potential dilution of securities that could share in the 
earnings of an entity, similar to fully diluted earnings per share. All 
earnings per share amounts for all periods have been presented, and where 
necessary, restated to conform with the provisions of  SFAS No. 128.

                                      -5-

<PAGE>

The following table sets forth the computation of basic and diluted net 
income per share:

<TABLE>
<CAPTION>

(In thousands except per share amounts)                    For the three months          For the nine months
                                                            ended February 28,            ended February 28,
                                                           1998           1997           1998          1997
<S>                                                   <C>            <C>            <C>             <C>
Basic earnings per share computation

  Net income                                          $     2,377    $       794    $     6,050     $    1,995
  Increase to carrying value of
   mandatorily redeemable preferred stock                                   (359)             -         (1,076)
  Net income available to common stockholders               2,377            435          6,050            919

  Weighted average common shares                       13,626,934      7,755,385     13,269,032      7,489,826

Basic net income per share                            $      0.17    $      0.06    $      0.46     $     0.12

Diluted earnings per share computation

  Net income                                          $     2,377    $       794    $     6,050     $    1,995

  Shares calculation

  Weighted average number of common shares             13,626,934      7,755,385     13,269,032      7,489,826
  Weighted average of assumed conversion
   of mandatorily redeemable preferred stock                           1,847,627                     1,847,627
  Other common stock equivalents                          626,874        510,206        694,271        510,205
                                                       14,253,808     10,113,218     13,963,303      9,847,658

Diluted net income per share                          $      0.17    $      0.08    $      0.43     $     0.20

</TABLE>

                                      -6-

<PAGE>

3.   Initial Public Offering

     In June 1997, the Company sold 3,450,000 shares of common stock at a 
price of $16.00 per share in an initial public offering.  The initial public 
offering generated more than $50 million of proceeds to the Company.  As a 
result of the initial public offering, the Series A Preferred Stock and the 
Series B Preferred Stock were converted to common stock. In connection with 
the initial public offering, certain other resolutions of the Company's Board 
of Directors became effective, including authorization of a four-for-three 
stock split of the issued and outstanding shares of the Company's common 
stock, in the form of a stock dividend, which was issued immediately prior to 
the initial public offering.  All references to common stock amounts, shares 
and per share data have been adjusted to give retroactive effect to the stock 
split.

4.   Acquisitions

     During the quarter ending November 30, 1997,  the Company acquired all 
of the outstanding capital stock of its Singapore distributor in a 
transaction that was accounted for as a pooling of interests.  In exchange 
for capital stock, the Company issued 56,250 shares of the Company's common 
stock. Financial data for the periods prior to the closing of this 
transaction has not been restated because neither the net assets nor 
operating results would have been material to the Company's consolidated 
financial statements.

     In December 1997, the Company acquired its South African distributor in 
a transaction that was accounted for as a purchase.  Pro forma information is 
not presented as it is not deemed material.

                                      -7-

<PAGE>

                          GREAT PLAINS SOFTWARE, INC.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

     The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Condensed Financial Statements and Notes thereto.

RESULTS OF OPERATIONS

     The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items reflected in the Company's
consolidated condensed statement of income.

<TABLE>
<CAPTION>

                                            Three Months Ended    Nine Months Ended
                                               February 28,         February 28,
                                            1998         1997     1998         1997
                                            -----------------     -----------------
As a percentage of total revenues
<S>                                         <C>        <C>        <C>        <C>
 Revenues:
 License.................................    61.1%      62.8%      61.3%      61.7%
 Service.................................    38.9       37.2       38.7       38.3
                                            -----      -----      -----      -----
  Total revenue..........................   100.0      100.0      100.0      100.0

 Cost of revenues:
 License.................................    14.4       12.5       13.2       11.5
 Service.................................    12.0       13.9       12.6       14.5
                                            -----      -----      -----      -----
  Total cost of revenues.................    26.4       26.4       25.8       26.0
                                            -----      -----      -----      -----

  Gross margin...........................    73.6       73.6       74.2       74.0

 Operating expenses:
  Sales and marketing....................    37.3       38.8       37.6       39.1
  Research and development...............    13.4       16.4       14.7       17.5
  General and administrative.............     9.2       10.5        9.4       10.0
                                            -----      -----      -----      -----
   Total operating expenses..............    59.9       65.7       61.7       66.6
                                            -----      -----      -----      -----

 Operating income........................    13.7        7.9       12.5        7.4
 Other income, net.......................     3.8         .7        4.5         .8
                                            -----      -----      -----      -----
 Income before income taxes..............    17.5        8.6       17.0        8.2
 Income tax provision....................     7.0        3.2        6.8        3.1
                                            -----      -----      -----      -----
   Net income............................    10.5%       5.4%      10.2%       5.1%
                                            -----      -----      -----      -----
                                            -----      -----      -----      -----

</TABLE>

                                      -8-

<PAGE>

REVENUES

   REVENUES.   Revenues for the quarter ended February 28, 1998 were $22.6 
million, representing an increase of 53.8% over revenues of $14.7 million for 
the quarter ended February 28, 1997. This increase in revenues was primarily 
due to increased demand for the Company's Dynamics C/S+ and Dynamics products 
(together, the "client/server products") and related service fees. In 
addition, during the quarter ended February 28, 1998, revenues from the 
Company's heritage products increased slightly as compared to the quarter 
ended February 28, 1997. Revenues for the nine months ended February 28, 1998 
were $59.4 million, representing an increase of 50.6% over revenues of $39.5 
million for the nine months ended February 28, 1997. This increase in 
revenues was primarily a result of increased demand for the Company's 
client/server products. Revenues from the Company's heritage products were 
$8.0 million for the nine months ended February 28, 1998, consistent with the 
$8.0 million for the nine months ended February 28, 1997.  Heritage revenues 
did not decline in the most recent nine month period due to strong demand 
from heritage customers for upgrades to the Company's heritage product, 
upgrades which were released in February 1997 and December 1997.

   The following tables set forth for the periods indicated client/server and 
heritage product revenues, each as a percentage of total revenues:

<TABLE>
<CAPTION>

                                 Three Months Ended February 28,
                                      1998           1997
                                    --------       --------
<S>                                 <C>            <C>
Client/server product revenues....     86.1%          80.1%
Heritage product revenues.........     13.9%          19.9%

</TABLE>

<TABLE>
<CAPTION>

                                 Nine months ended February 28,
                                      1998           1997
                                    --------       --------
<S>                                 <C>            <C>
Client/server product revenues....     86.6%          79.9%
Heritage product revenues.........     13.4%          20.1%

</TABLE>

    Client/server product revenues, including license and service fees, were 
$19.5 million for the quarter ended February 28, 1998, representing an 
increase of 65.2% over client/server product revenues of $11.8 million for 
the quarter ended February 28, 1997. For the nine months ended February 28, 
1998, client/server product revenues were $51.4 million, an increase of 63.3% 
over the $31.5 million in client/server product revenues for the nine months 
ended February 28, 1997. This increase in revenues was primarily the result 
of an increase in new customer licenses as well as increased revenues from 
maintenance and telephone support contracts due to an increased base of 
client/server customers.

   Heritage product revenues, including license and service fees, were $3.1 
million for the quarter ended February 28, 1998, representing an increase of 
7.8% from revenues of $2.9 million for the quarter ended February 28, 1997. 
This increase in heritage product revenues was primarily due to an increase 
in the sale of upgrades to the Company's installed base of heritage customers 
offset, in part, by a decrease in the number of new heritage customer 
licenses. In December 1997, the Company shipped a new heritage product 
upgrade, Great Plains Accounting for Windows. In addition to sales of this 
upgrade, demand continued for the Company's Great Plains Accounting Version 9 
upgrade, which shipped in February 1997. For the nine months ended February 
28, 1998, heritage product revenues were $8.0 million compared with heritage 
product revenues of $8.0 million for the nine months ended February 28, 1997. 
Heritage product revenues remained consistent for the nine months ended 
February 28, 1998 due to strong demand for the latest upgrades to the 
Company's heritage product, which released in February 1997 and December 
1997. The Company anticipates that heritage product revenues will decrease in 
future periods where the Company does not experience strong demand for 
existing or new upgrades from its installed base of heritage customers.

   The Company's international revenues increased to $3.2 million for the 
quarter ended February 28, 1998, representing 14.3% of total revenues and 
compared to $1.9 million for the quarter ended February 28, 1997.  This 
increase was primarily a result of growth in existing markets, including 
growth in the Company's subsidiary operations in the United Kingdom, 
Australia, and Singapore as well as revenues from a new subsidiary in South 
Africa.

                                      -9-

<PAGE>

International revenues for the nine months ended February 28, 1998 were $8.7 
million, representing an increase of 55.7% over international revenues of 
$5.6 million for the nine months ended February 28, 1997. This increase is 
primarily a result of growth in existing international markets including its 
international subsidiaries. In December 1997, the Company opened an 
international subsidiary in South Africa to serve Partners and customers 
throughout Africa.

   LICENSE.  Total license fee revenues for the quarter ended February 28, 
1998 were $13.8 million, representing an increase of 49.8% over license 
revenues of $9.2 million for the quarter ended February 28, 1997. This 
increase in total license fees was largely attributable to increased market 
acceptance and demand for the Company's Windows NT client/server product 
offerings, Dynamics and Dynamics C/S+. In addition, demand for product 
upgrades to the Company's heritage product was strong in the quarter. For the 
nine months ended February 28, 1998, license fee revenues were $36.4 million, 
representing an increase of 49.6% over the $24.4 million in license revenues 
for the nine months ended February 28, 1997. This increase was primarily a 
result of an increased number of new client/server customer licenses as well 
as strong demand from heritage customers for the latest upgrades to the 
Company's heritage product.

   SERVICE.   Service revenues for the quarter ended February 28, 1998 were 
$8.8 million, representing an increase of 60.6% over service revenues of $5.5 
million for the quarter ended February 28, 1997. Service revenues for the 
nine months ended February 28, 1998 were $23.0 million, representing an 
increase of 52.3% over service revenues of $15.1 million for the nine months 
ended February 28, 1997. These increases in service revenues were largely a 
result of the service revenues associated with new client/server licenses as 
well as renewals of existing maintenance and support contracts from the 
increased installed base of client/server customers. Service revenues as a 
percentage of total revenues were 38.9% for the three months ended February 
28, 1998 compared with 37.2% of total revenues for the three months ended 
February 28, 1997. For the nine months ended February 28, 1998 and 1997, 
service revenues as a percentage of total revenues were 38.7% and 38.3%, 
respectively.

COSTS AND EXPENSES

   COST OF LICENSE FEES.   Cost of license fees consists primarily of the 
costs of product manuals, media, shipping and royalties paid to third-party 
vendors. Cost of license fees for the quarter ended February 28, 1998 
increased to $3.3 million from $1.8 million in the quarter ended February 28, 
1997, representing 23.6% and 19.9% of total license fee revenues, 
respectively. Cost of license fees for the nine months ended February 28, 
1998 increased to $7.9 million from $4.6 million in the nine months ended 
February 28, 1997, representing 21.6% and 18.7% of total license fee 
revenues, respectively. The dollar increase in cost of license fees in the 
quarter and nine months ended February 28, 1998 is primarily attributable to 
the overall growth in license fee revenues, and an increase in royalties paid 
to third-party vendors.  The increase in cost of license fees as a percentage 
of total license fee revenues is primarily attributable to an increase in the 
sale of product for which the Company is obligated to pay royalties to 
third-party vendors. The cost of license fees as a percentage of license fee 
revenues may increase if the Company continues to add third-party vendors or 
if sales which include third-party products increase as a percentage of total 
revenues.

   COST OF SERVICES.   Cost of services consists of the costs of providing 
telephone support, training and consulting services to the Company's 
customers and distribution channel.  Cost of services for the quarter ended 
February 28, 1998 increased to $2.7 million from $2.1 million for the quarter 
ended February 28, 1997, representing 31.0% and 37.4% of total service 
revenues, respectively. Cost of services for the nine months ended February 
28, 1998 increased to $7.5 million from $5.7 million for the nine months 
ended February 28, 1997, representing 32.5% and 37.8% of total service 
revenues, respectively. These increases in cost of services was primarily due 
to the expansion of the Company's service resources.  Cost of services as a 
percentage of service revenues decreased for the quarter and nine months 
ended February 28, 1998 compared to the same periods last fiscal year. This 
decrease was primarily a result of improved efficiency and continued strong 
customer enrollment in maintenance plans and support contracts.  The Company 
anticipates that cost of services will increase in dollar amount as service 
revenues increase and may decrease slightly as a percentage of service 
revenues.

   SALES AND MARKETING.   Sales and marketing expenses consist primarily of 
salaries, commissions, travel and promotional expenses.  Sales and marketing 
expenses increased to $8.4 million for the quarter ended February 28, 1998 
compared with $5.7 million for the quarter ended February 28, 1997, 
representing 37.3% and 38.8% of total revenues, respectively.  Sales and 
marketing expenses for the nine months ended February 28, 1998 increased to 
$22.3 million 

                                     -10-

<PAGE>

from $15.4 million for the nine months ended February 28, 1997, representing 
37.6% and 39.1% of total revenues, respectively. The increase in sales and 
marketing expenses for both the quarter and nine months ended February 28, 
1998 is attributable to the hiring of additional sales and marketing 
personnel, increased commission expenses associated with higher revenue, 
continued investments in expanding the capacity and capability of the channel 
for its Windows NT client/server products, and increased marketing expenses 
for the Company's client/server products.  In addition, the Company increased 
sales and marketing expenses related to the operation of its international 
subsidiaries in the United Kingdom, Australia, Singapore and South Africa. 
The decrease in sales and marketing expenses as a percentage of total 
revenues for the quarter and nine months ended February 28, 1998 compared to 
the same periods in the last fiscal year was primarily a result of increased 
productivity in the Company's Partner channel. The Company anticipates that 
sales and marketing expenses will increase in dollar amount as total revenues 
increase; however, the Company does not anticipate significant changes in 
sales and marketing expenses as a percent of total revenues.

   RESEARCH AND DEVELOPMENT.  Research and development expenses consist 
primarily of compensation of development personnel and depreciation of 
equipment. Total research and development expenses were $3.0 million for the 
quarter ended February 28, 1998 compared with $2.4 million for the quarter 
ended February 28, 1997, representing 13.4% and 16.4% of total revenues, 
respectively. For the nine months ended February 28, 1998, total research and 
development expenses were $8.7 million, compared with $6.9 million for the 
nine months ended February 28, 1997, representing 14.7% and 17.5% of total 
revenues, respectively. Research and development expenditure increases were 
primarily attributable to increases in the Company's salary cost for software 
engineers and the infrastructure costs required to support product 
development initiatives in the following areas: (i) expansion and enhancement 
of the Company's client/server product offerings, (ii) research and 
development of Internet-based products which enhance the functionality of the 
Company's financial management solutions, and (iii) additional research and 
development to optimize the Company's client/server products for the latest 
technologies. Research and development expenses have decreased as a percentage 
of total revenues in the most recent quarter and nine month period due to 
efficiencies gained through greater experience levels among development 
personnel, even greater automation in the Company's development testing 
processes, and additional efficiencies gained through an increased research 
and development focus on Microsoft technologies.  The Company anticipates 
that it will continue to devote substantial resources to its research and 
development effort and that research and development expenses will increase 
in dollar amount in future periods and may increase as a percentage of  
revenues.

   GENERAL AND ADMINISTRATIVE.   General and administrative expenses consist 
primarily of salaries of executive, financial, human resources and 
information services personnel as well as outside professional fees.  General 
and administrative expenses for the quarter ended February 28, 1998 were $2.1 
million, compared with $1.5 million for the quarter ended February 28, 1997, 
representing 9.2% and 10.5% of total revenues, respectively. For the nine 
months ended February 28, 1998, general and administrative expenses were $5.6 
million, compared with $4.0 million for the nine months ended February 28, 
1997, representing 9.4% and 10.0% of total revenues, respectively. These 
increases in dollar amounts were primarily due to increased staffing to 
support the growth of the company as well as increased professional fees 
related to the requirements of being a publicly held company  The Company 
believes that its general and administrative expenses will increase in dollar 
amount in the future to support the expansion of its operations and as a 
result of expenses associated with being a publicly held company.  In 
addition, the Company anticipates that its rent expense will increase in 
future years due to its expected move into a new facility late in fiscal 1999.

   OTHER INCOME, NET.  Other income, net consists primarily of earnings from 
investments, net of any interest expense.  Other income, net increased to 
$0.9 million for the quarter ended February 28, 1998, compared with $0.1 
million for the quarter ended February 28, 1997. For the nine months ended 
February 28, 1998, other income, net increased to $2.7 million from $0.3 
million for the nine months ended February 28, 1997. The increase in dollar 
amount for the quarter and nine months ended February 28, 1998 was primarily 
from increased investment earnings due to increased investment levels as a 
result of the more than $50 million received from the Company's initial 
public offering of common stock in June 1997, as well as additional cash 
resulting from the Company's increased profitability.

     PROVISION FOR INCOME TAXES.   The Company's income tax provision for the 
quarter ended February 28, 1998 was $1.6 million, compared with $0.5 million 
for the quarter ended February 28, 1997. The Company's income tax provision 
for the nine months ended February 28, 1998 was $4.0 million, compared with 
$1.2 million for the nine months ended February 28, 1997.  The provision 
for income taxes was 40% of income before income taxes for the 

                                     -11-

<PAGE>

quarter and nine months ended February 28, 1998, which represents a 2% 
increase from the fiscal 1997 annual effective income tax rate of 38% as a 
result of full state statutory tax rates.  In addition, this increase in the 
provision for income taxes is primarily attributable to the increased 
operating income and interest income for the Company for the quarter and nine 
months ended February 28, 1998, compared with the quarter and nine months 
ended February 28, 1997.

                                     -12-

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

   The Company has historically funded operations primarily through cash 
provided by operations and the sale of equity securities and, to a lesser 
extent, from borrowings.  Currently, the Company meets its working capital 
needs and capital equipment needs with cash provided by operations.

   Cash provided by operating activities for the nine months ended February 
28, 1998 was $9.5 million, compared with $5.7 million for the nine months 
ended February 28, 1997.  The increase in cash provided by operations for the 
nine months ended February 28, 1998, was primarily due to increased 
profitability of the Company's operations, an increase in deferred revenues 
and an increase in accounts payable and accrued expenses offset, in part, by 
an increase in accounts receivable.

   The Company's investing activities used cash of $56.7 million for the nine 
months ended February 28, 1998, compared with $4.1 million for the nine 
months ended February 28, 1997.  The principal use of cash in investing 
activities for the nine months ended February 28, 1998 was approximately $50 
million for the purchase of investments following the Company's initial 
public offering of common stock.  In addition, investing activities for the 
nine months ended February 28, 1998 included increased capital expenditures 
related to the acquisition of computer equipment required to support 
expansion of the Company's operations. Investing activities also included 
investment in minority interest positions in certain international operations.

   The Company's financing activities provided cash of $52.0 million during 
the nine months ended February 28, 1998, compared with cash provided of $0.3 
million for the nine months ended February 28, 1997. For the nine months 
ended February 28 1998, cash provided by financing activities primarily 
included $50.2 million from the sale of the Company's common stock in an 
initial public offering and $1.8 million from the exercise of stock options. 
For the nine months ended February 28, 1997, cash provided from financing 
activities consisted primarily of proceeds received from the exercise of 
stock options offset in part by payments on capital lease obligations and 
notes payable.

     The Company's sources of liquidity at February 28, 1998 consisted 
principally of cash, cash equivalents and investments of $71.8 million.  This 
amount includes approximately $50.2 million in cash generated from the 
Company's initial public offering of common stock which was completed on June 
25, 1997.  The Company also has a $10.0 million revolving line of credit 
facility with a bank.  The line of credit expires in November 1998 and 
borrowings made thereunder are subject to certain covenants.  No amounts were 
outstanding under the line of credit at February 28, 1998.  The Company 
believes that its existing cash, cash equivalents and investments, cash 
generated from operations and the amounts available under the line of credit 
will be sufficient to fund its operations for the foreseeable future.

     The Company is actively engaged in researching any issues presented by 
the Year 2000 that may impact the Company's internal systems. These potential 
issues result from the use of two-digit year dates rather than four-digit 
year dates in computer code, which could cause potential failures in 
date-sensitive software systems that do not recognize "00" as 2000. The 
Company does not anticipate that Year 2000 issues will materially impact its 
operations. In addition, recent versions of the Company's client/server and 
heritage products are Year 2000 compliant. The Company does not anticipate 
any material impact on its revenues or earnings as a result of Year 2000 
issues.

RECENTLY ISSUED ACCOUNTING STANDARDS

     The American Institute of Certified Public Accountants has approved a new 
Statement of Position (SOP), SOP 97-2, which will supersede Statement of 
Position 91-1, "Software Revenue Recognition."  SOP 97-2 will be effective 
for the Company in Fiscal 1999. Management has assessed this new statement 
and believes that its adoption will not have a material effect on the timing 
of the Company's revenue recognition or cause changes to its revenue 
recognition policies.

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION

   The foregoing Management's Discussion and Analysis of Financial Condition 
and Results of Operations contains certain forward-looking statements within 
the meaning of Section 27A of the Securities Act of 1933, as amended, and 
Section 21E of the Securities Exchange Act of 1934, as amended.  These 
forward-looking statements represent the Company's expectations or beliefs, 
including, but not limited to, statements concerning the Company's operations 
and financial performance and condition.  For this purpose, any statements 
contained in this Form 10-Q that are not statements of historical fact may be 
deemed to be forward-looking statements.  The Company cautions that these 
statements by their nature involve risks and uncertainties, certain of which 
are beyond the Company's control, and actual results may differ materially 
depending on a variety of important factors, including those described in 
Exhibit 99.1 to the Company's Annual Report on Form 10-K for the fiscal year 
ended May 31, 1997.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   Not applicable.

                                     -13-

<PAGE>

                          PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

   None.


ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

   None.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

   None.


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

   None.

ITEM 5.   OTHER INFORMATION

   None.

                                     -14-

<PAGE>

  ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

   (a)  Exhibits

        27.1  Financial Data Schedule


   (b)  Reports on Form 8K

   No reports on Form 8K were filed during the quarter ended February 28, 1998.

                                     -15-

<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

Date:  March 17, 1998

                                GREAT PLAINS SOFTWARE, INC.



                                By /s/ Douglas J. Burgum
                                   -------------------------------------------
                                Douglas J. Burgum
                                Chairman of the Board, President and
                                     Chief Executive Officer



                                By /s/ Terri F. Zimmerman
                                   -------------------------------------------
                                Terri F. Zimmerman
                                Chief Financial Officer and Group Vice
                                     President, Finance and Operations
                                     (principal financial and accounting 
                                     officer)

                                     -16-

<PAGE>

                                   EXHIBIT INDEX

     27.1  Financial Data Schedule

                                     -17-