<PAGE>
                                       
                                 UNITED STATES
                        SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549

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

                   For the fiscal year ended May 31, 1997

                                        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 Identification No.)
incorporation or organization)

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)

       Securities registered pursuant to Section 12(b) of the Act:  None
    Securities registered pursuant to Section 12(g) of the Act: Common Stock,
                           par value $.01 per share

    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      No  X
                                                     ---     ---

    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. /X/

    The aggregate market value of Common Stock, par value $.01 per share, 
held by non-affiliates of the registrant as of August 11, 1997 was 
approximately $157,916,525 (based on the last sale price of such stock as 
quoted on the Nasdaq National Market ($25.00) on such date).

    As of August 11, 1997, the number of shares outstanding of the 
registrant's Common Stock, par value $.01 per share, was 13,402,842.

                    DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the registrant's Proxy Statement dated August 20, 1997 for 
the 1997 Annual Meeting of Shareholders are incorporated by reference into 
Part III of this Annual Report on Form 10-K (the "Form 10-K Report").



<PAGE>

                                    PART I

ITEM 1.  BUSINESS

GENERAL

    Great Plains Software, Inc. (the "Company")  is a leading provider of 
Microsoft Windows NT client/server financial management software for 
mid-sized businesses. The Company's award-winning products and services 
automate essential accounting functions and enhance the strategic value of 
financial information. The Company's products and services are sold and 
implemented exclusively by its extensive network of independent sales and 
support organizations throughout the United States, Canada and select 
international markets.

    The Company's client/server product lines, Dynamics C/S+ and Dynamics, 
consist of a suite of financial and distribution applications, such as 
general ledger, accounts receivable, accounts payable, payroll and sales 
order and purchase order processing, and a suite of development and 
customization tools. The Company's client/server products are designed to 
meet the broad spectrum of financial management needs of the corporate market 
or midmarket (the "Midmarket"), which generally consists of mid-sized 
businesses with $1 million to $250 million in revenues and 10 to 2,500 
employees.

    In order to meet the needs of the Midmarket, the Company designs, 
develops, markets, sells and supports client/server products that are 
cost-effective, scalable and easy to customize and use. The Company's 
client/server products are optimized  for Microsoft technologies, most 
notably Windows NT, Windows 95 and SQL Server, which are increasingly 
becoming the standard in the Midmarket. Moreover, by utilizing emerging 
Internet technologies, the Company's financial management systems provide 
employees throughout a business with quick, cost-effective and 
security-enhanced access to information, and facilitate order placement and 
sharing of business information with key customers and suppliers.

    The Company has made a significant investment in building an experienced, 
knowledgeable and highly motivated domestic and international service and 
distribution network, which consists of value added resellers (VARs), systems 
integrators, Big Six and other accounting firms, independent software vendors 
(ISVs) and specialized software consultants (together, the "Partners"). 
Through its Partner network, the Company provides customers with trained and 
knowledgeable software professionals who are available locally to implement 
its systems as well as provide ongoing service and support. Most of the 
Partners customize the Company's systems to fit individual business needs, 
and some Partners develop software applications that integrate with and 
extend the functionality of the Company's products to meet the requirements 
of specific industries.

    The Company believes that prompt and effective service and technical 
support are essential elements of a complete financial management software 
solution and dedicates significant resources to delivering timely, reliable 
and cost-effective service to its customers and Partners. The Company has 
received numerous industry awards for its customer and Partner service.

    The Company was founded in 1981 and was incorporated as a Minnesota 
corporation in 1983.

INDUSTRY BACKGROUND

    In recent years, businesses of all sizes have been subjected to 
heightened competitive pressures and rapidly changing market conditions. 
These pressures and conditions have challenged businesses to increase the 
speed with which they make decisions, establish closer relationships with 
customers and suppliers, raise the productivity of employees throughout the 
business and reduce costs. Many mid-sized and larger businesses are meeting 
these challenges by leveraging the increased functionality, flexibility and 
access to information offered by financial management systems based on 
client/server technologies.



<PAGE>

    In the past, information technology architectures, particularly the 
centralization of information on mainframe systems and minicomputers, 
prevented businesses from using their financial management systems for 
purposes other than maintaining financial records and processing accounting 
transactions. These systems were based on a centralized processing and 
reporting model which was inflexible and did not allow effective integration 
with other systems or ready access to information.

    With the advent of client/server technologies, however, businesses are 
better able to use information from their financial management systems to 
respond to rapidly changing market conditions. The acceptance of 
client/server systems has been driven by their ability to combine the ease of 
use and data accessibility of personal computers with the high-volume 
processing and data storage capabilities of minicomputer and mainframe 
systems. Client/server-based financial management systems offer real-time 
information access and distributed processing which enable businesses to 
increase the speed of decision making and enhance employee productivity. When 
integrated with Internet technologies, client/server systems provide 
employees throughout the business and key customers and suppliers with access 
to critical information.

    Businesses employing client/server financial management systems can 
generally be grouped into two market segments: (i) the Midmarket and (ii) the 
enterprise or high-end market (the "Enterprise Market"). The Midmarket 
generally consists of businesses with $1 million to $250 million in revenues 
and 10 to 2,500 employees. In contrast, the Enterprise Market generally 
consists of companies with revenues in excess of $250 million and more than 
2,500 employees. Although many Midmarket businesses have formal information 
technology (IT) departments, Midmarket companies typically have fewer IT 
resources than Enterprise Market companies. In addition, whereas Midmarket 
businesses have historically employed financial management systems based on 
local area network (LAN) technologies, minicomputers and mainframes, 
Enterprise Market companies have principally used mainframe financial 
management systems.

    Businesses in the Enterprise Market were the first to adopt client/server 
architecture as the standard for new implementations of financial management 
systems. More recently, businesses in the Midmarket have also begun to demand 
financial management systems based on client/server technology. However, 
client/server financial management systems designed for the Enterprise Market 
have not been widely implemented by Midmarket businesses because they are 
generally too complex and take too long and cost too much to implement. 
Furthermore, the implementation of client/server financial management systems 
designed for the Enterprise Market often requires significant business 
process re-engineering that is overly burdensome for Midmarket businesses, 
especially smaller Midmarket businesses.

MIDMARKET FINANCIAL MANAGEMENT SYSTEM NEEDS

    Midmarket businesses have a number of key business requirements that are 
different from those of Enterprise Market businesses. The Company believes 
that Midmarket businesses require a client/server financial management system 
that is cost-effective, designed for Microsoft technologies, easy to 
customize and use and scalable.

    Midmarket businesses generally have fewer IT resources than businesses in 
the Enterprise Market. As a result, these businesses require cost-effective 
software solutions from vendors that can provide a substantial amount of 
assistance during the software system selection and implementation process as 
well as ongoing local support and service. These businesses also require 
systems that can be rapidly implemented and are easy to learn, use and modify.


                                     -2-
<PAGE>

    In order to ensure ongoing compatibility, supportability and ease of 
maintenance, many Midmarket businesses are standardizing on Microsoft 
technologies, most notably Windows NT, Windows 95 and SQL Server. Many 
Midmarket businesses are requesting a financial management system that takes 
full advantage of Microsoft technologies. Systems that are 32-bit and native 
to Windows currently offer the optimal Microsoft-standard solution.

    Many Midmarket businesses experience rapid growth and have evolving 
business models. These businesses require financial management systems that 
can be customized quickly and cost-effectively to accommodate the constantly 
changing nature of their business systems and procedures. The Company 
believes that financial management systems must allow Midmarket businesses to 
easily modify windows, to integrate third-party solutions and to quickly 
write and seamlessly integrate custom applications.

    Finally, Midmarket companies require financial management systems that 
can be scaled up as their businesses grow. This requirement is best met by 
products that offer broad functionality and scalable processing capabilities, 
and that have an open and flexible architecture that can easily incorporate 
additional technologies, including Internet technologies which can extend the 
availability of information from the financial management system to employees 
across the business and to key customers and suppliers.

THE GREAT PLAINS SOFTWARE SOLUTION

    The Company designs, develops, markets, sells and supports its 
client/server financial management products based on the following principles:

    OPTIMIZE PRODUCTS FOR LEADING TECHNOLOGIES.  The Company has consistently 
focused on identifying leading technologies and integrating them into its 
products. In particular, the Company's products are designed for Microsoft 
technologies, including Windows NT, Windows 95, SQL Server, Internet 
Explorer, Internet Information Server, Visual Basic, Visual Basic for 
Applications and C++. The Company's products can also be integrated with 
technologies from other leading suppliers, such as Netscape, Citrix Systems, 
IBM and Novell.

    LEVERAGE PARTNER NETWORK.  The Company has made a significant investment 
in building an experienced and knowledgeable Partner network, which consists 
of VARs, systems integrators, Big Six and other accounting firms, ISVs and 
specialized software consultants. The Company's products are sold and 
implemented exclusively through its extensive network of Partners. The 
Company believes that its Partners have a significant influence over product 
choices by customers, and that the Company's relationships with its Partners 
are essential to the Company's success. Through its Partner network, the 
Company is able to provide customers with trained and knowledgeable software 
professionals who are available locally to implement its systems as well as 
provide ongoing service and technical support. Many of the Partners customize 
the Company's products to fit individual business needs and develop software 
applications that integrate with and extend the functionality of the 
Company's products.

    PROVIDE AWARD-WINNING SERVICE AND TECHNICAL SUPPORT.  The Company 
believes that prompt and effective service and technical support are 
essential elements of a complete financial management software solution, and 
dedicates significant resources to delivering timely, reliable and 
cost-effective service to its customers and Partners. The Company has 
received numerous industry awards for its customer and Partner service, 
including the 1996 Positive Performer Grand National Award for excellence in 
customer service from Inc. magazine and MCI Communications.


                                     -3-
<PAGE>

    MEET BROAD SPECTRUM OF MIDMARKET NEEDS.  The Company's client/server 
product lines, Dynamics C/S+ and Dynamics, are designed to meet the broad 
spectrum of financial management needs of the Midmarket. Dynamics C/S+ is 
designed for businesses in the Midmarket that have high volume processing 
requirements, complex financial management needs and formal IT departments. 
Dynamics is designed for Midmarket businesses that need a Windows 
client/server solution that is cost-effective and flexible, but does not 
require IT personnel dedicated to database administration. The Company's 
customers can upgrade from Dynamics to Dynamics C/S+ as their businesses grow 
and financial management software needs evolve.

    ENABLE RAPID IMPLEMENTATION, EASE OF USE AND CUSTOMIZATION. The Company 
has designed its software for rapid implementation. The Company's products, 
which are based on the Windows-interface standard, are easy to learn and use. 
The Company also offers a suite of tools that allow its customers and 
Partners to easily modify and create windows and reports, to integrate 
third-party solutions and to quickly write and seamlessly integrate custom 
applications. In addition, customers and Partners can accomplish similar 
customization using industry-standard, third-party tools, such as Microsoft 
Visual Basic and Visual Basic for Applications, Crystal Reports and FRx 
financial report writer.

    IMPROVE INFORMATION ACCESS.  The architecture and design of the Company's 
client/server products allow customers to quickly and easily access real-time 
information. Instead of having to print and analyze reports to locate data, 
customers can use the extensive "drill down" capabilities of the products to 
gain online access to information contained throughout the financial 
management system. In addition, customers can easily transfer information 
from the Company's client/server products to desktop applications, such as 
Microsoft Word and Excel, for analysis and dissemination.

    INTEGRATE AND LEVERAGE INTERNET TECHNOLOGIES.  The Company's products 
employ Internet technologies to facilitate financial reporting, analysis and 
communication both within an organization and with its customers and 
suppliers. In addition, Dynamics.Order, one of the Company's electronic 
commerce solutions, allows customers of Midmarket businesses to place and 
track orders over the Internet. The Company believes that enabling easy, 
cost-effective and security-enhanced communication and information sharing 
among employees as well as facilitating order placement with customers are 
important elements of a Midmarket financial management system.

STRATEGY

    The Company's strategy is to extend its position as a leading provider of 
Microsoft Windows NT client/server financial management systems to the 
Midmarket. The following are the key elements of the Company's strategy:

    EXTEND TECHNOLOGY LEADERSHIP.  The Company has a strong record of 
technical innovation and leadership and intends to continue to invest in the 
development of new technologies and products. The Company's client/server 
product lines, Dynamics C/S+ and Dynamics, were among the first financial 
management systems in the Midmarket to receive Microsoft Windows 95 (Dynamics 
C/S+ and Dynamics) and Microsoft BackOffice (Dynamics C/S+) logo compliance 
(recognition from Microsoft that they meet the development criteria for 
Windows 95 as well as Microsoft BackOffice technologies, including Windows NT 
and SQL Server). In addition, the Company's client/server products have 
received industry awards, including an Editors' Choice Award from PC Magazine 
and a Reviewers' Choice Award from Personal Computing Magazine in the United 
Kingdom. The Company believes that


                                     -4-
<PAGE>

its client/server architecture is well-suited for the ongoing integration of 
new technologies.  The Company maintains a research team dedicated to 
assessing new and emerging technologies. In addition, the Company intends to 
maintain its leadership in providing customization capabilities that are 
essential to businesses in the Midmarket.

    EXPAND AND STRENGTHEN PARTNER NETWORK.  The Company believes that its 
Partner network has been able to penetrate the Midmarket by providing 
high-quality, cost-effective marketing, sales and service. Through its 
channel development and recruiting efforts, as well as its training, 
certification and performance recognition programs, the Company intends to 
continue to expand and strengthen this network. For example, the Company 
recently instituted a program, Center for Organizational Excellence (CORE), 
which offers Partners increased training, service and support to help them 
develop and expand their businesses. The program also provides product and 
curricula offerings to colleges and universities designed to increase the 
number of graduates familiar with the Company's products. The Company also 
hosts a number of business and technology conferences each year, including 
"Stampede," an annual three-day Partner conference in Fargo, where the 
Company is headquartered, that had over 1,000 Partner participants in 1996.

    CONTINUE AWARD-WINNING SERVICE AND TECHNICAL SUPPORT.  The Company 
believes that prompt and effective service and technical support are 
essential elements of a complete financial management software system and are 
vital to maintaining customer and Partner satisfaction. The Company has 
received numerous industry awards for its customer and Partner service, and 
continues to invest in its support infrastructure. For example, the Company 
is expanding its existing Internet-based technical support to customers and 
Partners. The Company believes that its initiatives will further increase the 
timeliness and effectiveness of its service and technical support.

    SUPPORT DOS-BASED PRODUCTS AND MIGRATE CUSTOMERS TO CLIENT/SERVER.  The 
Company intends to continue to support customers who use its DOS-based 
product, Great Plains Accounting, and to offer specialized pricing programs 
and tools to migrate these customers to its client/server products. In 
addition, the Company has developed and is marketing migration tools for 
moving customers from competitors' DOS-based accounting systems to its 
client/server financial management systems.

    EXPAND GLOBAL PRODUCT OFFERING AND INFRASTRUCTURE.  The Company currently 
sells its products through international Partners and subsidiaries located in 
the United Kingdom and Australasia to markets in the following geographic 
regions: Western and Eastern Europe, Australasia, Southern Africa, the Middle 
East and Southeast Asia. The Company's client/server products have been sold 
in approximately 50 countries. The Company intends to expand its global 
infrastructure by entering into additional international distribution 
agreements, acquiring certain existing distributors and pursuing the 
acquisition of related software products or companies.

    MAINTAIN GREAT PLAINS SOFTWARE VALUES.  Great Plains Software is deeply 
committed to developing and sustaining long-term relationships with its 
Partners, customers, employees and suppliers. The Company has been built on a 
Mission Statement and a set of Shared Values that express this commitment. 
The Company believes that a continued commitment to its Mission Statement and 
these values results in higher employee, customer and Partner satisfaction.


                                     -5-
<PAGE>

-------------------------------------------------------------------------------
                   Great Plains Software Mission Statement

    To improve the life and business success of Partners and Customers by
    providing  superior financial management software, services and tools.

                     Great Plains Software Shared Values

    We must:

    1.   Foster a close relationship with our Partners and Customers that will
         result in a better understanding of what they are experiencing;

    2.   Encourage innovation, independent action, team spirit and personal
         growth in all employees;

    3.   Ensure that everything we do reflects exceptional levels of quality;
         and

    4.   Demonstrate high integrity in all business relationships.

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

TECHNOLOGY

    The Company's products leverage key Microsoft technologies and are based 
on the following strategies:

    32-BIT OPTIMIZATION FOR WINDOWS NT AND WINDOWS 95.  The Company's 
client/server products are 32-bit applications optimized for Windows NT and 
Windows 95, and are among the few financial management systems that can be 
integrated with Visual Basic for Applications, which the Company has licensed 
from Microsoft. In addition, as 32-bit applications, the Company's 
client/server products are among the few financial management systems that 
support Windows NT on both the desktop and the server, which maximizes the 
performance and fault tolerance capabilities of Windows NT.

    MICROSOFT SQL SERVER OPTIMIZATION.  Dynamics C/S+ is optimized for the 
latest releases of Microsoft SQL Server and includes stored procedures to 
enhance distributed processing, overall performance and data integrity. The 
Company's implementation of Microsoft SQL Server and Windows NT also enhances 
data accessibility and system scalability.

    NATIVE WINDOWS NT AND WINDOWS 95 IMPLEMENTATION.  The Company's 
client/server products are designed to take full advantage of Windows NT and 
Windows 95 capabilities, unlike "screen scraper" products that have a 
graphical interface grafted onto DOS-based or legacy software systems. The 
Company believes that its design philosophy has resulted in products that are 
easier to use and more intuitive because they adhere closely to the same 
interface standards as Windows desktop applications. Moreover, as native 
Windows applications, the Company's client/server products require less 
memory and enable more efficient multi-tasking than screen-scraper products.

    COMPONENTIZED FUNCTIONALITY.  The business rules, or financial logic, of 
the Company's products have been designed and developed into "logic 
components." This "componentization" or "object orientation" of the product 
allows the Company to use software code multiple times within a product and 
from product to product, increasing the speed with which new applications and 
product extensions


                                     -6-
<PAGE>

can be developed. The componentized architecture of the Company's products 
also allows Company and third-party applications to share a common user 
interface thereby creating a seamless and easy to use environment for 
customers. Moreover, the Company makes certain components available to ISV 
Partners, which facilitates their ability to integrate third party 
applications into the Company's client/server products.

    MULTI-TIER CLIENT/SERVER ARCHITECTURE.  The multi-tier client/server 
architecture of the Company's products enhances the processing flexibility 
and efficiency of its products by allowing processing to occur on the desktop 
computer, the application server or the database server. In addition, this 
architecture enhances scalability and deployment capabilities over wide area 
networks and the Internet.

    INTERNET INTEGRATION.  The Company has deployed and is continuing to 
develop Internet products to extend the availability of information from 
financial management systems to employees across the business and key 
customers and suppliers. The Company's client/server products take advantage 
of leading Internet technologies, including Microsoft Internet Explorer, 
Netscape Navigator, Microsoft Internet Information Server, FrontPage, ActiveX 
and Java.

PRODUCTS

    The Company's client/server product lines, Dynamics C/S+ and Dynamics, 
consist of a suite of financial and distribution applications and a suite of 
customization and development tools. The Company also offers a DOS- and 
Macintosh-based product, Great Plains Accounting.

    DYNAMICS C/S+

    First released in July 1994, Dynamics C/S+ is the Company's client/server 
financial management system for Midmarket businesses that have high volume 
processing requirements, complex financial management needs and formal IT 
departments. These businesses require the distributed processing and 
increased throughput delivered by Windows NT, Microsoft SQL Server and the 
multi-tier architecture of the Company's products. Dynamics C/S+ has received 
several industry awards and was one of the first client/server financial 
management systems to receive Microsoft Windows 95 and BackOffice logo 
compliance.

    DYNAMICS

    First released in February 1993, Dynamics is the Company's client/server 
financial management system for Midmarket businesses that need a Windows 
client/server solution that is flexible and cost-effective, but does not 
require IT personnel dedicated to database administration. Dynamics is built 
on the same foundation as Dynamics C/S+ and leverages leading Microsoft 
technologies, including Microsoft Windows 95, Windows NT and Visual Basic. 
Dynamics has received several industry awards and was one of the first 
client/server financial management applications to receive Windows 95 logo 
compliance.

    CLIENT/SERVER PRODUCT FUNCTIONALITY

    The Company's client/server product lines, Dynamics C/S+ and Dynamics, 
consist of a suite of financial and distribution applications and a suite of 
development and customization tools. These suites, which are offered across 
both product lines, address similar business needs yet provide features and 
technologies specifically designed for the distinct requirements of Dynamics 
C/S+ and Dynamics customers.


                                     -7-
<PAGE>

    The financial management solution offered with both client/server 
products automate the critical financial and distribution functions of 
Midmarket businesses. These applications can be grouped into two categories:

    FINANCIAL APPLICATIONS deliver such essential functionality as general
    ledger, accounts receivable, accounts payable, invoicing and payroll. In
    addition, one of the Company's Internet applications, Dynamics.View,
    provides employees across a business with access to financial information
    via a Web browser.

    DISTRIBUTION APPLICATIONS provide inventory management, sales order
    processing and purchase order processing. In addition, Dynamics.Order, the
    Company's electronic commerce application, allows customers of Midmarket
    businesses to place and track orders over the Internet.

    The Company's suite of development and customization tools, DynamicTools, 
allows customers and Partners to customize and extend the functionality of 
Dynamics C/S+ and Dynamics. Key tools in the DynamicTools suite are 
Dexterity, Modifier, Visual Basic for Applications, Report Writer, Continuum 
for Visual Basic and NetTools. Dexterity enables customers and third party 
developers to create applications that seamlessly integrate with, and have 
the same look and feel as, the Company's client/server applications. Modifier 
is used to customize windows and cursor navigation. The Company's 
implementation of Visual Basic for Applications, under license from 
Microsoft, allows the Company's client/server products to be integrated with 
customer-specific or industry-standard applications or easily customized to 
fit specific customer needs. Report Writer allows for the creation and 
modification of reports. Continuum for Visual Basic facilitates integration 
between the Company's client/server products and Microsoft Visual Basic 
applications through the use of wizards (online instruction guides) and 
point-and-click operations. NetTools facilitates the integration of the 
Company's client/server products with leading Internet technologies.

    GREAT PLAINS ACCOUNTING

    The Company's Great Plains Accounting product is available for DOS and 
Macintosh operating systems in LAN and single user environments. Great Plains 
Accounting includes a suite of financial applications that provides customers 
with a broad range of features and functions. The Company's most recent 
version of Great Plains Accounting, Version 9.0, released in February 1997, 
is marketed primarily to existing Great Plains Accounting customers. The 
Company is actively promoting the migration of its Great Plains Accounting 
customers to its client/server products. The Company's revenues from its 
Great Plains Accounting product have been declining, and the Company expects 
that these revenues will continue to decline in the future. See "Management's 
Discussion and Analysis of Financial Condition and Results of 
Operations--Revenues."

SALES AND MARKETING

    SALES.  The Company sells, implements and supports its products 
exclusively through its Partner network consisting of VARs, specialized 
software consultants, ISVs, systems integrators and Big Six and other 
accounting firms. The Company's Partners are independent organizations that 
perform some or all of the following functions: sales and marketing; systems 
implementation and integration; software development and customization; and 
ongoing consulting, training, service and technical support. In many 
instances, a Partner's primary source of income is derived from selling, 
implementing and supporting the Company's products.


                                     -8-
<PAGE>

    The Company believes that its Partners have a significant influence over 
product choices by customers and that its relationships with its Partners are 
an essential element in its marketing, sales and implementation efforts. 
Through its Partner network, the Company is able to provide customers with 
trained and knowledgeable software professionals who are available locally to 
implement its systems as well as provide ongoing service and support. Many of 
the Company's Partners customize the Company's systems to fit individual 
business needs and develop industry-specific software applications that 
integrate with and extend the functionality of the Company's products.

    The Company actively recruits Partners through channel development groups 
and has specialized strategies aimed at recruiting and supporting ISVs and 
accounting firms. Partners are required to undergo training and certification 
procedures before being authorized to sell and implement the Company's 
products and must maintain certain standards and sales volumes to retain such 
authorization.

    The Company has subsidiaries located in the United Kingdom and 
Australasia.  The Company also intends to acquire a distribution subsidiary 
in Singapore during the first half of fiscal 1998.  In addition, the Company 
has established cooperative relationships with several international Partners 
to further the international distribution of its products, which involves 
localizing and translating its products, locating and training qualified 
VARs, marketing its products and providing ongoing customer service and 
technical support. International Partners typically pay localization and 
translation costs for the Company's software in exchange for exclusive 
distribution rights, while the Company retains ownership of the localized 
version of the software. The Company and its international distributors have 
developed localized language versions of its client/server products, 
including Arabic, Polish, Russian, German and Portuguese, with a Spanish 
version expected to be released in fiscal 1998. In addition, the Company has 
developed localized versions for the United Kingdom, Australia, New Zealand, 
South Africa and French-speaking Canada. The Company's product architecture 
is designed to facilitate the translation, localization and maintenance of 
multilingual, multinational versions.

    The Company has recently entered into distribution arrangements in 
Western and Eastern Europe, Southern Africa, the Middle East and Southeast 
Asia.  The Company's international business may be affected by such factors 
as local economic and market conditions, political and economic instability, 
greater difficulty in administering operations, difficulties in enforcing 
intellectual property and contractual rights, difficulties in tailoring the 
Company's software products to fit local accounting principles, rules, 
regulations, language, tax codes and customs, fluctuations in currency 
exchange rates and the need for compliance with a wide variety of foreign and 
United States export regulations.

    MARKETING.  The Company is focused on building market awareness and 
acceptance of the Company and its products as well as on generating qualified 
customer and Partner leads. Customer leads are pursued by Partners with 
assistance from the Company's sales personnel.

    The Company has a comprehensive marketing strategy with several key 
components: image and awareness building, direct marketing to both 
prospective and existing customers, a strong Web presence, broad-scale events 
with strategic partners and local marketing with Partners. The Company's 
corporate image strategy includes national advertising in key financial, 
business and technology publications as well as Web-based advertising. The 
Company's direct marketing includes ongoing direct mail efforts to existing 
and prospective customers. For prospective customers, the Company also offers 
seminars and self-qualifying tools to assist them in selecting client/server 
financial management systems. Seminars are offered in conjunction with 
Partners in their local or industry-specific markets. The Company's Web-based 
marketing is designed to generate new leads for the Company. The Company 
increases product awareness by sponsoring large scale events and seminars for 
prospective


                                     -9-
<PAGE>

customers with key industry partners, such as Microsoft, Digital and IBM. 
Such events have included satellite product launch events and 
video-teleconference-based technical seminars. Finally, the Company's 
marketing strategy is designed to take advantage of the Company's Partner 
network by including cooperative marketing programs designed for Partners' 
local markets.

SEASONALITY

    The Company's business has experienced and may continue to experience 
seasonality.  In recent years, the Company has recognized a greater 
percentage of its revenue and operating income in its fourth fiscal quarter 
than in any of the first three fiscal quarters due to a number of factors, 
including the timing of product releases and the Company's sales incentive 
programs.  Moreover, due to generally diminished business activity in the 
summer quarter, and to the Company's fiscal year-end sales incentive 
programs, the Company has historically recognized less revenue and operating 
income in its first fiscal quarter than in the other quarters.

CUSTOMERS

    The Company's client/server products offer functionality and scalability 
to suit a wide range of Midmarket businesses, from fast-growing 
entrepreneurial businesses to divisions of large enterprises. In addition, 
the Company's client/server products, implemented alone or with an 
industry-specific third party application, have been purchased by companies 
in a wide variety of industry types, such as:

Advertising            Healthcare                            Non-Profit
Broadcasting           Hospitality                           Professional Sports
Computer Software      Information Services                  Publishing
Construction           Insurance and Financial Services      Retail
Distribution           Internet Software and Services        Telecommunications
Education              Manufacturing                         Transportation

CUSTOMER AND PARTNER SERVICE

    The Company believes that prompt and effective service and technical 
support is an important component of a complete financial management system 
and is critical to the long-term satisfaction of its customers and Partners. 
The Company has received numerous awards for its Partner and customer 
service, including the 1996 Positive Performer Grand National Award for 
excellence in customer service from Inc. magazine and MCI Communications.

    The Company was one of the first personal computer software providers to 
introduce fee-based support plans and guaranteed telephone response times. 
The Company also maintains profiles and detailed call histories on each of 
its customers and Partners. These profiles enable support personnel at the 
Company to respond more effectively to service inquiries, allow the Company 
to better forecast which customers are likely to purchase new products or 
upgraded versions of existing products and assist the Company in developing 
new applications and features that accurately address the needs of the 
marketplace.

    The Company provides service and technical support through a service 
organization consisting of 127 employees as of May 31, 1997. The Company 
provides a variety of training, technical support and service programs for 
customers which supplement the primary support provided by Partners. The 
Company offers video, teleconference and classroom training as well as 
technical support through a toll-free number, its Website and onsite 
consultations. Telephone support calls are handled by professional support 
personnel and have various guaranteed response times, depending on the type of


                                     -10-
<PAGE>

support plan purchased. Response times as short as 30 minutes are offered. In 
addition to its technical support programs, customers are offered software 
maintenance programs for an annual fee. These programs provide customers with 
product upgrades and online information and assistance. The Company also 
offers comprehensive training and product support to its Partners to ensure 
that they provide the necessary levels of technical support and assistance to 
customers. Finally, the Company offers its Partners a variety of consulting 
resources for resale to customers, including strategic implementation 
planning, project management and product customization.

RESEARCH AND DEVELOPMENT

    Since its inception, the Company has made substantial investments in 
research and development. During the fiscal years 1995, 1996, and 1997, 
software development expenses were approximately $9.3 million, $8.9 million, 
and $9.7 million respectively. As of May 31, 1997, the Company had 160 
employees engaged in research and development.

    The Company's research and development efforts employ a standard 
development process to guide software development through stages of product 
concept, market requirements analysis, product definition, design 
specification, coding, testing and release. These efforts are also focused on 
identifying, developing and integrating leading technologies into its 
products to better meet customer needs.

    The Company's software products are designed for Microsoft technologies, 
including Windows NT, Windows 95 and SQL Server. In addition, the Company's 
products utilize other Microsoft technologies, including Internet Information 
Server, FrontPage, Visual Basic and Visual Basic for Applications. 
Accordingly, the Company's strategy will require that the Company's products 
and technology be compatible with new developments in Microsoft's technology.

PRODUCTION

    The principal physical components of the Company's software products are 
computer media and manuals.  The Company prepares master software disks, 
manuals and packaging materials which are then duplicated by the Company and 
third party vendors.  To date, the Company has not experienced any material 
difficulties or delays in the manufacture and assembly of its products or 
material returns due to product defects.

INTELLECTUAL PROPERTY RIGHTS AND LICENSES

    The Company regards certain features of its internal operations, software 
and documentation as its intellectual property. The Company relies on a 
combination of contract, copyright, trademark and trade secret laws, a 
mandatory software registration mechanism and other measures to protect its 
intellectual property. The Company has no patents. The Company believes that, 
because of the rapid pace of technological change in the computer software 
industry, trade secret and copyright protection are less significant than 
factors such as the knowledge, ability and experience of the Company's 
employees, frequent product enhancements and the timeliness and quality of 
support services. It is the Company's policy to file for protection of its 
basic trademarks and service marks in countries in which the Company sells 
its products either directly or through its international Partners and in 
countries in which protection is advisable. Despite these measures there can 
be no assurance that the Company will be able to fully protect its 
intellectual property.


                                     -11-
<PAGE>

    The Company provides its products to customers on a "right-to-use" basis 
under non-exclusive licenses, which generally are nontransferable and have a 
perpetual term. The Company typically licenses its products solely for the 
customer's internal operations.

COMPETITION

    The market for the Company's products is highly competitive and rapidly 
changing. The Company's primary market consists of businesses in the 
Midmarket. The Company's current and prospective competitors offer a variety 
of solutions for this market. The Company experiences significant competition 
and expects substantial additional competition from established and emerging 
software companies that offer products similar to the Company's products and 
target the same customers as the Company. The Company believes it competes on 
the basis of (i) product features, functionality, performance and price, (ii) 
the capacity and capabilities of Partners, (iii) the quality of customer and 
Partner service and technical support, (iv) sales and marketing efforts, (v) 
new product and technology introductions, and (vi) company image and 
stability. The Company believes it competes effectively on each of these 
factors.

    In North America, the Company faces a number of competitors in the 
Midmarket.  Outside North America, the Company also faces competition from a 
number of competitors, several of which have significant shares in their home 
markets.  In addition, the Company competes for Midmarket business with 
companies primarily targeting the Enterprise Market; several of these 
competitors, which principally sell UNIX-based systems, offer or have 
announced their intention to deliver Windows NT solutions. The Company 
believes that the products from these competitors are neither designed nor 
priced to meet the needs of the Midmarket, and that the Company competes 
effectively against them in the Midmarket. The Company's products also face 
competition from providers of industry-specific applications as well as 
indirect competition from in-house, custom-developed financial management 
applications.

    Certain of the Company's competitors have substantially greater 
financial, marketing or technical resources than the Company. There can be no 
assurance that other companies have not developed or marketed or will not 
develop or market products that are superior to those of the Company, that 
are offered at substantially lower prices than those of the Company, or that 
have or will achieve greater market acceptance than those of the Company. In 
addition, there can be no assurance that alternative methods of delivering 
financial management systems will not provide increased competition.

EMPLOYEES

    As of May 31, 1997, the Company had a total of 561 full time equivalent 
employees ("FTEs"), including 327 FTEs in sales, marketing, technical support 
and consulting services, 160 FTEs in research and development and 74 FTEs in 
administration. None of the Company's employees are represented by a labor 
union. Management believes that its relations with the Company's employees 
are good.

    The Company believes that its continued success will depend in large part 
upon its ability to attract and retain highly-skilled technical, managerial, 
sales and marketing personnel.  The loss of services of one or more of the 
Company's key employees could have a materially adverse effect on the 
Company's business, operating results and financial condition. The Company 
intends to hire a significant number of additional sales, service and 
technical personnel in fiscal 1998. Competition for the hiring of such 
personnel in the software industry is intense, and the Company from time to 
time experiences difficulty in locating candidates with appropriate 
qualifications, particularly within the desired geographic location.  It is 
widely believed that the technology sector is at or over a state of full


                                     -12-
<PAGE>

employment.  There can be no assurance that the Company will be successful in 
attracting and retaining the personnel it requires to develop, market and 
support new or existing software.  The growth in the Company's customer base 
and expansion of its product lines and supported platforms have placed, and 
are expected to continue to place, a significant strain on the Company's 
management and operations, including its service and development 
organizations.

    Any failure to implement and improve the Company's operational, control, 
reporting, and management systems or to retain, expand, train, motivate or 
manage employees could have a materially adverse effect on the Company's 
business, operating results and financial condition.

FORWARD-LOOKING STATEMENTS

    The above Business section and other parts of the Form 10-K Report 
contain forward-looking statements that involve risk and uncertainties.  The 
Company's actual results may differ significantly from the results discussed 
in the forward-looking statements.  Factors that might cause such a 
difference include, but are not limited to, those contained above in this 
Item 1, he  Management's Discussion and Analysis of Financial Condition and 
Results of Operations" in Item 7 and Exhibit 99.1 to the Form 10-K Report.

EXECUTIVE OFFICERS

    The executive officers of the Company, their ages and positions and a 
brief biography of each individual are as follows:

Name                            Age                 Position
----                            ---                 --------
Douglas J. Burgum. . . . . .     41   Chairman of the Board, President and
Chief Executive Officer
Raymond A. August. . . . . .     35   Chief Technology Officer and Group
Vice President, Dynamics C/S+
Terri F. Zimmerman . . . . .     34   Chief Financial Officer and Group Vice
President, Finance and Operations
Michael J. Olsen . . . . . .     47   Group Vice President, Corporate
Communications
Steven K. Sydness. . . . . .     42   Group Vice President, Dynamics
Jodi A. Uecker-Rust. . . . . .   35   Group Vice President, Heritage Products
Brian R. Carey . . . . . . .     39   Vice President, Business Development
Michael A. Slette. . . . . .     40   Vice President, Human Resources and
Legal Affairs

    DOUGLAS J. BURGUM has served as President of the Company since March 
1984, Chief Executive Officer since September 1991 and Chairman of the Board 
since January 1996. Mr. Burgum was an early investor in the Company, and he 
initially served as Vice President and a director from March 1983 to March 
1984. Before joining the Company, Mr. Burgum was a management consultant in 
the Chicago office of McKinsey & Company, Inc. Mr. Burgum holds a B.U.S. from 
North Dakota State University and an M.B.A. from the Stanford University 
Graduate School of Business.

    RAYMOND A. AUGUST has served as Chief Technology Officer and Group Vice 
President, Dynamics C/S+ since June 1996. Previously, he served as Chief 
Technology Officer and Vice President of Product Strategy from June 1995 to 
June 1996 and Vice President of Product Development from June 1993 to June 
1995. Prior to joining the Company in October 1992, Mr. August was a Senior 
Manager in the Management Consulting Service Practice of Price Waterhouse LLP 
in New Jersey and New York. He holds a B.S. in Accounting and Computer 
Science from the University of South Carolina. Mr. August is a Certified 
Public Accountant.


                                     -13-
<PAGE>

    TERRI F. ZIMMERMAN has served as Chief Financial Officer since February 
1997 and Group Vice President, Finance and Operations since June 1996. 
Previously, she held the position of Vice President of Finance and Operations 
from June 1995 to June 1996. Ms. Zimmerman joined the Company as Director of 
Finance in September 1994. She was previously employed by Deloitte & Touche 
LLP in Minneapolis as a Senior Manager. Ms. Zimmerman holds a B.A. in 
Business Administration from the University of North Dakota. Ms. Zimmerman is 
a Certified Public Accountant.

    MICHAEL J. OLSEN has served as Group Vice President, Corporate 
Communications, since June 1996. Mr. Olsen served as Vice President of 
Corporate Communications from September 1995 to June 1996. From 1994 to 1995, 
Mr. Olsen was Senior Vice President of Himle Horner, Inc., a 
Minneapolis-based public relations agency. From 1987 to 1994, he was Vice 
President of Corporate Communications for National Car Rental System, an 
international car rental company. Prior to such time, he served in various 
Senior Public Affairs positions in Washington, D.C. Mr. Olsen holds a B.A. in 
Speech and Drama from North Dakota State University.

    STEVEN K. SYDNESS has served as Group Vice President, Dynamics since June 
1996. Mr. Sydness served as Vice President of Business Development from June 
1995 to June 1996, Vice President of Sales from June 1994 to June 1995 and 
Vice President of Strategic Planning from June 1993 to June 1994. From 
February to November of 1992, Mr. Sydness took a leave of absence from the 
Company during which he was a candidate for the United States Senate. Prior 
to joining Great Plains Software in January 1987, he was employed by Dr. 
Henry Kissinger Associates and the management consulting firm McKinsey & 
Company, Inc. in their New York and Tokyo offices. Mr. Sydness holds a B.A. 
from Principia College and an M.B.A. from Harvard Business School.

    JODI A. UECKER-RUST has served as Group Vice President, Heritage Products 
since June 1996. Ms. Uecker-Rust was Vice President of Employee Services from 
June 1995 to June 1996, Vice President of Operations, and later Vice 
President of Operations and Administration from July 1993 to June 1995 and 
Director of Operations from October 1990 to July 1993. Ms. Uecker-Rust joined 
the Company in 1984 after being employed by Honeywell Inc. in Minneapolis. 
She holds a B.S. in Industrial Engineering from North Dakota State University.

    BRIAN R. CAREY has served as Vice President of Business Development since 
July 1996. Mr. Carey was Vice President of Product Development from June 1995 
to June 1996. He was General Manager and later Vice President and General 
Manager of the Small Business Systems Unit of the Company from August 1992 to 
June 1995. Mr. Carey joined the Company in June 1989. Before such time, he 
was employed by First Interstate Bancorp, where he was Senior Vice President 
and Manager of the Retail Banking Division. Previously, Mr. Carey was 
employed by Xerox Corporation in Minneapolis as a Sales Executive. He holds a 
B.S. in Marketing from Moorhead State University.

    MICHAEL A. SLETTE has served as Vice President of Human Resources and 
Legal Affairs since June 1996. Mr. Slette was Vice President of Business 
Development and Legal Affairs from June 1995 to June 1996 and Vice President 
of Finance from June 1988 to June 1995. Mr. Slette joined the Company in 1982 
and, prior to such time, was employed by the Minneapolis-based accounting 
firm Adrian S. Helgeson & Co. He holds a B.A. in Business Administration and 
Accounting from Concordia College. Mr. Slette is a Certified Public 
Accountant.

ITEM 2.  PROPERTIES

    The Company's principal administrative, marketing, production and product 
development facilities consist of an aggregate of approximately 75,000 square 
feet at two locations in Fargo, North Dakota.  The Company occupies these 
sites under lease agreements that expire at various times through


                                     -14-
<PAGE>

June 1998. Total rent expense was approximately $894,000, $871,000, and 
$866,000 during fiscal 1995, 1996 and 1997, respectively. The Company is 
currently planning to consolidate its two locations into an expanded facility 
that is expected to be occupied by the Company in fiscal 1999. The Company 
expects to enter into a sale and leaseback transaction with respect to the 
new facility, which will be located on land to be acquired by the Company 
from a director of the Company. The Company expects that the new facility 
will result in increased rent expenses.

ITEM 3.  LEGAL PROCEEDINGS

    From time to time, the Company is involved in litigation arising out of 
operations in the normal course of business.  In the opinion of management, 
the Company currently is not a party to any legal proceedings the adverse 
outcome of which, individually or in the aggregate, could reasonably be 
expected to have a material adverse effect on the Company's results of 
operations or financial position.

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

    No matters were submitted to a vote of security holders during the fourth 
quarter of the fiscal year ended May 31, 1997.

                                    PART II

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

    The Company's Common Stock began trading on the Nasdaq National Market 
under the symbol GPSI on June 20, 1997. Prior to such date, there was no 
established public trading market for the Company's Common Stock.

    The following table sets forth, for the period indicated, the high and 
low sales prices of the Company's Common Stock, as quoted on the Nasdaq 
National Market.

                                                       High       Low
                                                       ----       ---
First Quarter Fiscal 1998
(from June 20, 1997 through August 11, 1997)          $35.50     $23.75

    On August 11, 1997, the closing sales price per share of the Company's 
Common Stock as quoted on the Nasdaq National Market was $25.00.  On August 
11, 1997, there were approximately 252 holders of record of the Company's 
Common Stock, representing approximately 2,466 shareholder accounts.

    The trading price of the Company's Common Stock may be subject to wide 
fluctuations in response to quarterly variations in operating results, 
announcements of technological innovations or new software products by the 
Company or its competitors, as well as other events or factors.  In addition, 
the stock market has from time to time experienced extreme price and volume 
fluctuations which have particularly affected the market prices of many high 
technology companies and which often have been unrelated to the operating 
performance of these companies.  These broad market fluctuations may 
adversely affect the market price of the Company's Common Stock.

    The Company has never declared or paid cash dividends on its capital 
stock.  The Company currently intends to retain future earnings for use in 
its business and does not anticipate paying any cash dividends in the 
foreseeable future.


                                     -15-
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

    The selected consolidated financial data below should be read in 
conjunction with "Management's Discussion and Analysis of Financial Condition 
and Results of Operations" in Item 7 below and the Consolidated Financial 
Statements and the Notes thereto included in Item 8 below.

<TABLE>
<CAPTION>
                                                     Year Ended May 31,
                                   --------------------------------------------------------
                                     1997       1996         1995         1994        1993
                                   -------    -------      -------     --------     -------
                                      (in thousands, except share and per share amounts)
<S>                                <C>        <C>          <C>         <C>          <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
  License. . . . . . . . . . . .   $35,919    $27,078      $25,050     $ 19,165     $20,790
  Service. . . . . . . . . . . .    21,201     15,193       12,847        9,949       8,080
                                   -------    -------      -------     --------     -------
  Total revenues . . . . . . . .    57,120     42,271       37,897       29,114      28,870

Cost of revenues:
  License. . . . . . . . . . . .     6,362      4,913        4,439        4,997       3,101
  Service. . . . . . . . . . . .     8,620      5,980        5,622        5,479       3,868
                                   -------    -------      -------     --------     -------
  Total cost of revenues . . . .    14,622     10,893       10,061       10,476       6,969
                                   -------    -------      -------     --------     -------
    Gross profit . . . . . . . .    42,498     31,378       27,836       18,638      21,901

Operating expenses:
  Sales and marketing. . . . . .    21,935     14,477       14,013       14,331      11,582
  Research and development . . .     9,678      8,876        9,308       10,676       6,021
  General and
    administrative . . . . . . .     5,592      4,763        3,886        3,607       2,969
                                   -------    -------      -------     --------     -------
  Total operating expenses . . .    37,205     28,116       27,207       28,614      20,572
                                   -------    -------      -------     --------     -------

Operating income
  (loss) . . . . . . . . . . . .     5,293      3,262          629       (9,976)      1,329

Total other expenses (income). .      (558)      (100)         260          381         306
                                   -------    -------      -------     --------     -------

  Income (loss) before
    income taxes . . . . . . . .     5,851      3,362          369      (10,357)      1,023

Income tax provision
  (benefit)(1) . . . . . . . . .     2,207     (4,099)          45          (27)        102
                                   -------    -------      -------     --------     -------
Income (loss) before
  cumulative effect of
  change in accounting
  principle. . . . . . . . . . .     3,644      7,461          324      (10,330)        921
                                   -------    -------      -------     --------     -------
Cumulative effect of a
  change in accounting
  principle. . . . . . . . . . .        --         --         (200)          --          --
                                   -------    -------      -------     --------     -------
  Net income (loss). . . . . . .   $ 3,644    $ 7,461      $   124     $(10,330)     $  921
                                   -------    -------      -------     --------     -------
                                   -------    -------      -------     --------     -------
Pro forma net income
  per share(2) . . . . . . . . .     $0.36

Pro forma weighted
  average number of
  shares and common
  equivalent shares
  outstanding(2) . . . . . . . . 10,003,349

</TABLE>


                                     -16-
<PAGE>

<TABLE>
<CAPTION>
                                                                                   May 31,
                                                         -------------------------------------------------------------
                                                           1997          1996        1995          1994          1993
                                                         --------      -------     -------     ---------      --------
                                                                                (in thousands)
<S>                                                      <C>           <C>         <C>         <C>             <C>
CONSOLIDATED BALANCE SHEET DATA:
Assets:
  Cash, cash equivalents and investments . . . . . .     $ 16,243      $ 8,256     $ 2,892     $      119      $ 1,351
  Total assets . . . . . . . . . . . . . . . . . . .       33,214       24,361      15,327          8,845       13,407
Working capital. . . . . . . . . . . . . . . . . . .        6,658        1,012      (4,992)       (15,400)      (5,096)
Liabilities and stockholders' equity (deficit)
  Deferred revenues. . . . . . . . . . . . . . . . .       10,448        9,018       8,027          6,897        4,952
  Long-term debt and capital lease obligations,
    less current portion . . . . . . . . . . . . . .           --           20          750         1,281          984
  Mandatorily redeemable convertible
    preferred stock. . . . . . . . . . . . . . . . .       28,698       11,502        8,300            --           --
  Total stockholders' equity (deficit) . . . . . . .      (16,277)      (4,812)      (9,066)      (11,303)      (1,011)

</TABLE>

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

(1)  Net income for the year ended May 31, 1996 includes an
     income tax benefit of $4.1 million related to the reversal
     of a valuation allowance. The reversal reflects the
     recognition of net operating loss carryforwards and other
     deferred tax assets and was a result of management's
     analysis of the Company's current levels of earnings and
     future outlook, which increased the likelihood of the
     Company realizing its deferred tax assets. For subsequent
     periods, the Company has provided for income taxes utilizing
     federal and state statutory income tax rates. See Note 9 of
     Notes to Consolidated Financial Statements.

(2)  For an explanation of the determination of the
     number of shares used in computing pro forma net
     income per share, see Note 1 of Notes to
     Consolidated Financial Statements.

ITEM 7.  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 Financial Statements and Notes thereto, and the other financial 
information included elsewhere in the Form 10-K Report. This Discussion and 
Analysis of Financial Condition and Results of Operations contains 
descriptions of the Company's expectations regarding future trends affecting 
its business.  These forward-looking statements and other forward-looking 
statements made elsewhere in this document are made in reliance upon safe 
harbor provisions of the Private Securities Litigation Reform Act of 1995. 
The following discussion sets forth certain factors the Company believes 
could cause actual results to differ materially from those contemplated by 
the forward looking statements. The Company undertakes no obligation to 
update the information contained in this Item 7.

OVERVIEW

    The Company is a leading provider of Microsoft Windows NT client/server 
financial management software for mid-sized businesses. The Company's 
award-winning products and services automate essential accounting functions 
and enhance the strategic value of financial information. The Company's 
products and services are sold and implemented exclusively by its extensive 
network of Partners throughout the United States, Canada and select 
international markets.

    In 1982, the Company began selling Great Plains Accounting (the "heritage 
product"), which is currently a DOS- and Macintosh-based financial management 
software system for local area network (LAN) personal computers. In 
anticipation of the general market shift to Windows and client/server 
technologies, the Company began developing client/server financial management 
software systems,


                                     -17-
<PAGE>

and in February 1993, released Dynamics. Dynamics is the Company's 
client/server product for the Midmarket businesses that need a Windows 
client/server system that is flexible and cost-effective, but does not 
require information technology (IT) personnel dedicated to database 
administration. In July 1994, the Company released Dynamics C/S+, a Windows 
client/server system for Midmarket businesses that have high volume 
processing requirements, complex financial management needs and formal IT 
departments.

    The Company made significant investments in research and development in 
the early 1990s to launch its Windows client/server products. In addition, 
the Company has made a significant investment in building an experienced and 
knowledgeable Partner distribution network to market, implement, support and 
service its Dynamics C/S+ and Dynamics products (together, the "client/server 
products"). Since the release of the client/server products, the Company's 
principal source of revenues has shifted from the heritage product to the 
client/server products. Client/server products accounted for 40.2%, 61.4% and 
77.4% of the Company's total revenues for fiscal 1995, 1996 and 1997, 
respectively.

    The Company's revenues are derived from two principal sources: software 
license fees ("license fees") and fees for maintenance, technical support, 
training and consulting services (collectively, "service fees"). The Company 
recognizes revenue in accordance with Statement of Position 91-1, Software 
Revenue Recognition. See Note 1 of Notes to Consolidated Financial 
Statements. License fee revenues are generally recognized upon shipment of 
the related software product. Fees for the Company's maintenance and support 
plans are recorded as deferred revenue when billed to the customer and 
recognized ratably over the term of the maintenance and support agreement, 
which is typically one year. Fees for the Company's training and consulting 
services are recognized at the time the services are performed.

    The Company's client/server customers are required to purchase a one-year 
maintenance plan at the time the product is acquired. A majority of the 
client/server customers renew the maintenance plan after the initial term. 
Under the maintenance plan, the Company provides client/server customers with 
product upgrades in addition to online assistance and information. The 
Company's heritage product customers, on the other hand, are not required to 
purchase a maintenance plan at the time the product is acquired. In addition, 
the optional heritage product maintenance plan does not include significant 
product upgrades. The Company has historically released significant upgrades 
of its heritage product approximately every two years. Prior to fiscal 1996, 
when heritage product revenues represented the principal source of the 
Company's revenues, the release of a significant upgrade of the heritage 
product had a positive impact on revenues in the quarters following release. 
As a result of the shift to client/server products as the Company's principal 
source of revenues, the Company expects to experience less fluctuation in 
total revenues in the event significant upgrades of its heritage product are 
released.

    The Company currently sells its products outside the United States and 
Canada through international Partners and subsidiaries located in the United 
Kingdom and Australasia to markets in the following geographic regions: 
Western and Eastern Europe, Australasia, Southern Africa, the Middle East and 
Southeast Asia. The Company's client/server products have been sold in 
approximately 50 countries.


                                     -18-
<PAGE>

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 statement of operations.

                                                     Year Ended May 31,
                                                -----------------------------
                                                1997         1996       1995
                                                -----       -----      ------
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
  License  . . . . . . . . . . . . . .           62.9%       64.1%      66.1%
  Service  . . . . . . . . . . . . . .           37.1        35.9       33.9
                                                -----       -----      -----
    Total revenues . . . . . . . . . .          100.0       100.0      100.0
                                                -----       -----      -----
Cost of revenues:. . . . . . . . . . .
  License  . . . . . . . . . . . . . .           11.1        11.6       11.7
  Service  . . . . . . . . . . . . . .           14.5        14.2       14.9
                                                -----       -----      -----
    Total cost of revenues . . . . . .           25.6        25.8       26.6
                                                -----       -----      -----
    Gross margin . . . . . . . . . . .           74.4        74.2       73.4
                                                -----       -----      -----
Operating expenses:
  Sales and marketing. . . . . . . . .           38.4        34.2       37.0
  Research and development . . . . . .           16.9        21.0       24.5
  General and administrative . . . . .            9.8        11.3       10.2
                                                -----       -----      -----
    Total operating expenses . . . . .           65.1        66.5       71.7
                                                -----       -----      -----
Operating income . . . . . . . . . . .            9.3         7.7        1.7
Income tax provision (benefit) . . . .            3.9        (9.7)       0.1
Net income . . . . . . . . . . . . . .            6.4%       17.6%       0.3%

REVENUES

    REVENUES.  Revenues increased from $37.9 million in fiscal 1995 to $42.3 
million in fiscal 1996, and to $57.1 million in fiscal 1997, representing 
increases of 11.5% and 35.1%, respectively. The fiscal 1996 to fiscal 1997 
increase in revenue was primarily due to increased demand for the Company's 
client/server products and related service fees.

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

                                                 Year Ended May 31,
                                          ------------------------------
                                           1997         1996        1995
                                          -----        -----       -----
Client/server product revenues . . . .     77.4%        61.4%       40.2%
Heritage product revenues. . . . . . .     22.6         38.6        59.8

    Client/server product revenues, including license and service fees, 
increased from $15.2 million in fiscal 1995 to $25.9 million in fiscal 1996 
and to $44.2 million in fiscal 1997, representing increases of 70.4%, and 
70.5% respectively.


                                     -19-
<PAGE>

    The increase in client/server product revenues was offset, in part, by a 
decrease in revenues from the Company's heritage product. Heritage product 
revenues decreased from $22.7 million in fiscal 1995 to $16.4 million in 
fiscal 1996, and to $12.9 million in fiscal 1997 representing decreases of 
28.0% and 21.1%, respectively. The decrease in heritage product revenues was 
primarily due to a decrease in demand for DOS- and Macintosh-based financial 
management software, which reflects the broader market trend toward Windows 
and client/server technologies.

    The Company's international revenues increased from $4.1 million in 
fiscal 1995 to $4.4 million in fiscal 1996, and to $8.6 million in fiscal 
1997 representing 10.8%, 10.4% and 15.0% of total revenues, respectively. 
These increases resulted from the addition of international distribution 
arrangements in new markets as well as growth in existing markets.

    LICENSE.  Total license fee revenues increased from $25.1 million in 
fiscal 1995 to $27.1 million in fiscal 1996, and to $35.9 million in fiscal 
1997,  representing increases of 8.1% and 32.7%, respectively. These 
increases in total license fee revenues are largely attributable to increased 
market acceptance of the Company's client/server products and a broader 
client/server product offering. The Company added to its client/server 
product offering with the release of Dynamics C/S+ in July 1994, the release 
of a Microsoft SQL Server edition of Dynamics C/S+ in April 1996 and the 
release of additional functionality and applications for the SQL Server 
edition in November 1996. Moreover, since the release of the Company's 
client/server products, the Company has increased its sales, marketing and 
service capacity. These factors have led to both an increase in the number of 
client/server software licenses and an increase in the average revenues 
derived from individual client/server licenses.

    The increase in client/server product license fee revenues was offset, in 
part, by a decrease in heritage product license fee revenues. The decrease in 
heritage product license fees is primarily a result of decreased demand for 
DOS- and Macintosh-based financial management software. In addition, the 
Company has historically released significant upgrades of its heritage 
product approximately every two years, which had a positive impact on 
heritage product license fee revenues in the quarters following release. A 
significant upgrade of the heritage product was released in February 1997, 
which the Company expects to market principally to the Company's installed 
base of heritage product customers. Notwithstanding the positive impact on 
revenues this release may have, the Company expects that overall heritage 
product license fee revenues will continue to decline. In addition, the 
Company also anticipates that fluctuations in heritage product license fee 
revenues due to new releases will have a reduced impact on total license fee 
revenues as heritage product license fee revenues become a smaller portion of 
total license fee revenues.

    SERVICE.  Service revenues increased from $12.8 million in fiscal 1995 to 
$15.2 million in fiscal 1996, and to $21.2 million in fiscal 1997, 
representing increases of 18.3% and 39.5%, respectively. The increase in the 
number of licenses for client/server products has resulted in increases in 
service revenues. Service revenues as a percentage of total revenues were 
33.9%, 35.9% and 37.1% for fiscal 1995, 1996 and 1997, respectively. The 
increases in service revenues largely reflect increases in the installed base 
of client/server customers and renewals of existing maintenance and support 
contracts.

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 
parties. Cost of license fees increased from $4.4 million in fiscal 1995 to 
$4.9 million in fiscal 1996, and to $6.4 million in fiscal 1997, representing 
17.7%, 18.1% and 17.7% of total license fee revenues in fiscal 1995, 1996 and 
1997, respectively. The Company's client/server products generate higher 
license fees per individual license than its heritage product, and, as a 
result, the cost of license fees as a percentage of total product license fee 
revenues is lower for


                                     -20-
<PAGE>

the Company's client/server products than for its heritage product. The 
increases in cost of license fees in fiscal 1996 and fiscal 1997 are 
primarily attributable to the overall growth in license fee revenues and an 
increase in royalties paid to third party vendors. The increase in royalties 
is primarily due to a new royalty arrangement entered into in the second half 
of fiscal 1996 with a third party for a report writer application that is 
bundled with the Company's client/server products. The Company anticipates 
that cost of license fees will increase in dollar amount as license fee 
revenues increase, but remain relatively constant as a percentage of total 
license fee revenues. However, in the event that the Company enters into 
additional royalty arrangements in the future, cost of license fees as a 
percentage of total license fee revenues may increase.

    COST OF  SERVICES.  Cost of services consists of the costs of providing 
telephone support, training and consulting services to customers and 
Partners. Cost of services increased from $5.6 million in fiscal 1995 to $6.0 
million in fiscal 1996, and to $8.3 million in fiscal 1997, representing 
43.8%, 39.4% and 39.0% of total service revenues, respectively. The increase 
in cost of services is primarily due to the expansion of the Company's 
customer and Partner service resources. Cost of services as a percentage of 
service revenues has decreased as a result of improved efficiency in 
operations. The Company anticipates that cost of services will increase in 
dollar amount as service revenues increase, but will remain relatively 
constant 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 were $14.0 million in fiscal 1995, $14.5 million in fiscal 1996 and 
$21.9 million in fiscal 1997, representing 37.0%, 34.2% and 38.4% of total 
revenues, respectively. The decrease in sales and marketing expenses as a 
percentage of revenues from fiscal 1995 to fiscal 1996 reflects an increase 
in sales and marketing productivity and a corresponding increase in revenues 
derived from the Company's client/server products. Since the beginning of 
fiscal 1997, however, the Company has increased spending on sales and 
marketing to promote the Microsoft SQL Server edition of its Dynamics C/S+ 
product. The increase in sales and marketing expenses and sales and marketing 
expenses as a percentage of total revenues reflects the hiring of additional 
sales and marketing personnel, expanded promotional activities and increased 
commissions relating to the increase in client/server product revenues. In 
addition, the Company has increased sales and marketing expenditures related 
to the operation of a United Kingdom subsidiary that was acquired in February 
1996.

    RESEARCH AND DEVELOPMENT.  Research and development expenses consist 
primarily of compensation of development personnel and depreciation of 
equipment. The Company has made significant investments in research and 
development with total expenses of $9.3 million in fiscal 1995, $8.9 million 
in fiscal 1996 and $9.7 million in fiscal 1997, representing 24.5%, 21.0% and 
16.9% of total revenues, respectively. These research and development 
expenses were primarily related to the Company's efforts to release 
additional applications for its client/server products including the 
Microsoft SQL Server edition of Dynamics C/S+. More recently, the Company has 
devoted resources to the development of Internet-enabled applications. The 
Company anticipates that it will continue to devote substantial resources to 
its research and development efforts and that research and development 
expenses will increase in dollar amount in future periods.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses consist 
primarily of salaries of executive, financial, human resource and information 
services personnel as well as outside professional fees. General and 
administrative expenses increased from $3.9 million in fiscal 1995, to  $4.8 
million in fiscal 1996, and to $5.6 million in fiscal 1997, representing 
10.2%, 11.3% and 9.8% of total


                                     -21-
<PAGE>

revenues, respectively. These increases in dollar amounts were primarily due 
to increased staffing and related expenses necessary to manage and support 
the expansion of the Company's operations. 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 public company.

    PROVISION (BENEFIT) FOR INCOME TAXES.  Provision (benefit) for income 
taxes was $45,000, $(4,099,000) and $2,207,000 in fiscal 1995, 1996 and 1997, 
respectively. In fiscal 1995, the Company's provision included the federal 
alternative minimum tax and state income taxes. Prior to May 1996, the 
Company determined that the realization of the net operating loss 
carryforward and other deferred tax assets did not meet the recognition 
criteria under Statement of Financial Accounting Standards No. 109, 
"Accounting for Income Taxes," and, accordingly, a valuation allowance was 
established to reserve the net operating loss carryforward and other deferred 
tax assets. For fiscal 1996, the Company recorded a $4.1 million tax benefit 
related to the reversal of the valuation allowance. This reversal was based 
on management's analysis of current levels of earnings and its future 
outlook, which increased the likelihood of the Company realizing its deferred 
tax assets; thus the valuation allowance was no longer deemed necessary. In 
fiscal 1997, the Company recorded an income tax provision consistent with 
federal and, in part, state statutory income tax rates. The Company expects 
that the income tax provision will increase to reflect the full state 
statutory tax rates. See Note 9 of Notes to Consolidated Financial Statements.

SELECTED QUARTERLY OPERATING RESULTS

    The following table sets forth certain unaudited consolidated financial 
information for each of the four quarters in the Company's fiscal years ended 
May 31, 1996 and May 31, 1997. In management's opinion, this unaudited 
quarterly information has been prepared on the same basis as the audited 
consolidated financial statements and includes all adjustments (consisting 
only of normal recurring adjustments) necessary for a fair presentation of 
the information for the quarters presented, when read in conjunction with the 
audited consolidated financial statements and notes thereto included 
elsewhere in this Form 10-K Report. The Company believes that 
quarter-to-quarter comparisons of its financial results are not necessarily 
meaningful and should not be relied upon as an indication of future 
performance.

<TABLE>
<CAPTION>
                                                                           Three Months Ended
                                    ----------------------------------------------------------------------------------------------
                                    August 31, November 30, February 29,  May 31,  August 31,  November 30,  February 28,  May 31,
                                      1995        1995         1996        1996       1996         1996          1997       1997
                                    ---------  -----------  -----------  --------- ---------   ------------  ------------  -------
                                                                             (in thousands)
<S>                                <C>         <C>          <C>          <C>       <C>         <C>           <C>           <C>
Revenues:
  License. . . . . . . . . . . .        5,535     $ 6,314    $ 5,943      $ 9,286    $ 6,655      $ 8,478      $ 9,224     $11,562
  Service. . . . . . . . . . . .        3,348       3,954      4,114        3,777      4,413        5,208        5,475       6,106
                                    ---------     -------    -------      -------    -------      --------     -------     -------
    Total revenues . . . . . . .        8,883      10,268     10,057       13,063     11,068       13,686       14,699      17,668
Cost of revenues:                                                                              
  License. . . . . . . . . . . .          805       1,004      1,209        1,895      1,170        1,550        1,832       1,810
  Service. . . . . . . . . . . .        1,330       1,509      1,522          619      1,636        2,012        2,050       2,562
                                    ---------     -------    -------      -------    -------      --------     -------     -------
    Total cost of revenues . . .        2,135       2,513      2,731        3,514      2,806        3,562        3,882       4,372
                                    ---------     -------    -------      -------    -------      --------     -------     -------
    Gross profit . . . . . . . .        6,748       7,755      7,326        9,549      8,262       10,124       10,817      13,296
Operating expenses:                                                                            
  Sales and marketing. . . . . .        2,867       3,786      3,473        4,351      4,054        5,660        5,702       6,519
  Research and development . . .        1,998       2,260      2,093        2,525      2,172        2,318        2,414       2,775
  General and administrative . .          994       1,184      1,218        1,367      1,224        1,209        1,540       1,619
                                    ---------     -------    -------      -------    -------      --------     -------     -------
    Total operating expenses . .        5,859       7,230      6,784        8,243      7,450        9,187        9,656      10,913
Operating income . . . . . . . .          889         525        542        1,306        812          937        1,161       2,383
Other income . . . . . . . . . .            3          37          8           52         83          119          103         252
                                    ---------     -------    -------      -------    -------      --------     -------     -------
  Income before income taxes . .          892         562        550        1,358        895        1,056        1,264       2,635
Income tax provision (benefit) .            3          --         --       (4,102)       344          406          470         987
                                    ---------     -------    -------      -------    -------      --------     -------     -------
Net income . . . . . . . . . . .       $  889     $   562     $  550      $ 5,460    $   551      $   650      $   794     $ 1,648
                                    ---------     -------    -------      -------    -------      --------     -------     -------
                                    ---------     -------    -------      -------    -------      --------     -------     -------
</TABLE>


                                     -22-
<PAGE>

    The Company's quarterly revenues and operating results have varied 
significantly in the past and are likely to vary substantially from quarter 
to quarter in the future. Such fluctuations may result in volatility in the 
price of the Company's Common Stock. The Company establishes its expenditure 
levels based on its expectations as to future revenue, and, if revenue levels 
are below expectations, expenses can be disproportionately high. As a result, 
a drop in near term demand for the Company's products could significantly 
affect both revenues and profits in any quarter. In the future, the Company's 
operating results may fluctuate for this reason or as a result of a number of 
other factors, including increased expenses, timing of product releases, 
increased competition, variations in the mix of sales, announcements of new 
products by the Company or its competitors and capital spending patterns of 
the Company's customers.

    The Company's business has experienced and may continue to experience 
seasonality. In recent years, the Company has recognized a greater percentage 
of its revenue and operating income in its fourth fiscal quarter than in any 
of the first three quarters due to a number of factors, including the timing 
of product releases and the Company's sales incentive programs. Moreover, due 
to fiscal year-end sales incentive programs, the Company has historically 
recognized less revenue and operating income in its first fiscal quarter than 
in the other quarters.

    As a result of these factors, there can be no assurance that the Company 
will be able to maintain profitability on a quarterly basis.

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 (used) by operating activities was ($2.4) million, $8.3 
million and $10.3 million for fiscal 1995, 1996 and 1997, respectively.  The 
cash used by operations in fiscal 1995 was primarily a result of an increase 
in accounts receivable and a decrease in accounts payable, offset, in part, 
by improved profitability.  The increase in cash provided by operations in 
fiscal 1996 was primarily due to increased profitability of the Company's 
operations and an increase in deferred revenues.  The increase in cash 
provided by operations in fiscal 1997 resulted primarily from increased 
profitability of the Company's operations.

    The Company's investing activities used cash of $1.2 million, $2.1 
million and $7.1 million in fiscal 1995, 1996 and 1997, respectively.  The 
principal use of cash in investing activities was for capital expenditures 
related to the acquisition of computer equipment required to support 
expansion of the Company's operations. For the fiscal year ended May 31, 
1997, the Company purchased $4.9 million of government obligations in order 
to increase the rate of return earned from cash resources.

    The Company's financing activities provided (used) cash of $6.3 million, 
($.8) million and $.7 million during fiscal 1995, 1996 and 1997, 
respectively.  In fiscal 1995, the cash provided by financing activities 
included $8.1 million received in connection with the sale of Series B 
Preferred Stock and $2.0 million from the sale of Common Stock to employees, 
partially offset by $3.8 million of payments on the Company's outstanding 
line of credit and notes payable.  For fiscal 1996 financing activities used 
cash primarily for payments on capital lease obligations and notes payable. 
For fiscal 1997, cash of $.7 million was provided from financing activities 
which consisted primarily of proceeds received from the exercise of stock 
options, offset, in part, by payments on capital lease obligations and notes 
payable.


                                     -23-
<PAGE>

    The Company's sources of liquidity at May 31, 1997, consisted principally 
of cash, cash equivalents and investments of $16.2 million. The Company also 
has a $5.0 million revolving line of credit facility with a bank. The line of 
credit expires in November 1997 and borrowings made thereunder are subject to 
certain covenants. No amounts were outstanding under the line of credit at 
May 31, 1997.   See Note 6 to Consolidated Financial Statements.

    Subsequent to May 31, 1997, the Company completed an initial public 
offering which generated more than $50 million of proceeds to the Company. 
The Company believes that the proceeds of the initial public offering, cash 
generated from operations and amounts available under the line of credit will 
be sufficient to fund its operations for the foreseeable future.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Not applicable.


                                     -24-

<PAGE>

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors
 and Stockholders of
 Great Plains Software, Inc.

In our opinion, the accompanying consolidated balance sheet and the related 
consolidated statements of income, of stockholders' deficit and of cash flows 
present fairly, in all material respects, the financial position of Great 
Plains Software, Inc. and its subsidiary at May 31, 1997 and 1996, and the 
results of their operations and their cash flows for each of the three years 
in the period ended May 31, 1997, 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 of 
these statements 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 the opinion expressed above.




PRICE WATERHOUSE LLP
Minneapolis, Minnesota
July 8, 1997


                                     -25-
<PAGE>

                          GREAT PLAINS SOFTWARE, INC.
                          CONSOLIDATED BALANCE SHEET
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                                          May 31,
                                                           -------------------------------------
                                                           Historical    Pro Forma    Historical
                                                             1997          1997          1996
                                                             ----          ----          ----
                ASSETS                                                 (Unaudited)
                                                                         (Note 1)
<S>                                                        <C>         <C>             <C>
Current assets:
  Cash and cash equivalents                                $ 12,101                    $ 8,256
  Investments                                                 4,142
  Accounts receivable, net                                    5,452                      5,196
  Inventories                                                   567                        455
  Prepaid expenses and other assets                           1,164                        606
  Deferred income tax assets                                  3,279                      4,150
                                                           --------                    -------
    Total current assets                                     26,705                     18,663

Property and equipment, net                                   5,821                      5,081
Goodwill, net                                                   438                        555
Other assets                                                    250                         62
                                                           --------                    -------
    Total assets                                           $ 33,214                    $24,361
                                                           --------                    -------
                                                           --------                    -------
   LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
      STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Accounts payable                                         $  1,788                    $ 1,827
  Accrued expenses                                            4,698                      4,799
  Salaries and wages payable                                    510                        415
  Commissions payable                                         2,603                        765
  Deferred revenue                                           10,448                      9,018
  Current portion of long-term debt and capital
    lease obligations                                                                      827
                                                           --------                    -------
    Total current liabilities                                20,047                     17,651

Deferred income tax liabilities                                 746     
Long-term debt and capital lease obligations, 
    less current portion                                                                    20
                                                           --------                    -------
    Total liabilities                                        20,793                     17,671

Commitments and contingencies (Note 8)

Mandatorily redeemable convertible preferred 
  stock: 10,000,000 authorized preferred shares, 
  Series B, at redemption value of $21.33 and 
  $8.55, 1,345,220 shares issued and outstanding;
  pro forma - none                                           28,698                     11,502

Stockholders' equity (deficit):                       
  Convertible preferred stock:  10,000,000 
    authorized preferred shares; Series A, par 
    value $.01, 225,000 shares issued and 
    outstanding; pro forma - none outstanding                   199                        199
  Common stock, par value $.01 per share:  
    40,000,000 shares authorized, 100,000,000 
    shares authorized pro forma; issued and
    outstanding - 8,080,335, 9,927,962 pro 
    forma and 7,359,765, respectively                            81      $    99            74
  Additional paid-in capital                                (13,843)      15,036         1,273
  Accumulated deficit                                        (2,714)      (2,714)       (6,358)
                                                           --------      -------       -------
    Total stockholders' equity (deficit)                    (16,277)     $12,421        (4,812)
                                                           --------      -------       -------
                                                                         ------- 
    Total liabilities and stockholders' equity (deficit)   $ 33,214                    $24,361
                                                           --------                    -------
                                                           --------                    -------
</TABLE>

         See accompanying notes to the consolidated financial statements.


                                     -26-
<PAGE>

                          GREAT PLAINS SOFTWARE, INC.
                        CONSOLIDATED STATEMENT OF INCOME
                (Dollars in Thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                                     May 31,
                                                      ---------------------------------
                                                          1997        1996       1995
                                                          ----        ----       ----
<S>                                                   <C>            <C>        <C>
Net revenues:
  License                                             $    35,919    $27,078    $25,050
  Service                                                  21,201     15,193     12,847
                                                      -----------    -------    -------
                                                           57,120     42,271     37,897
                                                      -----------    -------    -------
Cost of revenues:
  License                                                   6,362      4,913      4,439
  Service                                                   8,260      5,980      5,622
                                                      -----------    -------    -------
    Gross profit                                           42,498     31,378     27,836
                                                      -----------    -------    -------
Operating expenses:
  Sales and marketing                                      21,935     14,477     14,013
  Research and development                                  9,678      8,876      9,308
  General and administrative                                5,592      4,763      3,886
                                                      -----------    -------    -------
    Total operating expenses                               37,205     28,116     27,207
                                                      -----------    -------    -------
Operating income                                            5,293      3,262        629
Interest expense                                               98        197        291
Related party interest expense                                                       36
Other (income) expense, net                                  (656)      (297)       (67)
                                                      -----------    -------    -------
    Income before income taxes                              5,851      3,362        369

Income tax provision (benefit)                              2,207     (4,099)        45
                                                      -----------    -------    -------
    Income before cumulative effect of change
      in accounting principle                               3,644      7,461        324

Cumulative effect of change in accounting principle                                (200)
                                                      -----------    -------    -------
    Net income                                        $     3,644    $ 7,461    $   124
                                                      -----------    -------    -------
                                                      -----------    -------    -------
Unaudited pro forma net income per share              $      0.36
                                                      -----------
                                                      -----------
Shares used in computing unaudited pro forma 
  net income per share                                 10,003,349
                                                      -----------
                                                      -----------
</TABLE>


     See accompanying notes to the consolidated financial statements.


                                     -27-
<PAGE>

                          GREAT PLAINS SOFTWARE, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                     Series A Preferred        Common Stock         Additional    Accumulated
                                     ------------------        ------------
                                       Shares   Amount     Shares       Amount   Paid-in Capital    Deficit       Total
                                       ------   ------     ------       ------   ---------------    -------       -----
<S>                                  <C>        <C>       <C>           <C>      <C>               <C>          <C>
Balance May 31, 1994                                      6,789,904       $68       $  2,572       $(13,943)    $(11,303)
  Exercise of stock options                                  77,333         1            136                         137
  Repurchase and retirement                                                                    
   of common stock                                           (7,832)                     (32)                        (32)
  Sale of common stock, less                                                                   
    offering costs of $50                                   487,147         5          1,961                       1,966
  Sale of Series A preferred                                                                   
    stock net of issuance costs                                                                
    of $26                             225,000    $199                                                               199
  Increase to carrying value                                                                   
    of mandatorily redeemable                                                                  
    preferred stock                                                                     (157)                       (157)
  Net income                                                                                            124          124
                                       -------    ----    ---------       ---       --------       --------     --------
Balance May 31, 1995                   225,000     199    7,346,552        74          4,480        (13,819)      (9,066)
  Exercise of stock options                                  32,013                       73                          73
  Repurchase and retirement                                                                    
    of common stock                                         (18,800)                     (78)                        (78)
  Increase to carrying value                                                                   
    of mandatorily redeemable                                                                  
    preferred stock                                                                   (3,202)                     (3,202)
  Net income                                                                                          7,461        7,461
                                       -------    ----    ---------       ---       --------       --------     --------
Balance May 31, 1996                   225,000     199    7,359,765        74          1,273         (6,358)      (4,812)
  Exercise of stock options                                 732,447         7          1,544                       1,551
  Net repurchases of common                                                                    
    stock                                                   (11,877)                     (54)                        (54)
  Increase in carrying value                                                                   
    of mandatorily redeemable                                                                  
    preferred stock                                                                  (17,196)                    (17,196)
  Tax benefit from stockholder                                                                 
    transaction                                                                          590                         590
  Net income                                                                                          3,644        3,644
                                       -------    ----    ---------       ---       --------       --------     --------
Balance May 31, 1997                   225,000    $199    8,080,335       $81       $(13,843)      $ (2,714)    $(16,277)
                                       -------    ----    ---------       ---       --------       --------     --------
                                       -------    ----    ---------       ---       --------       --------     --------
</TABLE>


    See accompanying notes to the consolidated financial statements.


                                     -28-
<PAGE>

                         GREAT PLAINS SOFTWARE, INC.
                    CONSOLIDATED STATEMENT OF CASH FLOWS
                            (Dollars in thousands)


<TABLE>
<CAPTION>
                                                                      May 31,
                                                           -----------------------------
                                                             1997       1996      1995
                                                             ----       ----      ----
<S>                                                        <C>        <C>       <C>
Cash flows from operating activities:
 Net income                                                $ 3,644    $ 7,461   $    124
 Adjustments to reconcile net income to net cash 
  provided (used) by operating activities:
   Cumulative effect of change in accounting principle                               200
   Depreciation and amortization                             2,155      1,921      1,861
   Deferred income taxes                                     2,207     (4,150)
   Changes in operating assets and liabilities:
    Accounts receivable                                       (256)       526     (3,666)
    Inventories                                               (113)       342         10
    Prepaid expenses and other assets                         (557)       335       (540)
    Income tax receivable                                                             86
    Accounts payable and accrued expenses                     (141)       499     (1,975)
    Salaries, wages and commissions payable                  1,933        388        336
    Deferred revenue                                         1,430        990      1,130
    Income taxes payable                                                  (45)        45
                                                           -------    -------   --------
     Net cash provided (used) by operating activities       10,302      8,267     (2,389)
                                                           -------    -------   --------
Cash flows from investing activities:
 Purchases of property and equipment and other assets       (2,966)    (1,990)    (1,154)
 Purchase of foreign subsidiary, net of cash                             (123)
 Purchase of investments                                    (4,892)              
 Proceeds from investments                                     750               
                                                           -------    -------   --------
     Net cash used by investment activities                 (7,108)    (2,113)    (1,154)
                                                           -------    -------   --------
Cash flows from financing activities:
 Proceeds from issuance of notes payable and long-term debt                          132
 Principal payments on notes payable and long-term debt       (599)      (197)    (1,561)
 Payments on line of credit                                                       (2,250)
 Principal payments on capital lease obligations              (247)      (588)      (417)
 Repurchases of common stock                                   (54)       (78)       (32)
 Proceeds from the sale of preferred stock                                         8,342
 Proceeds from issuance of common stock                      1,551         73      2,102
                                                           -------    -------   --------
     Net cash (used) provided by financing activities          651       (790)     6,316
                                                           -------    -------   --------
Increase in cash                                             3,845      5,364      2,773
Cash and cash equivalents at beginning of period             8,256      2,892        119
Cash and cash equivalents at end of period                 $12,101    $ 8,256   $  2,892
                                                           -------    -------   --------
                                                           -------    -------   --------
Schedule of noncash investing and financing activities:
 Property and equipment acquired under capital 
  lease agreements                                                    $    19   $    305
 Interest paid                                             $    68    $   197   $    330
 Tax benefit from stockholder transaction                  $   590
</TABLE>


    See accompanying notes to the consolidated financial statements.


                                     -29-
<PAGE>

                        GREAT PLAINS SOFTWARE, INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (Dollars in thousands, except per share amounts)


NOTE 1 - BUSINESS INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES

BUSINESS INFORMATION

Great Plains Software, Inc. (the "Company") is a leading provider of 
Microsoft Windows NT client/server financial management software for 
mid-sized businesses.  Its products and services automate essential 
accounting functions and enhance the strategic value of financial 
information.  The Company's products and services are sold and implemented 
exclusively by its network of independent sales and support organizations 
throughout the United States, Canada and select international markets.

SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION POLICY AND FOREIGN CURRENCY TRANSLATIONS

The consolidated financial statements include the accounts of the Company and 
its subsidiary in the United Kingdom.  All significant intercompany accounts 
and transactions have been eliminated in consolidation.  The functional 
currency of the subsidiary has been determined to be the U.S. dollar.  
Therefore, all transaction gains and losses resulting from fluctuations in 
currency exchange rates are included in operating results.

INTERNATIONAL SALES

International sales represent 15.0%, 10.4% and 10.8% of total revenues for 
the years ended May 31, 1997, 1996 and 1995, respectively.  All international 
sales are denominated in US dollars.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the reported amounts of assets and liabilities and disclosure of 
contingent assets and liabilities at the date of the financial statements and 
the reported amounts of revenues and expenses during the reporting period.  
Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and highly liquid investments with 
original maturities of three months or less and which are readily convertible 
to cash.

INVESTMENT SECURITIES

Investments in debt securities that are not cash equivalents and marketable 
equity securities have been designated as available for sale.  Those 
securities, which consist of U.S. Treasury Bills, are reported at fair value, 
with net unrealized gains and losses included in equity.  However, as of May 
31, 1997, investments were carried at cost because unrealized gains were 
immaterial.  The maturities of the debt securities range from 1997 to 1999.


                                     -30-
<PAGE>

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to credit risk 
consist primarily of cash, cash equivalents, investments and accounts 
receivable.  The Company grants credit to customers in the ordinary course of 
business.  The Company invests its cash with high quality financial 
institutions.  No single customer or region represents a significant 
concentration of credit risk.

CHANGE IN ACCOUNTING PRINCIPLE

The Company adopted Statement of Accounting Standards No. 112 requiring 
accrual accounting for the expected cost of providing certain disability 
benefits.  The cumulative effect of this change in accounting principle at 
the beginning of fiscal 1995 was $200 and is shown in the consolidated 
statement of operations.

REVENUE RECOGNITION AND DEFERRED REVENUE

Software license fees are recognized upon shipment less a reserve for 
estimated future returns. Revenue from support and maintenance service 
contracts are recorded as deferred revenue when billed and recognized ratably 
over the contract period.  Other service revenue such as training and 
consulting services are recognized as the services are performed.  Prior to 
1996 the Company provided credits or coupons in association with the sale of 
one product as an inducement for customers to purchase future products or 
releases.  Revenue equal to the coupon value was deferred until used or 
expired.  The Company, in its discretion may allow customers to return 
products for a short period of time following the sale.  The Company provides 
an allowance for these anticipated returns based upon its historical 
experience of returns for similar products.  These amounts are recorded as an 
offset to license revenues.

FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash, investments, short-term 
receivables and payables for which their current carrying amounts approximate 
fair market value.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost.  Major improvements are 
capitalized while maintenance and repairs are expensed currently. 
Depreciation is computed using the straight-line method based on the 
estimated useful lives of 3 to 5 years for computer equipment and 5 to 10 
years for furniture, fixtures and equipment. Leasehold improvements are 
amortized over the lesser of the terms of the related leases or estimated 
useful life.  Purchased computer software, which is used internally, is 
amortized over a five year period using the straight-line method.  
Amortization expense is included with depreciation expense in the statement 
of cash flows.

INCOME TAXES

Income taxes are accounted for under the liability method in accordance with 
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), 
"Accounting for Income Taxes." Under the liability method, deferred tax 
assets and liabilities are determined based on the difference between the 
financial statement and tax bases of assets and liabilities reduced by 
valuation allowances as necessary.


                                     -31-
<PAGE>

ADVERTISING

The Company accrues, at the time of sales, an estimated liability for 
qualified advertising expenses incurred by value added resellers and 
independent sales support organizations for which the Company has agreed to 
reimburse such parties.  Advertising costs are expensed as incurred.  
Advertising expense was approximately $1,990, $1,487 and $2,061 for the years 
ended May 31, 1997, 1996 and 1995, respectively.

RESEARCH AND DEVELOPMENT

Expenditures for software development costs and research are expensed as 
incurred.  Such costs are required to be expensed until the point that 
technological feasibility is established. The period between achieving 
technological feasibility and the general availability of such software has 
been short. Consequently costs otherwise capitalizable after technological 
feasibility is achieved are generally expensed because they are insignificant 
to both total assets and pre-tax results of operations.

UNAUDITED PRO FORMA INFORMATION

Unaudited pro forma stockholder's equity information gives effect to the 
conversion of all shares of the Company's Preferred Stock into an aggregate 
of 1,847,627 shares of common stock upon the closing of the initial public 
offering.

Unaudited pro forma net income per share is based on the unaudited pro forma 
weighted average number of shares of common stock and common equivalent 
shares outstanding for the period.  The unaudited pro forma weighted average 
number of shares assumes the conversion of the Company's Series A Convertible 
Preferred Stock and the Series B Mandatorily Redeemable Convertible Preferred 
Stock into 1,847,627 shares of common stock effective June 1, 1996.  Because 
of the significant impact of the assumed conversion on the Company's capital 
structure and earnings per share, historical earnings per share have been 
excluded from the financial statements as they are not considered meaningful.

INVENTORIES

Inventories consisting of media, training materials and packaging supplies 
are stated at lower of cost or market, with cost determined on a first-in, 
first-out ("FIFO") basis.

RECENTLY ISSUED ACCOUNTING STANDARDS

Effective June 1, 1996, the Company adopted SFAS No. 121, "Accounting for the 
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." 
 The adoption of this standard had no material effect on the Company's 
financial statements.  In October 1995, SFAS No. 123, "Accounting for 
Stock-Based Compensation," was issued.  Management has adopted this standard 
effective June 1, 1996 by means of disclosure of the pro forma effect of the 
compensation components of stock-based compensation in Note 10.


                                     -32-
<PAGE>

In March 1997, the Financial Accounting Standards Board issued Statement 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.  Management believes the adoption of SFAS No. 128 will not have a 
material effect on the financial statements.

NOTE 2 - BUSINESS COMBINATION

During fiscal 1996, the Company acquired a division of Kewill Systems PLC, a 
United Kingdom software sales and service provider, for $634 consisting of 
cash and the assumption of certain liabilities in a transaction accounted for 
as a purchase. Accordingly, the results of operations of this division have 
been consolidated with those of the Company from its date of acquisition.  
The net assets acquired were recorded at their estimated fair market values 
with the excess allocated to goodwill, as follows: 

Software rights acquired                             $  50
Goodwill                                               584
                                                     -----
                                                     $ 634
                                                     -----
                                                     -----

The goodwill associated with this transaction is being amortized on a 
straight line basis over five years. The recoverability of unamortized 
goodwill is assessed on an ongoing basis by comparing anticipated 
undiscounted cash flows to net book value.  Goodwill is presented net of 
accumulated amortization of $146 and $29 at May 31, 1997 and 1996, 
respectively.  Pro forma operating results are not presented as the effect is 
immaterial.

NOTE 3 - ACCOUNTS RECEIVABLE

Accounts receivable, net of allowances, consist of the following: 

                                                        May 31, 
                                              -------------------------
                                                1997               1996
                                                ----               ----
Gross accounts receivable                     $ 8,059            $ 7,076
Less allowance for doubtful accounts             (991)              (667)
Less allowance for returns                     (1,616)            (1,213)
                                              -------            -------
                                              $ 5,452            $ 5,196
                                              -------            -------
                                              -------            -------


                                     -38-
<PAGE>

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following: 

                                                           May 31,  
                                                    --------------------
                                                      1997         1996
                                                      ----         ----
Furniture and fixtures                              $  1,702     $ 1,444
Computers and equipment                               12,564      10,722
Leasehold improvements                                   369         331
Purchased software for internal use                    1,444       1,094
                                                    --------     -------
                                                      16,079      13,591
Less accumulated depreciation and amortization       (10,258)     (8,510)
                                                    --------     -------
                                                    $  5,821     $ 5,081
                                                    --------     -------
                                                    --------     -------

Depreciation expense for the years ended May 31, 1997, 1996, 1995, was 
$2,038, $1,892 and $1,513, respectively.

The Company leased equipment under long-term lease agreements which are 
classified as capital leases. All capital leases were paid in full as of May 
31, 1997.  Property and equipment includes the following leased property at 
May 31, 1996:

Property and equipment                               $ 350
Less accumulated amortization                         (149)
                                                     -----
                                                     $ 201
                                                     -----
                                                     -----

NOTE 5 - ACCRUED EXPENSES

Accrued expenses consist of the following: 

                                                   May 31,  
                                              -----------------
                                               1997       1996
                                               ----       ----
Accrued vacation payable                      $1,058     $  904
Coop advertising accrual                       1,058        856
Other                                          2,582      3,039
                                              ------     ------
                                              $4,698     $4,799
                                              ------     ------
                                              ------     ------


                                     -34-
<PAGE>

NOTE 6 - LINE OF CREDIT

The Company has a $5,000 revolving line of credit facility with a bank which 
provides for interest at prime.  Substantially all of the Company's assets 
are pledged as collateral on the line of credit which expires on November 15, 
1997 and is subject to certain covenants, all of which had been complied with 
at May 31, 1997.  There were no amounts outstanding at May 31, 1997 or 1996.

NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

All long-term debt and capital lease obligations have been paid in
full as of May 31, 1997.  Long-term debt and capital lease
obligations at May 31, 1996 consist of the following:

Various capital lease obligations with interest rates varying
  from 4.8% to 11.9%, at May 31, 1996, maturities through 
  October 1997, repayable in monthly installments and secured 
  by the related equipment.                                              $247

Term loans bearing interest ranging from 8.0% to 9.5%, at
  May 31, 1996, repayable in monthly installments ranging 
  from $5 to $6 plus accrued interest through December 1996, 
  secured by various assets and guaranteed by certain stockholders.        83

Note payable to a third party bearing interest at 1.25% over the
  prime rate (9.5% as of May 31, 1996).  The principal amount is 
  due in four quarterly installments to commence upon demand.             500

Other notes                                                                17
                                                                         ----
                                                                          847
Current portion of long-term debt                                         827
                                                                         $ 20
                                                                         ----
                                                                         ----
NOTE 8 - COMMITMENTS AND CONTINGENCIES

LEASE OBLIGATIONS

Rental expense incurred for operating leases of office facilities and office 
equipment was approximately $866 in 1997, $871 in 1996 and $894 in 1995.  The 
rent expense for the years ended May 31 1997, 1996 and 1995 include $53, $71 
and $71, respectively, for computer equipment leased from stockholders.  
Future minimum rental payments as of May 31, 1997 for noncancelable operating 
leases with initial or remaining terms in excess of one year are payable as 
follows:  fiscal 1998 - $866, fiscal 1999 - $772, fiscal 2000 - $92 and 
fiscal 2001 - $18.

LITIGATION

The Company is, from time to time, a party to litigation arising in the 
normal course of business. Management believes that none of this litigation 
will have a material adverse effect on the financial position or results of 
operations or cash flows of the Company.


                                     -35-
<PAGE>

NOTE 9 - INCOME TAXES

Deferred income taxes reflect the tax effects of temporary differences 
between the carrying amounts of assets and liabilities for financial 
reporting purposes and the amounts used for income tax purposes. Significant 
components of the Company's deferred tax liabilities and assets are as 
follows:

                                                                    May 31,
                                                               -----------------
                                                                1997       1996
                                                                ----       ----
Deferred tax liabilities:
  Tax depreciation in excess of financial reporting            $  746     $  470
                                                               ------     ------
    Total deferred tax liabilities                                746        470
                                                               ------     ------
Deferred tax assets:
  Accounts receivable allowances                                  909        687
  Deferred revenue                                                617      1,342
  Coop advertising accrual                                        392        317
  Sales tax accrual                                               127        211
  Net operating loss carryforward                                            950
  Research and development credit carryforward                    651        573
  Alternative minimum tax credit carryforward                     133        160
  Investment tax credit carryforward                                          63
  Vacation and other                                              450        317
                                                               ------     ------
    Total deferred tax assets                                   3,279      4,620
                                                               ------     ------
    Total net deferred income taxes                            $2,533     $4,150
                                                               ------     ------
                                                               ------     ------

The provision (benefit) for income taxes is summarized as follows: 

                                                              May 31,
                                                --------------------------------
                                                 1997         1996      1995
                                                 ----         ----      ----
Current income taxes:
  Federal                                       $1,502      $   595    $ 1,261
  State                                             38           48        110
  Net operating loss carryforward                 (950)        (592)    (1,326)
                                                ------      -------    -------
                                                   590           51         45

Deferred income taxes:
  Federal                                        1,471        1,233        157
  State                                            146          109         20
                                                ------      -------    -------
                                                 1,617        1,342        177

Increase (decrease) in valuation allowance                   (5,492)      (177)
                                                ------      -------    -------
                                                $2,207      $(4,099)   $    45
                                                ------      -------    -------
                                                ------      -------    -------


                                     -36-
<PAGE>

The differences between the expected tax provision based on the federal 
income tax statutory rate and the actual provision for the years presented 
are summarized as follows: 

                                                             May 31,
                                                  ------------------------------
                                                  1997        1996         1995
                                                  ----        ----         ----
Expected tax provision at statutory rate         $1,981      $ 1,143      $ 126
State income taxes, net of federal tax effect       175          111         12
Change in valuation allowance                                 (5,492)      (177)
Other                                                51          139         84
                                                 ------      -------      -----
    Total                                        $2,207      $(4,099)     $  45
                                                 ------      -------      -----
                                                 ------      -------      -----

At May 31, 1995, the Company had determined that the realization of the net 
operating loss carryforward and other deferred tax assets did not meet the 
recognition criteria under SFAS No. 109, and, accordingly, a valuation 
allowance was established for the tax benefit of these items.  The valuation 
allowance was reversed during 1996 due primarily to the utilization of a 
portion of the net operating loss carryforwards, and on the basis of an 
analysis performed by management which considered all available evidence, 
both positive and negative, as well as the weight and importance of such 
evidence.  As a result of this analysis, management believed it was more 
likely than not that these tax benefits would be realized in the future, and, 
accordingly, reversed the remaining valuation allowance in the fourth quarter 
of fiscal 1996.

NOTE 10 - INCENTIVE STOCK OPTION PLAN

At May 31, 1997, 2,066,667 shares of common stock had been reserved for 
issuance or grant under the Employee Incentive Stock Option plan.  The 
options are granted to employees at 100% of the fair market value on the date 
of grant.  The fair market value, rate of exercisability and expiration dates 
of the options granted are determined by the Board of Directors at the time 
of grant. Options generally vest ratably over five years from date of grant 
and expire six years after grant.


                                     -37-
<PAGE>

The following summary of outstanding options and shares reserved under the 
Plan is as follows: 


<TABLE>
<CAPTION>
                                                                             Weighted
                                                Option       Expiration       Average
                                  Options     Price Range        Date       Exercise Price
                                Outstanding    Per Share     (Fiscal Year)   Per Share
                                -----------    ---------     -------------   ---------
<S>                             <C>          <C>             <C>             <C>
Outstanding at May 31, 1994        973,547   $1.70 to $3.41   1995 - 1999      $2.11
  Granted                          187,433   $4.16                             $4.16
  Exercised                        (77,333)  $1.70 to $2.55                    $1.77
  Canceled/expired                 (20,000)  $1.96 to $4.16                    $3.08
                                 ---------
Outstanding at May 31, 1995      1,063,647   $1.96 to $4.16   1997 - 2001      $2.48
  Granted                          619,333   $5.20 to $6.41                    $5.42
  Exercised                        (32,013)  $1.96 to $2.57                    $2.30
  Canceled/expired                (321,320)  $2.57 to $5.20                    $4.89
                                 ---------
Outstanding at May 31, 1996      1,329,647   $1.96 to $6.41   1997 - 2002      $3.27
  Granted                          361,000   $6.41 to $7.71                    $6.65
  Exercised                       (732,447)  $1.96 to $6.41                    $2.12
  Canceled/expired                 (88,667)  $4.16 to $6.41                    $5.36
                                 ---------
Outstanding at May 31, 1997        869,533   $2.42 to $7.71   1997 - 2003      $5.43
                                 ---------
                                 ---------
</TABLE>

As of May 31, 1997 there were currently exercisable options outstanding 
covering 165,669 shares, exercisable at prices ranging from $2.42 to $6.41 
per share.

In fiscal 1997, the Company adopted Statement of Financial Accounting 
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based 
Compensation."  As permitted by SFAS No. 123, the Company has elected to 
continue following the guidance of APB 25 for measurement and recognition of 
stock-based transactions with employees and adopt the disclosure only 
provisions of SFAS No. 123. As a result, no compensation expense has been 
recognized for the awards made in the form of stock options.  If the Company 
had elected to recognize compensation costs for stock-based compensation 
plans based on the fair value at the grant dates for awards under those plans 
consistent with the method prescribed by SFAS No. 123, net income and 
earnings per share would have been changed to the pro forma amounts indicated 
below: 

                                                 Year Ended
                                                   May 31,
                                              -----------------
                                               1997       1996
                                               ----       ----
Net income:
  As reported                                 $3,644     $7,461
  Pro forma                                   $3,508     $7,397

Earnings per share:
  Pro forma as reported                       $ 0.36
  Pro forma as adjusted                       $ 0.35


                                     -38-
<PAGE>

The fair value of the stock options used to compute pro forma net income and 
earnings per share disclosures is the present value at grant date using the 
Black-Scholes option pricing model with the following weighted average 
assumptions for 1997 and 1996: no dividend yield, expected volatility of 
53.8% and 44.5%, respectively, risk-free interest rate of 6.46%, and an 
expected holding period of six years.

The following table summarizes the status of the Company's stock options 
outstanding as of May 31, 1997:

<TABLE>
<CAPTION>
                                                  Stock Options                  Stock Options
                                                   Outstanding                    Exercisable
                                          ------------------------------      ------------------------
                                            Weighted
                                            Average          Weighted                     Weighted
                                           Remaining         Average                      Average
   Range of                               Contractual     Exercise Price                Exercise Price
Exercise Price              Shares            Life           Per Share         Shares     Per Share
--------------              ------            ----           ---------         -----      ---------
<S>                        <C>            <C>             <C>                 <C>       <C>
$2.42 to $3.63             127,867            1.7 yrs          $2.72           80,133      $2.65
$3.64 to $5.46             317,066            4.0 yrs          $4.94           67,536      $4.87
$5.47 to $8.21             424,600            5.2 yrs          $6.62           18,000      $6.41
                           -------                                            -------
    Total                  869,533                                            165,669
                           -------                                            -------
                           -------                                            -------
</TABLE>

NOTE 11 - EMPLOYEE BENEFIT PLAN

The Company maintains a defined contribution 401(k) Profit Sharing Plan 
covering substantially all employees.  The Company currently matches 25% of 
each participant's contribution up to 8% of their annual salary and can make 
discretionary profit sharing contributions to the plan.  The Company's 
contribution to this plan for the years ended May 31, 1997, 1996 and 1995, 
was approximately $310, $251 and $230, respectively.

NOTE 12 - RELATED PARTY TRANSACTIONS

CONSULTING SERVICES

A director of the Company was paid $39, $37 and $54 during 1997, 1996, and 
1995 (plus reimbursement of expenses), respectively, for consulting services 
rendered to the Company pursuant to consulting agreements with the Company.

STOCK OPTION GRANT BY PRINCIPAL STOCKHOLDERS

In April 1995, certain principal common stockholders granted to an 
officer/director of the Company an option to purchase 711,156 shares of 
common stock directly from them at an exercise price of $4.16 per share (fair 
market value at date of grant).  Certain events, including a decision by the 
Board of Directors to initiate an initial public offering, accelerate the 
vesting period.  These options were exercised on January 2, 1997.


                                     -39-
<PAGE>

NOTE 13 - STOCKHOLDERS' EQUITY

The Board of Directors met on February 20, 1997, and took the following 
actions in connection with the initial public offering of shares of the 
Company's common stock: (a) authorized a four-for-three stock split of the 
issued and outstanding common stock of the Company, in the form of a stock 
dividend, to be effective immediately prior to the public offering (all 
references to common stock amounts, shares, per share data and preferred 
stock conversion rights included in the financial statements and these notes 
have been adjusted to give retroactive effect to the stock split); (b) 
authorized an increase in capital stock to 100,000,000 shares of $0.01 par 
value common stock and 30,000,000 shares of $0.01 par value preferred stock 
to be both contingent and effective upon stockholder approval and the first 
closing of the initial public offering of common stock; (c) waived, subject 
to the closing of an initial public offering, the Company's contractual 
rights to repurchase shares of common stock from employees of the Company; 
and (d) authorized certain incentive stock plans contingent and effective 
upon stockholder approval and consummation of the initial public offering.  
These incentive plans include (i) the 1997 Employee Stock Purchase Plan 
providing for the purchase of common stock at a discounted price, (ii) the 
1997 Stock Incentive Plan providing for the grant of stock-based compensation 
to eligible persons and (iii) the Outside Directors' Stock Option Plan 
providing for the grant of nonqualified stock options to nonemployee 
directors of the Company.

SERIES A CONVERTIBLE PREFERRED STOCK

In June 1994, the Company sold 225,000 shares of $.01 par value Series A 
Convertible Preferred Stock (the "Series A Preferred Stock") at $1.00 per 
share to an officer/director who may convert these shares into 54,000 shares 
of common stock at any time after June 15, 1997, at a rate of .24 shares of 
common stock for each share of Series A Preferred Stock.  The Series A 
Preferred Stock were converted to shares of common stock upon completion of 
the Initial Public Offering on June 19, 1997.

SERIES B MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

Also in June 1994, the Company entered into an agreement for the sale of 
Series B Mandatorily Redeemable Convertible Preferred Stock (the "Series B 
Preferred Stock") and warrants.  On June 24, 1994, at the first closing, the 
Company sold 888,576 of $.01 par value Series B Preferred Stock and 
contingent warrants to purchase an additional 752,234 shares of Series B 
Preferred Stock for an aggregate purchase price of $6,300.  On September 22, 
1994, the second closing, the Company sold an additional 282,088 shares of 
Series B Preferred Stock for an aggregate purchase price of $2,000.

During May 1995, the Company and the holders of the Series B Preferred Stock 
agreed to reprice the previously issued shares of Series B Preferred Stock 
and eliminate the warrants.  The Company issued an additional 174,556 shares 
of Series B Preferred Stock in return for the cancellation of the warrants. 
Thus, the total Series B Preferred Stock sold in the three transactions was 
1,345,220 shares at an average price of $6.17.

Holders of the Series B Preferred Stock converted their shares into 1,793,627 
shares of common stock upon completion of the Initial Public Offering on June 
19, 1997.  Prior to the conversion to common stock, the Company carried this 
Series B Preferred Stock at fair value which management considered to equal 
$21.33 and $8.55 per share at May 31, 1997 and 1996, respectively.  The 
increase in carrying value of Series B Preferred Stock is reflected as a 
reduction to Additional Paid-in Capital.


                                     -40-
<PAGE>

NOTE 14 - SUBSEQUENT EVENT

In June 1997, the Company sold 3,450,000 shares of common stock at an initial 
offering price of $16.00 per share.  Total transaction 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 and other Board of Director resolutions, as 
described in Note 13, became effective.


                                     -41-

<PAGE>

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

    None.

                                   PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The section under the heading  Election of Directors" on pages 3 through 
5 and the section entitled  Section 16(a) Beneficial Ownership Reporting 
Compliance" on page 12 of the Company's Proxy Statement dated August 20, 1997 
( 1997 Proxy Statement") are incorporated herein by reference.

    The information contained in Item 1 in Part I hereof under the heading  
Executive Officers" is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

    The section under the heading  Election of Directors" entitled  
Compensation of Directors" on page 6 and the section entitled "Executive 
Compensation" on pages 9 through 11 of the 1997 Proxy Statement are 
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The section entitled "Security Ownership of Certain Beneficial Owners and 
Management" on pages 2 and 3 of the 1997 Proxy Statement are incorporated 
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The section entitled "Certain Transactions" on pages 11 and 12 of the 
1997 Proxy Statement are incorporated herein by reference.


                                     -42-
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Documents filed as part of this Report

    (1)  Financial Statements.  The following financial statements of the 
         Company are included in Part II, Item 8, of this Annual Report on 
         Form 10-K.

              Report of Independent Accountants 
              Consolidated Balance Sheets as of May 31, 1997 and 1996
              Consolidated Statement of Income for the three years in
                   the period ended May 31, 1997
              Consolidated Statement of Stockholder's Deficit for the
                   three years in the period ended May 31, 1997
              Consolidated Statement of Cash Flows for the three
                   years in the period ended May 31, 1997
              Notes to Consolidated Financial Statements

    (2)  Financial Statement Schedules
              Report of Independent Accountants on the financial statement 
                   schedule
              Schedule II.  Valuation and Qualifying Accounts

    (3)  EXHIBITS

  3.1         Amended and Restated Articles of Incorporation, as
              amended (incorporated herein by reference to
              Exhibit 3.1 to the Company's Registration
              Statement on Form S-1 filed March 5, 1997 (SEC
              File No. 333-22833))

  3.2         Amended Bylaws (incorporated herein by reference
              to Exhibit 3.2 to the Company's Registration
              Statement on Form S-1 filed March 5, 1997 (SEC
              File No. 333-22833))

  10.1        Lease Agreement, dated October 1, 1983, as amended,
              between the Company and West Acres Office Park
              (incorporated herein by reference to Exhibit 10.1 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833))

  10.2        Lease Agreement, dated April 20, 1994, between the
              Company and Norwest Bank North Dakota, N.A.
              (incorporated herein by reference to Exhibit 10.2 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833))

  10.3        Lease Agreement, dated May 2, 1994, as amended, between
              the Company and Blue Cross Blue Shield of North Dakota
              and Lincoln Mutual Life and Casualty Insurance Co.
              (incorporated herein by reference to Exhibit 10.3 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833))

  10.4        1983 Incentive Stock Option Plan, as amended
              (incorporated herein by reference to Exhibit 10.4 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833)) *

  10.5        1997 Stock Incentive Plan, including form of option
              agreement (incorporated herein by reference to Exhibit
              10.5 to the Company's Registration Statement on Form S-1 filed 
              March 5, 1997 (SEC File No. 333-22833)) *


                                     -43-
<PAGE>

  10.6        Outside Directors' Stock Option Plan (incorporated
              herein by reference to Exhibit 10.6 to the Company's
              Registration Statement on Form S-1 filed March 5, 1997
              (SEC File No. 333-22833)) *
  
  10.7        1997 Employee Stock Purchase Plan (incorporated herein
              by reference to Exhibit 10.7 to the Company's
              Registration Statement on Form S-1 filed March 5, 1997
              (SEC File No. 333-22833)) *
  
  10.8        Registration Rights Agreement, dated as of June 24,
              1994, between the Company and the holders of
              registerable securities named therein (incorporated
              herein by reference to Exhibit 10.8 to the Company's
              Registration Statement on Form S-1 filed March 5, 1997
              (SEC File No. 333-22833))

  10.9        Limited Liability Company Agreement for Great Plains
              Software U.K., LLC, dated as of February 20, 1996,
              between the Company and Douglas J. Burgum (incorporated
              herein by reference to Exhibit 10.9 to the Company's
              Registration Statement on Form S-1 filed March 5, 1997
              (SEC File No. 333-22833))

  10.10       Agreement between the Company and Terri F. Zimmerman
              (incorporated herein by reference to Exhibit 10.10 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833)) *

  10.11       Agreement between the Company and Raymond F. Good
              (incorporated herein by reference to Exhibit 10.11 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833)) *

  10.12       Form of Nonemployee Director Stock Option Agreement
              (incorporated herein by reference to Exhibit 10.12 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833)) *

  10.13       Board of Directors' Resolutions amending 1997 Employee
              Purchase Plan (incorporated herein by reference to
              Exhibit 10.13 to the Company's Registration Statement
              on Form S-1 filed March 5, 1997 (SEC File No. 333-22833)) *

  11.1        Computation of Pro Forma Net Income Per Share

  21.1        Subsidiary of the Company

  23.1        Consent of Price Waterhouse LLP

  24.1        Powers of Attorney

  27.1        Financial Data Schedule

  99.1        Cautionary Statement for Purposes of the "Safe Harbor"
              Provisions of the Private Securities Litigation Reform
              Act of 1995

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


                                     -44-
<PAGE>

(b) Reports on Form 8-K

    No reports on Form 8-K were filed during the quarter ended May 31, 1997.

(c) See Exhibit Index and Exhibits filed with this Report.

(d) See the Financial Statement Schedule included at the end of this Report.


                                     -45-
<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.

Date:  August 18, 1997                 GREAT PLAINS SOFTWARE, INC.

                                       By   /s/ Douglas J. Burgum
                                           ----------------------------------
                                       Douglas J. Burgum
                                       Chairman of the Board, President and 
                                            Chief Executive Officer
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this 
Report has been signed by the following persons on behalf of the registrant 
and in the capacities indicated on the 18th day of August, 1997.  

        Signature                              Title
        ---------                              -----
   /s/ Douglas J. Burgum           Chairman of the Board, President
---------------------------        and Chief Executive Officer 
Douglas J. Burgum                  (principal executive officer) and Director

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

            *                      Director
---------------------------
Bradley J. Burgum

            *                      Director
---------------------------
Frederick W. Burgum

            *                      Director
---------------------------
William V. Campbell

                                   Director
---------------------------
Raymond F. Good

                                   Director
---------------------------
Sanjeev K. Mehra

            *                      Director
---------------------------
J. A. Heidi Roizen

            *                      Director
---------------------------
Joseph S. Tibbetts, Jr.

*  By  /s/ Douglas J. Burgum
      ----------------------
      Douglas J. Burgum
      Attorney-in-Fact

                                     -46-

<PAGE>
                                       
            REPORT OF INDEPENDENT ACCOUNTANTS ON THE FINANCIAL STATEMENT
                                   SCHEDULE







To the Board of Directors
  of Great Plains Software, Inc.

Our audits of the consolidated financial statements referred to in our report 
dated July 8, 1997 appearing in item 8 in Great Plains Software, Inc.'s 
Annual Report on Form 10-K for the year ended May 31, 1997 also included an 
audit of the Financial Statement Schedule listed in Item 14(a) of this Form 
10-K.  In our opinion, the Financial Statement Schedule presents fairly, in 
all material respects, the information set forth therein when read in 
conjunction with the related consolidated financial statements.









PRICE WATERHOUSE LLP
Minneapolis, Minnesota
July 8, 1997



<PAGE>

                          Great Plains Software, Inc.
         Schedule II -- Schedule of Valuation and Qualifying Accounts
                             (Amounts in thousands)


<TABLE>
<CAPTION>
                                   Balance at  Charged to
                                   Beginning    Costs and                    Balance at
                                    of Year     Expenses     Deductions      End of Year
                                   ---------   ----------    ----------      -----------
<S>                                <C>         <C>           <C>             <C>
Allowance for doubtful accounts
Year ended May 31,

   1997                                667         408           84              991
   1996                                255         529          117              667
   1995                                192         111           48              255

Allowance for Returns                                                    
Year Ended May 31,                                                       

   1997                              1,213       4,007        3,604            1,616
   1996                              1,096       3,349        3,232            1,213
   1995                                253       2,909        2,066            1,096
</TABLE>

<PAGE>


               INDEX TO EXHIBITS TO ANNUAL REPORT ON FORM 10-K
                       OF GREAT PLAINS SOFTWARE, INC.
                   FOR THE FISCAL YEAR ENDED MAY 31, 1997

  3.1         Amended and Restated Articles of Incorporation, as
              amended (incorporated herein by reference to
              Exhibit 3.1 to the Company's Registration
              Statement on Form S-1 filed March 5, 1997 (SEC
              File No. 333-22833))

  3.2         Amended Bylaws (incorporated herein by reference
              to Exhibit 3.2 to the Company's Registration
              Statement on Form S-1 filed March 5, 1997 (SEC
              File No. 333-22833))

  10.1        Lease Agreement, dated October 1, 1983, as amended,
              between the Company and West Acres Office Park
              (incorporated herein by reference to Exhibit 10.1 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833))

  10.2        Lease Agreement, dated April 20, 1994, between the
              Company and Norwest Bank North Dakota, N.A.
              (incorporated herein by reference to Exhibit 10.2 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833))

  10.3        Lease Agreement, dated May 2, 1994, as amended, between
              the Company and Blue Cross Blue Shield of North Dakota
              and Lincoln Mutual Life and Casualty Insurance Co.
              (incorporated herein by reference to Exhibit 10.3 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833))

  10.4        1983 Incentive Stock Option Plan, as amended
              (incorporated herein by reference to Exhibit 10.4 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833)) *

  10.5        1997 Stock Incentive Plan, including form of option
              agreement (incorporated herein by reference to Exhibit
              10.5 to the Company's Registration Statement on Form S-1 filed 
              March 5, 1997 (SEC File No. 333-22833)) *

  10.6        Outside Directors' Stock Option Plan (incorporated
              herein by reference to Exhibit 10.6 to the Company's
              Registration Statement on Form S-1 filed March 5, 1997
              (SEC File No. 333-22833)) *

  10.7        1997 Employee Stock Purchase Plan (incorporated herein
              by reference to Exhibit 10.7 to the Company's
              Registration Statement on Form S-1 filed March 5, 1997
              (SEC File No. 333-22833)) *
  
  10.8        Registration Rights Agreement, dated as of June 24,
              1994, between the Company and the holders of
              registerable securities named therein (incorporated
              herein by reference to Exhibit 10.8 to the Company's
              Registration Statement on Form S-1 filed March 5, 1997
              (SEC File No. 333-22833))

  10.9        Limited Liability Company Agreement for Great Plains
              Software U.K., LLC, dated as of February 20, 1996,
              between the Company and Douglas J. Burgum (incorporated
              herein by reference to Exhibit 10.9 to the Company's
              Registration Statement on Form S-1 filed March 5, 1997
              (SEC File No. 333-22833))

  10.10       Agreement between the Company and Terri F. Zimmerman
              (incorporated herein by reference to Exhibit 10.10 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833)) *

  10.11       Agreement between the Company and Raymond F. Good
              (incorporated herein by reference to Exhibit 10.11 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833)) *

  10.12       Form of Nonemployee Director Stock Option Agreement
              (incorporated herein by reference to Exhibit 10.12 to
              the Company's Registration Statement on Form S-1 filed
              March 5, 1997 (SEC File No. 333-22833)) *

  10.13       Board of Directors' Resolutions amending 1997 Employee
              Purchase Plan (incorporated herein by reference to
              Exhibit 10.13 to the Company's Registration Statement
              on Form S-1 filed March 5, 1997 (SEC File No. 333-22833)) *

  11.1        Computation of Pro Forma Net Income Per Share

  21.1        Subsidiary of the Company

  23.1        Consent of Price Waterhouse LLP

  24.1        Powers of Attorney

  27.1        Financial Data Schedule

  99.1        Cautionary Statement for Purposes of the "Safe Harbor"
              Provisions of the Private Securities Litigation Reform
              Act of 1995

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