U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

        [X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities
             Exchange Act of 1934

                  For the fiscal year ended November 30, 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 0-23438

                       Effective Management Systems, Inc.
             (Exact name of registrant as specified in its charter)

                      Wisconsin                           39-1292200
           (State or other jurisdiction of             (I.R.S. Employer
           incorporation or organization)             Identification No.)

        12000 West Park Place, Milwaukee, WI                 53224
      (Address of principal executive offices)            (Zip Code)

       Registrant's telephone number, including area code:  (414) 359-9800

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

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

                                      None.

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

               Title of Class                       Title of Class
        Common Stock $.01 Par Value        Warrants to Purchase Common Stock


        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
   periods that the registrant was required to file such reports), and (2)
   has been subject to such filing requirements for the past 
   90 days.   Yes [X]  No [ ]

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

        The aggregate market value of voting and non-voting common equity
   held by non-affiliates of the registrant at February 1, 1998 was
   $8,987,325.

    The number of common shares outstanding at February 1, 1998 was 4,079,455


                      DOCUMENTS INCORPORATED BY REFERENCE:

   Effective Management  Systems, Inc. Proxy Statement for the 1998 Annual
   Meeting of Shareholders (to be filed with the Securities and Exchange
   Commission under Regulation 14A within 120 days after the end of the
   Registrant's fiscal year and, and upon such filing, to be incorporated by
   reference into Part III). 

   <PAGE>
                       EFFECTIVE MANAGEMENT SYSTEMS, INC.

                       Index to Annual Report on Form 10-K
                            For the Fiscal Year Ended
                                November 30, 1997

                                                                         Page

   Part I  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1
        Item 1.   Description of Business  . . . . . . . . . . . . . . .    1
        Item 2.   Properties . . . . . . . . . . . . . . . . . . . . . .   16
        Item 3.   Legal Proceedings  . . . . . . . . . . . . . . . . . .   16
        Item 4.   Submission of Matters to a Vote of Security Holders  .   16
        Item 5.   Market for Common Equity and Related Stockholder
                  Matters  . . . . . . . . . . . . . . . . . . . . . . .   17
        Item 6.   Selected Financial Data (In thousands, except per
                  share data)  . . . . . . . . . . . . . . . . . . . . .   18
        Item 7.   Management's Discussion and Analysis of Financial
                  Condition and Results of Operation (for the fiscal
                  years ended November 30, 1997, 1996, and 1995) . . . .   20
        Item 7A   Quantitative and Qualitative Disclosures About
                   Market Risk . . . . . . . . . . . . . . . . . . . . . . 26
        Item 8.   Financial Statement and Supplementary Data.  . . . . .   27
        Item 9.   Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure  . . . . . . . . .   53
        Item 10.  Directors and Executive Officers of the Registrant . .   53
        Item 11.  Executive Compensation . . . . . . . . . . . . . . . .   53
        Item 12.  Security Ownership of Certain Beneficial Owners and
                  Management . . . . . . . . . . . . . . . . . . . . . .   53
        Item 13.  Certain Relationships and Related Transactions . . . .   53
        Item 14.  Exhibits, Financial Statement Schedules, and Reports
                  on Form 8-K  . . . . . . . . . . . . . . . . . . . . .   53



                                     Part I
   Item 1. Description of Business

   Overview

             Effective Management Systems, Inc. ("EMS")  develops, markets
   and supports  integrated manufacturing and business management software. 
   EMS' Time Critical Manufacturing/TM/ ("TCMJ/TM/") software is designed
   with the underlying philosophy that time is a crucial element in
   manufacturing, and that reducing time in the manufacturing process leads
   directly to increased profits for the manufacturer.  TCMJ software
   integrates technologies such as electronic data interchange ("EDI"),
   imaging, bar-coding, factory automation, engineering system integration,
   distributed numerical control ("DNC"), statistical process control
   ("SPC"), and fourth generation language ("4GL") tools with EMS'
   proprietary algorithms for scheduling and production, to optimize the
   customer's labor, capital and inventory utilization.  Software offered by
   EMS functions on the Windows NT, IBM AIX, Open VMS, SCO-Unix, and HP-UX
   operating systems.  EMS also provides services support for its software
   products and, on a selective basis, sells computer hardware.

             Software products offered by EMS include: TCM/R/, which is a
   pre-integrated enterprise resource planning, accounting and manufacturing
   execution system; and FACTORYnet/R/ I/S, which is an integrated
   Manufacturing Execution System, providing production management, shop
   floor scheduling, and operations support.  These software products are
   usually integrated with a bar code data collection system or direct
   machine controls, and provide up-to-the-minute information to track
   production and business operations.  This facilitates real-time decision
   making and enables employees throughout an organization to respond quickly
   to marketplace demands and unanticipated events.

             EMS typically focuses its sales and marketing efforts on
   discrete manufacturing plants. According to Advanced Manufacturing
   Research ("AMR") data from December 1995 there are over 24,000 discrete
   plant sites in the United States in the market segments EMS targets.  EMS
   has licensed its software products to over 1,500 customer sites.

             EMS distributes its products in the United States through
   seventeen  branch offices and through seven joint ventures and independent
   distributors.  EMS also has established distribution channels through
   independent distributors in Japan, Korea, China, the United Kingdom,
   Belgium and Poland.  In addition, the Company has joint ventures in Poland
   and China to support these distributors.

             EMS was incorporated in Wisconsin in 1978.  EMS became a
   publicly held company as a result of its initial public offering which was
   completed in February 1994.  During 1995, EMS acquired Intercim
   Corporation and the remaining interest in Effective Management Systems of
   Illinois, Inc., a joint venture subsidiary.  In 1996, EMS acquired the
   remaining interest in Darwin Data Systems Corporation another joint
   venture subsidiary.  For further details regarding these acquisitions, see
   Note 2 of Notes to EMS' Consolidated Financial Statements, which
   disclosure is included elsewhere in this Annual Report on Form 10-K and
   incorporated herein by reference.

   Business Risk Factors

        This Annual Report on Form 10-K and other information that is
   provided from time to time by EMS contain statements that, with the
   exception of historical facts, are forward-looking statements including,
   but not limited to, statements about:  (i) EMS' strategies, uses and
   expectations for existing and new products, services, technologies and
   opportunities, (ii) the potential future profitability of EMS' operations,
   (iii) the demand for and acceptance of new and existing products and
   services, (iv) EMS' plan to reduce its cost structure, and (v) the
   adequacy of EMS' resources to fund its operations, including research and
   development.  These statements are forward-looking statements that are
   subject to important risks and uncertainties, which could affect EMS'
   actual results and could cause such results to differ materially from any
   future results, performance or achievements expressed or implied by such
   forward-looking statements.  These important risks and uncertainties
   include, but are not limited to, the following:

        Dependence on Principal Products.  A significant portion of EMS'
   revenue is derived from license fees for TCM/R/ and FACTORYnet/R/ I/S and
   the sale of related support services.  Accordingly, any event that could
   adversely affect license fees for TCM/R/ or FACTORYnet/R/ I/S, such as
   significant flaws or incompatibility, negative publicity or evaluation, or
   obsolescence of the hardware platforms on which the systems run, could
   have a material adverse effect on EMS' results of operations.  EMS' future
   financial performance will depend, in part, on the continued development
   and introduction of new and enhanced versions of TCM/R/, FACTORYnet/R/ I/S
   and other products, and customer acceptance of such new and enhanced
   products.

        Dependence on Third Party Software.  TCM/R/ and FACTORYnet/R/ I/S
   incorporate and use software technology and software products developed by
   other companies.  There can be no assurance that all of these companies
   will remain in business or that their product lines will remain viable. 
   If any of these companies cease to do business or abandon or fail to
   enhance a particular product line, EMS may need to seek other suppliers. 
   This could result in EMS having to significantly alter its product lines
   which could have a material adverse effect on EMS' results of operations. 
   There also can be no assurance that EMS' current suppliers will not
   significantly alter their pricing in a manner adverse to EMS.

        New Products and Technological Change.  The market for EMS' products
   is characterized by rapid technological advances, evolving industry
   standards, changes in end-user requirements and frequent new product
   introductions and enhancements.  The introduction of products embodying
   new technologies and the emergence of new industry standards could render
   EMS' existing products and products currently under development obsolete
   and unmarketable.  EMS' future success will depend upon its ability to
   enhance its current products and to develop and introduce new products
   that keep pace with technological developments, respond to evolving end-
   user requirements and achieve market acceptance.  Any failure by EMS to
   anticipate or respond adequately to technological developments or end-user
   requirements, or any significant delays in product development or
   introduction, could result in a loss of competitiveness or revenues. 
   There can be no assurance that EMS will be successful in developing and
   marketing new products or product enhancements on a timely basis or that
   EMS will not experience significant delays in the future, which could have
   a material adverse effect on EMS' results of operations.  

        Variability of Quarterly Operating Results; Limited Backlog.  EMS'
   operating results can vary substantially from quarter to quarter due to
   various factors, including, among others:  the size and timing of customer
   orders; the buying patterns of manufacturers in EMS' target market; delays
   in the introduction of products or product enhancements by EMS or by other
   providers of hardware, software and components for the management
   information systems market; competition and pricing in the software
   industry; customer order deferrals in anticipation of new products; market
   acceptance of new products; reduction in demand for existing products;
   changes in operating expenses; and general economic conditions.  EMS has
   historically operated with little backlog because software orders are
   generally shipped as orders are received.  As a result, product revenue in
   any quarter is dependent on orders booked and shipped during that quarter. 
   A significant portion of EMS' operating expenses are based on anticipated
   revenue levels and are relatively fixed in nature.  If revenue does not
   meet EMS' expectations in any given quarter, operating results may be
   adversely affected.

        Competition.  The management information systems industry is
   intensely competitive and rapidly changing.  A number of companies offer
   products similar to EMS' products.  Some of EMS' existing competitors, as
   well as a number of potential competitors, have larger technical staffs,
   more established and larger marketing and sales organizations and
   significantly greater financial resources than EMS.  There can be no
   assurance that such competitors will not develop products that are
   superior to EMS' products or that achieve greater market acceptance.  EMS'
   future success will depend, in part, upon its ability to increase software
   license fee revenues in its target markets.  There can be no assurance
   that EMS will be able to compete successfully against its competitors or
   that the competitive pressures faced by EMS will not adversely affect its
   financial performance.

        Expansion Plans.  EMS plans to expand its business through continued
   product development and expansion of its distribution network in the
   United States and internationally with the objective of increasing total
   net revenues and profits.  There can be no assurance, however, that the
   efforts and funds directed to product development, and to expanding EMS'
   distribution network, will result in revenue and profit growth.  Any
   future growth of EMS will also depend on, among other things, EMS' ability
   to gain market acceptance for its products in new geographic areas and to
   monitor and control the additional costs and expenses associated with
   expansion.  No assurance can be given that EMS will be able to
   successfully manage these aspects of its business.

        Intellectual Property and Proprietary Rights.  EMS regards its
   software products as proprietary, in that title to and ownership of its
   software generally reside exclusively with EMS.  EMS attempts to protect
   ownership of its software with a combination of copyright, trademark and
   trade secret laws, employee and third-party nondisclosure agreements and
   other methods of protection common in the industry.  Despite these
   precautions, it may be possible for unauthorized third parties to copy or
   reverse-engineer certain portions of EMS' products or to obtain and use
   information that EMS regards as proprietary.  Like many software firms,
   EMS presently has no patents.  EMS licenses the source code for its
   software to some customers for customization.  Although EMS' source code
   license contained confidentiality and nondisclosure provisions, there can
   be no assurances that such customers will take adequate precautions to
   protect such code.  In addition, the laws of some foreign countries do not
   protect EMS' proprietary rights to the same extent as do the laws of the
   United States.  There can be no assurance that the mechanisms used by EMS
   to protect its software will be adequate or that EMS' competitors will not
   independently develop software products that are substantially equivalent
   or superior to EMS' software products.  Although EMS does not believe that
   its products infringe on the existing proprietary rights of third parties,
   there can be no assurance that third parties will not assert infringement
   claims against EMS.

        Dependence on Key Employees.  EMS' success is dependent to a
   significant extent on its executive officers and other key personnel, the
   loss of one or more of whom could have a material adverse effect on EMS. 
   The future success of EMS will depend in large part on its ability to
   attract and retain talented and qualified employees.  Competition in the
   recruiting of highly-qualified personnel in the management information
   systems industry is intense.  While EMS has not experienced any difficulty
   in attracting and retaining talented and qualified employees to date,
   there can be no assurance that EMS can retain its key employees or that it
   can attract, assimilate and retain other qualified personnel in the
   future.

   Industry Background

             In the early 1970's, the Material Requirements Planning ("MRP")
   approach was developed to enable manufacturing companies, with the aid of
   computers, to plan and manage their businesses  more efficiently by
   managing the flow of materials at various stages of the manufacturing
   process.  In the 1980's, this management approach evolved into
   Manufacturing Resource Planning ("MRP II"), which considers labor and
   equipment planning for the manufacturing process as part of an iterative
   materials planning approach.  Concurrently with the evolution of MRP II,
   manufacturing companies (predominantly in Japan) developed a management
   technique which emphasizes the supply of component parts to "assembly-
   oriented" manufacturing plants on a "just-in-time" basis.  This technique
   not only was the first to emphasize "time" in its orientation, but also
   had other desirable outcomes for manufacturers, including improved
   quality, lower costs and lower inventory levels.

             In the 1990's, new management approaches for manufacturing
   companies have emerged which focus on "time" as the critical element in
   the manufacturing process.  In these management approaches, the
   manufacturer analyzes the component of time across its entire organization
   with the goal of correlating the expenditure of time to the addition of
   value to the finished product or service.  Beyond the production focus of
   the "just-in-time" environment, this new approach focuses on time in all
   areas of the operation from engineering to manufacturing and from customer
   order processing to shipment.  This new approach differs from MRP II in
   that it often focuses on improving business operations by treating plant
   capacity and labor resources as the primary scheduling items and treating
   material availability as a secondary consideration in manufacturing
   planning.  The new approach emphasizes "operations decision-making"
   support in contrast to the planning emphasis of MRP II and more recently
   developed planning systems such as Enterprise Resource Planning ("ERP"). 
   In addition, a category of information systems has been identified as
   Manufacturing Execution Systems which compliments ERP systems by making
   available real-time information from the factory floor and enhancing
   production performance and decision-making associated with plant
   operations.  EMS believes that these Manufacturing Execution Systems
   represent a relatively new  marketplace with substantial benefit potential
   for manufacturers.   EMS believes that this "time emphasis" in
   manufacturing management, which is the focus of EMS' TCM/R/ and
   FACTORYnet/R/ I/S products, will be an essential component of the
   management approach for many manufacturers in the future.

             During 1997, the Gartner Group of Stamford, Connecticut included
   EMS in its evaluations for North American mid-market ERP solutions, Shop
   Floor Control solutions and Computerized Maintenance Management Systems. 
   In these evaluations, EMS compared favorably relative to many of its
   competitors. EMS was also the only corporation within the industry to have
   a product offering evaluated in all three of these areas for discrete
   manufacturing. Management believes this reflects the fact that EMS is the
   only provider currently offering software for all of these dimensions of a
   discrete manufacturer.  

   Strategy

             EMS' objective is to grow as a leading provider of integrated
   business software systems for discrete manufacturing plants within its
   target market.  EMS has identified three strategic initiatives to achieve
   this goal.

             Focus on Time Critical Manufacturing.  EMS believes that
   manufacturers are striving to become more "time competitive," and that
   manufacturing software which focuses solely on providing information for
   planning and on recording information for historical analysis will be
   inadequate to meet the needs and demands of manufacturers in the years to
   come.  To be effective in the future, EMS believes that manufacturing
   software will be required to empower individuals at all levels of an
   organization to make immediate decisions regarding production processes
   and business activities.  Since 1988, EMS has focused its resources on
   developing software to assist time-oriented manufacturing management. 
   EMS' software facilitates real-time decision-making by employees enabling
   them to change processes proactively and react quickly to marketplace
   demands and unanticipated events.  With few exceptions, EMS believes that
   the limited number of information system implementations currently in
   place which have this "time" focus have been developed on an individual
   customized basis.  EMS is not aware of other major  products available in
   its target market for discrete manufacturers which offers both planning
   and execution systems and has a strategy of focusing on time.

             Commitment to Manufacturing Execution Systems.  EMS believes
   that discrete manufacturers can gain significant competitive advantage by
   implementing Manufacturing Execution Systems.  These systems bring
   together the data and information from ERP Systems, Industrial  Control
   Systems, and Engineering Systems as illustrated below.

                       [FIGURE OMITTED]

             [Description of omitted figure:  This figure illustrates the
   necessary integration of data and information throughout the manufacturing
   organization.  The functional areas of engineering, manufacturing business
   systems, and office automation depend on information from each other to 
   perform efficiently and with quality.  Separate software solutions for each
   of these functional areas causes quality loss through communications errors,
   time loss through redundant entry of data, and incompatibilities of 
   necessary data.]

             EMS offered its first Manufacturing Execution System package in 
   1988 and believes that it is currently a leader in this software segment. 
   Typical business functions included in a Manufacturing Execution System are
   described below (see - "Time Critical Manufacturing - - EMS Software
   Products").  Although the people in an organization which use this
   software on a minute-to-minute and hour-to-hour basis are the factory
   operations personnel, EMS believes that the value manufacturers realize
   from implementing a Manufacturing Execution System extends far beyond this
   realm. EMS believes, based on the experience of its customers, that the
   major benefit of implementing a Manufacturing Execution System within an
   organization is improved customer service and competitiveness.  These
   systems allow an organization to reduce non-value added elapsed time in
   the overall business process.  EMS currently offers two Manufacturing
   Execution System products, one which is pre-integrated with a total
   software offering for the entire enterprise (TCM/R/) and the second is
   FACTORYnet/R/ I/S in which EMS personnel use Manufacturing Execution
   System software to "round out" and complete partial manufacturing
   execution system initiatives already undertaken by the customer. AMR
   reported in December 1995 that Manufacturing Execution System software
   packages had at that time penetrated the U.S. market by the percentages
   set forth below:

                  Industry            % Penetration

                  Electronics                   7%
                  Discrete                      4%
                  Repetitive                    0%

   Management believes Manufacturing Execution Systems provide a significant
   market opportunity for EMS and, correspondingly, has strategically
   committed EMS to enhancing its Manufacturing Execution System offerings
   and marketplace presence.

             Emphasis on Pre-Integrated Software for Discrete Manufacturing. 
   EMS' experience in the marketplace resulted in the 1995 introduction of
   the first "pre-integrated" ERP/Manufacturing Execution System/Controls
   software offering for discrete manufacturers.  This pre-integration
   initiative was facilitated by the acquisition of Intercim Corporation. The
   figure set forth below illustrates three risk and capital capacity curves
   which relate to the eras of "custom" software, "custom systems integrated"
   software, and "pre-integrated" software.

                              [FIGURE OMITTED]

             [Description of omitted figure:  This figure illustrates the 
   evolution of business software and the relationship of risk/capital 
   capacity to corporation size.  "Custom" software systems and "Custom 
   System Integrated" software systems represent the past and current eras
   of software development and implementation.  Formerly, only large 
   corporations could afford the cost and risk of customized software.  Today,
   with pre-integrated software from EMS, all manufacturers can enjoy the 
   benefits of enterprise-wide solutions without the customization risk.]

   The illustration depicts how, in the first era of "Custom" software, only
   large corporations could afford the risk and capital outlays necessary to
   develop such software.  Results from these software investments were mixed
   and implementation times generally spanned from five years to infinity.  

   During the 1980's the industry entered its second era of "Custom Systems
   Integrated" software.  During this era, which actually spans from the mid-
   1980's until the present time, systems integration organizations worked
   with manufacturing companies to procure software components (for example,
   ERP, Statistical Process Control, Plant Maintenance, etc.) and integrated
   them on a custom basis for a given facility or corporation.  The advent of
   this era dramatically reduced risk and capital capacity and for the first
   time made such products affordable for mid-sized corporations. 
   Implementation time frames were reduced to three to five years.  This
   approach represents the state-of-the-art for many  manufacturers today.

   EMS introduced the "pre-integrated" era in 1995 when it offered the first
   pre-integrated software package for discrete manufacturers.  Software pre-
   integration means that a customer can buy a comprehensive set of software
   from EMS which has already been integrated  and proven to function.  The
   various software components may be built by EMS or suppliers to EMS.  In
   the case where there are suppliers to EMS, EMS has generally established
   alliances so that it can have design influence over the software.  The
   pre-integration package also contemplates that other software, for
   example, Computer Aided Design systems, may already be in place at the
   customer site.  "Off-the-shelf interfaces" for popular Computer Aided
   Design systems which once again are proven in advance are available to
   facilitate interaction with these software products.  The figure above
   illustrates that pre-integrated software reduces risk and cost for the
   manufacturing company and also allows manufacturers of varying sizes to
   take advantage of the features offered by the software.  Implementation
   time frames for pre-integrated software are between nine and eighteen
   months. EMS plans to continue to focus on the pre-integrated software
   marketplace.  During 1996, Version 5.3 of TCM/R/ became the first industry
   product to span the business functions from ERP through Manufacturing
   Execution Systems to Statistical Process Control (SPC) and Direct
   Numerical Control (DNC) as illustrated below.  This was followed in 1997
   by Version 6.0 of TCM/R/,  which brought this functionality into a
   Graphical User  Interface (GUI) product, which improved the software's
   ease of use.

                              [FIGURE OMITTED]

             [Description of omitted figure:  This figure illustrates the 
   integration of ERP, MES, Controls, SPC, and actual physical devices on the
   shop floor.  The figure shows the inter-relationships of these systems
   and actual physical devices on the shop floor.  The figure shows the inter-
   relationships of these systems and the necessary feedback loops.  The 
   figure illustrates the value of integrated solutions through pre-defined 
   communications between various software systems.]

             EMS  believes that "pre-integration" of much of this software
   reduces the time and cost of system implementations and increases the
   business value to the manufacturer  similar to the way that "suites" of
   desktop software have affected that marketplace as compared to custom
   integration of word processing, data base, and spreadsheet desktop
   products.  

   Software Products

             EMS develops, markets and supports TCM/TM/ application software
   for discrete manufacturing companies.  EMS currently offers licenses for
   two software products:  (a) TCM/R/, which is a full function business and
   ERP software system, including a pre-integrated Manufacturing Execution
   System providing production management, shop floor scheduling and
   operations support; and b) FACTORYnet/R/ I/S, which is a Manufacturing
   Execution System that provides production personnel with correct revisions
   of drawings, specifications, procedures, and instructions to help them
   make a better product and make it right the first time.   EMS' software
   products are intended to provide a set of "tactical tools" which will
   enable the customer to achieve its strategic goals by correlating the
   expenditure of time to the addition of value to the finished product or
   service.  

             EMS' products are designed for discrete manufacturers, including
   both stand-alone manufacturing plants and autonomous divisions of large
   corporations.  "Discrete" manufacturers assemble or fabricate parts into
   finished products as distinguished from "process" manufacturers which mix,
   separate and otherwise combine or control ingredients to create finished
   products.  EMS'  focus on discrete manufacturers includes the market
   segments of repetitive and electronics manufacturers which some people
   identify as additional market segments.

   Time Critical Manufacturing -- EMS Software Products

   EMS software provides assistance for a broad range of tasks identified in
   the six categories set forth below.  The TCM/R/ product can include
   software from all of these six categories.  TCM/R/ and FACTORYnet/R/ I/S
   provide different capabilities within the Manufacturing Execution System
   and Decision Support Tools categories described below.  EMS has plans that
   over time the two Manufacturing Execution System product offerings will
   evolve into a single product which is more comprehensive than either of
   the current  Manufacturing Execution System offerings.

   <TABLE>
   <CAPTION>

                   Time Critical Manufacturing Software Suites
   <S>                                  <C>                         <C>
   I.  PLANNING
       Master Production Scheduling     Manufacturing Resource      Capacity Planning
                                        Planning II
                                        Forecasting Interface

   II. PRODUCT DATA MANAGEMENT
       Product Configurator             Engineering Change Control  Standard Bills of Material
       Standard Routings                Computer Aided              Document Library
                                        Manufacturing ("CAM")
       Item Master                      Computer Aided Design       Standard Cost Build Up
                                        ("CAD") Interface

   III. SUPPLY CHAIN MANAGEMENT
       Customer Service                 Inventory Control           Procurement
       Estimate/Quote                   Inventory Management        Requisitions
       Customer Maintenance             Distribution Management     Vendor Maintenance
       Customer Order Processing                                    Purchase Orders
       Shipping                                                     Vendor Performance
       Liability & Warranty                                         Electronic Data Interchange ("EDI")
       Electronic Data Interchange
         ("EDI")*

   IV. MANUFACTURING EXECUTION  SYSTEM
       Shop Floor Management            Job Cost
       Bar Code Factory Data            Time & Attendance
         Collection
       Plant & Equipment Maintenance    Shop Fllor Scheduling
       "As Built History"               Quality Management*
       Electronic Traveler              Machine Interface
       Messaging & Alarms               EMS Gateway
       Electronic Work Instructions
       Distributed Numerical Control
         ("DNC")

   V.  FINANCE, ACCOUNTING AND ADMINISTRATION
       Accounts Receivable              General Ledger              Fixed Assets*
       Accounts Payable                 Human Resources*
       Standard Cost                    Payroll*

   VI. DECISION SUPPORT TOOLS
       Executive Information System     Document Library
       Report Writer                    E-Mail
       Database                         Internet
       Notification Services            ODBC  Access


   *  These Products Are Provided Based On Third Party Sublicensing
      Alliances.
   </TABLE>


             I.   Planning.  The planning modules provide master
      production scheduling capability integrated with rough cut capacity
      planning to assist production organizations in planning materials
      requirements and manufacturing resource levels for the manufacturing
      facility.

             II.  Product Data Management ("PDM").  PDM modules allow for
      product definition and control of engineering changes and
      relationships among component parts.  These modules include software
      which interface with industry popular Computer Aided Design ("CAD")
      systems and offer Computer Aided Manufacturing ("CAM") software.

             III. Supply Chain Management.  

                       Customer Service.  Modules provide control over the
      customer order cycle, including quotations, order entry,
      acknowledgment printing, pick ticket printing, shipping and
      invoicing.  These modules allow for flexible pricing tables and
      multiple order types, including telephone orders, blanket orders and
      releases, over-the-counter orders and credit memos.  EMS believes
      that its software for EDI, which facilitates electronic order entry
      and advance shipping notification, is particularly useful in meeting
      the needs of the automotive and retail supply industries.

                       Inventory Management.  The Inventory Management
      modules provide  engineering data control and offer inventory
      recordkeeping, availability projections and replenishment planning. 
      These modules provide bin, lot and serial number control, multi-
      location support, cycle counting and physical inventory control.

                       Procurement.  The Procurement modules provide
      control of the purchasing cycle, including authorized vendor price
      quotations, purchase order entry and printing, receipts entry and
      vendor performance analysis.  These modules coordinate blanket
      orders and releases, one-time purchase orders, orders for non-
      productive materials and electronic mail notification upon receipt. 

             IV.   Manufacturing Execution System.  The TCM/R/ and
      FACTORYnet/R/ I/S software products offer integrated Manufacturing
      Execution Systems which (i) provide production management, shop
      floor scheduling, distribution of "electronic drawings" as well as
      textual information on factory floor computer workstations, (ii)
      collect information from bar coding systems and (iii) facilitate the
      establishment of direct connections for virtually any NC/CNC machine
      tool and/or CAD systems.  The products also include quality systems
      integration for statistical process control ("SPC") analysis.  These
      Manufacturing Execution Systems may  operate as stand-alone systems
      or be integrated into existing customer systems, and  are pre-
      integrated with the remainder of the EMS software.

             V.   Finance, Accounting  and Administration. These modules
      provide general accounting and financial assistance in tracking and
      estimating planned and actual work-in-process costs.  Any
      information from the finance and accounting database may be readily
      pulled into personal computer spreadsheet systems for further
      analysis and reporting.  These modules also interface with third
      party human resource, fixed assets, and payroll  software products
      sold by EMS.

             VI.   Decision Support Tools.  These software modules are a
      combination of internally developed and third party software sold by
      EMS which facilitate easy data management, analysis, customization,
      communication, etc., with and between the EMS software and other
      software in the customer's computing environment.

                  EMS software modules may be licensed individually or in
      combination to allow companies with differing business needs and
      schedules to have flexibility in the implementation of the software
      system.  Customers generally license between $30,000 and $1,000,000
      of  software per plant, with the total license fees per plant based
      on the modules licensed and a per seat license fee.  

      Software Technology

                  EMS invests in a wide range of software technologies
      which are important not only for the EMS end user customer but also
      for EMS' internal software development and distribution.  In
      appropriate circumstances, EMS has licensed software developed by
      others and integrated various features of that software into its own
      software products.  For example, EMS' software products incorporate
      imaging technology, which enables the user to store and
      interactively display images such as photographs of steps in a
      particular production process, diagrams of manufacturing sub-
      assemblies or motion video depicting the proper operation of a
      machine.  This imaging capability facilitates manufacturing and
      production set-up and also assists users in satisfying ISO 9000
      certification criteria (a set of international quality standards). 
      EMS' products also include EDI, which facilitates electronic order
      entry and advance shipping notification.

                  For internal software  development, EMS employs 4GL sets
      of development tools which EMS believes are  instrumental in
      achieving software productivity improvements and allow end users
      flexibility to  customize their software systems.  EMS has also
      developed proprietary software which facilitates the conversion of
      EMS' software products into various foreign languages, including
      complex Asian languages.  EMS believes that this technology is
      useful not only in penetrating foreign software markets, but also in
      assisting customers which use EMS' software products on a multi-
      national basis.

                  For a further discussion of EMS' ongoing efforts to
      develop new software technologies, see "- Product Development."


      Customer Services

                  EMS offers comprehensive services for customers. 
      Services provided by EMS include a telephone support program, system
      integration, custom software development, implementation consulting,
      and formal classroom and on-site training.  At the customer's
      option, these services, which are available for both of EMS'
      software products, can be provided entirely by EMS or may be
      supplied in part by the customer or another third party such as a
      systems integrator or consulting firm.  These services, which
      provide a recurring stream of revenue for EMS, are offered on an
      unbundled basis for either an annual or a multi-year subscription
      period.  All of the services offered by EMS are optional, except
      that EMS requires first-time licensees of its software to subscribe
      for at least two years of telephone support.  EMS believes that the
      availability of effective customer services is critical for customer
      satisfaction and to increase software license fee revenues.  EMS
      further believes that services can provide a continuing and more
      predictable source of revenue as compared to software license fee
      revenues.  For the years ended November 30, 1995, 1996 and 1997,
      services revenues accounted for  37.8%, 37.4%, and 39.4%  of EMS'
      total net revenues, respectively.

                  The following is a brief description of the various
      services provided by EMS:

                  Telephone Support Program.  EMS' telephone support
      program is a comprehensive, fee-based program designed to help
      customers obtain the maximum benefit from EMS' business management
      software.  The telephone support program is handled out of EMS'
      Minnesota, Illinois, and Wisconsin offices and is staffed by thirty
      trained professionals.  The program includes, among other services,
      answering technical questions regarding standard software, and
      diagnosing and resolving equipment and software problems. 

                  System Integration and Custom Software Development.  EMS
      offers system integration and custom software development services,
      on a fee basis, to meet specific customer requirements and to
      integrate its software with a customer's existing computer system. 
      EMS has developed a Time Critical Implementation Methodology
      ("TCIMJ"), which is a proprietary implementation methodology
      intended to facilitate integration and efficient implementation of
      EMS' products at customer sites.  This approach is designed to allow
      the customer to obtain business benefits sooner than with less
      structured methodologies.  Ongoing technical support is also
      available from EMS to all customers who elect to purchase custom
      software development services.  

                  Implementation Consulting.  EMS provides consulting
      services, on a fee basis, to assist customers in implementing EMS'
      software systems using the TCIMJ approach.  These services include
      value-added implementation planning, project management and
      specialized customer training.  EMS employs a full-time professional
      services staff to provide these and other services.  

                  Training.  EMS offers customers a series of both
      classroom and on-site training options.  Training includes classroom
      and personal instruction at a number of EMS' locations or at the
      customer's plant site.  Standardized training is offered for a fixed
      fee per class.

      Hardware Products

                  EMS sells computer hardware and data collection
      equipment in order to facilitate sales of its software products to
      customers requiring a complete management information system.  EMS
      sells, among other hardware, factory data collection equipment,
      CAMates/R/ (a small specialized computer allowing users to monitor
      and collect data from production machines), bar coding systems,
      networking and communication equipment, and occasionally server and
      client computer hardware.  The factory data collection and bar
      coding hardware is purchased from the original manufacturers and
      resold on a project basis.  This equipment ranges from fixed mount
      bar code scanners and printers to portable units and radio frequency
      network units.  EMS also offers its customers networking and
      communication hardware and server and client computing hardware
      which EMS purchases from original manufacturers, including Intermec
      Corporation,  plus two distributors, Keylink SystemsSM and Ingram
      Micro, Inc.  During the past several years, EMS has focused its
      efforts on generating an increasing percentage of its net revenues
      from software license fees, which have a higher margin than hardware
      revenues.

      Markets and Customers

                  EMS targets companies operating discrete manufacturing
      plants in the United States, Canada, the Pacific Rim, and Europe.
      These plants may be owned by privately held companies or by large,
      multi-national public corporations.  EMS' customers include, among
      others, capital equipment manufacturers, job shops, high volume
      manufacturers, automotive suppliers, consumer product manufacturers,
      and aerospace equipment manufacturers.  Based on  December 1995 data
      compiled by AMR, there are approximately 24,000 discrete
      manufacturing plants in the United States.  EMS believes that there
      are at least as many discrete manufacturers within this section of
      the market outside of the United States.  During each of the past
      three fiscal years, no one customer has accounted for more than 10%
      of EMS' total net revenues.

      Sales and Marketing

                  In the United States and Canada, EMS licenses its
      products and offers services through a direct branch office sales
      force, joint ventures and independent distributors as reflected in
      the table below:

   Branch Office Locations   

      -Austin, TX
      -Baltimore, MD
      -Boston, MA
      -Chicago, IL
      -Cincinnati, OH
      -Detroit, MI
      -Green Bay, WI
      -Houston, TX
      -Indianapolis, IN
      -Los Angeles, CA
      -Milwaukee, WI
      -Minneapolis, MN
      -Norwalk, CN
      -Philadelphia, PA
      -Port St. Lucie, FL
      -Rockford, IL
      -San Jose, CA

   Independent Distributor Territories

      -Camarillo, CA
      -Miller Place, NY
      -Menominee, MI
      -Pittsburgh, PA
      -Wausau, WI
      -West Des Moines, IA

   Joint Venture Location

      -Cleveland, OH 



      EMS owns 50% of the joint venture operating in Cleveland.  EMS
      obtained its interest in this joint venture primarily in exchange
      for technical knowledge and management expertise.  EMS has no
      obligation to fund any losses that may be incurred by the joint
      venture.  

                  EMS' direct sales personnel are compensated on a salary
      plus commission basis.  EMS' joint venture and independent
      distributor agreements generally provide that sales will be made by
      authorized resellers from offices within a designated territory. 
      The agreements obligate EMS to license the reseller at specified
      prices and to provide training to each reseller.  Resellers are
      normally obligated to sell a specified minimum amount of EMS'
      software to keep the agreements in effect.  EMS also maintains a
      staff of systems consultants who offer pre- and post-sales support
      to the sales and distribution network.

                  EMS markets its products through advertising campaigns
      in national trade periodicals and through direct mailings.  These
      efforts are supplemented by listings in relevant directories and
      trade show and conference appearances.  EMS is also given leads
      regarding potential customers by its hardware and services vendors,
      existing customers and various accounting and consulting firms.

                  Sales cycles for EMS' products vary substantially based
      on the degree of integration, consulting and training required and
      also on the status of the customer's hardware system implementation. 
      A sales cycle is usually three to twelve months from the time an
      initial sales presentation is made until the time a signed license
      agreement is entered into with a customer.  

                  In addition to its domestic markets, EMS over the last
      several years has begun efforts to develop a market for its products
      in the Pacific Rim and Europe.  EMS has established independent
      distributor relationships in Japan,  South Korea, The Peoples
      Republic of China, the United Kingdom, Belgium, and Poland.  In each
      of these countries, EMS' software products have been or are in the
      process of being converted to the local language.  EMS has an office
      in Hong Kong to support its Asian distributors.  

      Strategic Arrangements

                  A facet of EMS' strategy is to establish arrangements
      with suppliers of state of the art information systems technology. 
      EMS over the last five  years has worked to expand the number of its
      strategic relationships.

                  EMS has distributor relationships with Keylink
      SystemsSM, a subsidiary of Pioneer Standard Electronics, Inc.
      Company, and Ingram Micro, Inc., which  supply computers, associated
      peripherals and third party software.  EMS has arrangements with
      Intermec Corporation relating to bar code data collection systems
      which are integrated on an "off-the-shelf" basis into EMS' software
      products.  EMS' software has been integrated with other bar coding
      systems on a customized basis. EMS also has  a  relationship with
      the Datamyte Division of Rockwell Automation for its Quantum quality
      control software product line.

                  In addition to its relationships with equipment
      providers, EMS has relationships with numerous software product
      suppliers.  These companies provide software which EMS uses within
      its TCM/R/ and FACTORYnet/R/ I/S software.  Synergex International
      Corporation  has provided the Synergy 4GL Applications Development
      Environment since 1990.  EMS purchases EDI software from Supply Tech
      and Radley Corporation.

                  EMS' relationship with the equipment and software
        product suppliers described above is basically that of a
        reseller of such suppliers' products.  As such, EMS is entitled
        to volume discounts on products which it purchases and is
        generally entitled to the benefits of cooperative marketing
        programs.

   Product Development

             EMS believes it must continue to enhance, broaden and modify its
   existing line of software products to meet the constantly evolving needs
   of discrete manufacturers within its target market.  EMS has relied on
   internal development and development related to customized projects
   implemented at field sites to extend, enhance and support its software
   products, and develop and integrate new capabilities.

             In general, EMS has historically made one new product release
   each year.  These formal releases are supplemented by periodic releases
   for its EDI software to respond to ongoing changes in trading partner
   requirements.

             During the fiscal years ended November 30, 1995, 1996 and 1997,
   EMS' total software investment (consisting of product development expenses
   and capitalized software development costs) was $3.4 million, $5.6 million
   and $6.9 million, respectively.  Product development expenditures which
   were expensed and not capitalized during those three fiscal years totaled
   $1.1 million, $2.2 million and $2.4 million, respectively.

             Software development efforts currently in progress include the
   development of product enhancements such as additional object orientation
   features within EMS' products, enhanced client-server network operations
   on various operating systems, extended operation on various relational
   database products, and enhanced functional capability. There can be no
   assurance, however, that these development efforts will result in product
   enhancements that EMS will be able to market successfully.  Certain of
   these enhancements are dependent upon the development efforts of third
   party suppliers over whom EMS has no control.  In the event the
   development efforts of the third party suppliers are delayed or are
   unsuccessful, the software developments of EMS would be similarly delayed. 
   Software development is, however, an evolutionary process and EMS
   management believes it could eventually find other suppliers or, if
   unsuccessful in its search, that it could successfully re-engineer
   existing products to fulfill its requirements.

   Competition

             The manufacturing software industry is intensely competitive and
   rapidly changing.  A number of companies offer products similar to EMS'
   products.  Some of EMS' existing competitors, as well as a number of
   potential competitors, have larger technical staffs, more established and
   larger marketing and sales organizations and significantly greater
   financial resources than EMS.

             EMS believes that its employees' understanding of diverse
   manufacturing operations and processes and the potential business benefits
   of the TCMJ management approach to such operations allow EMS to
   differentiate itself from competitors.  Other competitive factors include
   software product features and functions, product architecture, the ability
   to function on a variety of operating systems, technical support and other
   related services, ease of product integration with third party application
   software, price, and performance.  In December 1997, Gartner Group
   identified twenty-four competitors of EMS in the North American mid-market
   Enterprise Resource Planning area for discrete manufacturers. 
   Additionally, that firm identified eight competitors in the Manufacturing
   Execution Systems market as of June, 1997.  Although Gartner Group
   identified a limited number of competitors in its Manufacturing Execution
   Systems study, EMS  generally does not encounter these competitors in the
   marketplace. EMS believes that its primary competition for its
   Manufacturing Execution System products are customized software products
   developed by internal data processing staffs or by third party customized
   software developers.  None of the competitors identified by Gartner Group
   had product offerings for both ERP and Manufacturing Execution System
   discrete manufacturers. 

   Intellectual Property

             EMS has registered or has applied for registration of its
   "EMS/TM/" and "TCMJ"  trademarks for software services and products with
   the United States Patent and Trademark Office and with the equivalent
   offices of most foreign countries in which EMS currently does business. 
   Among others, EMS has also received or applied for trademarks for products
   marketed under the names FACTORYnet/R/ I/S and CAMate/R/.

             EMS regards its software products as proprietary in that title
   to and ownership of its software reside exclusively with EMS.  EMS
   attempts to protect its rights with a combination of trademark, copyright
   and employee and third-party nondisclosure agreements. Despite these
   precautions, it may be possible for unauthorized parties to copy or
   reverse-engineer portions of EMS' software products.  While EMS'
   competitive position could conceivably be threatened by its inability to
   protect its proprietary information, EMS believes that copyright and
   trademark protection are less important to EMS' success than other factors
   such as the knowledge, ability and experience of EMS' personnel, name
   recognition and ongoing product development and support.

   Employees

   As of November 30, 1997, EMS had 349 full-time employees, of whom 79 were
   engaged in sales and marketing; 78 in product development; 153 in customer
   service; and 39 in management, finance and administration. EMS employees
   are not represented by any collective bargaining organization and EMS has
   never experienced a work stoppage. EMS considers its employee relations to
   be good.

   Item 2. Properties

   EMS' Corporate headquarters are located in Milwaukee, Wisconsin, in a
   leased office consisting of approximately 42,000 square feet under a lease
   expiring November 30, 2003.  EMS leases additional facilities domestically
   in Austin, Texas; Boston, Massachusetts; Chicago, Illinois; Cincinnati,
   Ohio; Detroit, Michigan; Hartford, Connecticut; Houston, Texas;
   Indianapolis, Indiana; Minneapolis, Minnesota; Philadelphia, Pennsylvania;
   Port St. Lucie, Florida; Rockford, Illinois and San Jose, California. EMS
   leases office space internationally in Hong Kong, and China.  Additional
   space may be required within the next twelve months, but EMS believes that
   suitable additional space will be available as required.  See Note 7 of
   the Notes to Consolidated Financial Statements  for information regarding
   EMS total lease obligations.

   Item 3. Legal Proceedings

   As of the date of this filing, neither EMS nor any of its subsidiaries is
   a party to any legal proceedings, the adverse outcome of which, in
   management's opinion, would have a material effect on EMS' 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 quarter
   ended November 30, 1997.


                               Part II

   Item 5. Market for Common Equity and Related Stockholder Matters

   The common stock and common stock warrants of EMS are traded on The Nasdaq
   Stock Market under the symbols EMSI and EMSIW, respectively.

   The table below represents the high and low sales prices for the EMS
   common stock and warrants as reported on The Nasdaq Stock Market for
   fiscal 1996 and 1997:
                                                           
                           Common Stock                     Warrants

    1996                  High        Low             High              Low

    First Quarter     $  5-3/4     $  4-1/4        $  2-1/8          $  1-1/4
    Second Quarter    $  7-3/4     $  4-1/4        $  3              $  1-1/4
    Third Quarter     $  8         $  5-1/4        $  3-1/8          $  2-1/2
    Fourth Quarter    $  8-1/4     $  5-1/4        $  3-1/4          $  2-1/2


    1997                 High         Low             High              Low

    First Quarter     $  7-3/4     $  5-1/2        $  3-3/16         $  2-1/2
    Second Quarter    $  7-1/2     $  6-1/2        $  2-1/2          $    3/4
    Third Quarter     $  6-1/8     $  4            $  1-1/2          $  1
    Fourth Quarter    $  6-1/2     $  4            $  2              $  1-1/2


   As of February 1, 1998, there were 446 shareholders of record of EMS's
   common stock and 306 holders of record of the warrants.  EMS has not
   declared or paid cash dividends on its common stock in the past, and
   currently intends to retain any earnings for use in its business. 
   Therefore, EMS does not anticipate paying any cash dividends in the
   foreseeable future.  EMS's credit facility also contains provisions
   limiting its ability to pay cash dividends.


   Item 6.

   <TABLE>

   Selected Financial Data (In thousands, except per share data)

   <CAPTION>
                                                                                 Year ended November 30
                                                        1993            1994          1995(4)          1996           1997
    STATEMENTS OF OPERATIONS DATA:
    <S>                                              <C>             <C>            <C>            <C>             <C>
    Net revenues:
    Software license fees                            $  7,146        $10,163        $11,534        $19,094         $21,752
    Services                                         $  5,928        $ 7,256        $10,962        $15,412         $16,781
    Hardware                                         $  6,220        $ 5,245        $ 6,528        $ 6,751         $ 4,112
                                                     ========        =======       ========        =======         =======
                               Total net revenues     $19,294        $22,664        $29,024        $41,257         $42,645


    Cost of products and services:
    Cost of third party software license fees        $    405       $    797       $  1,419       $  2,484        $  3,065
    Software development amortization                $    342       $    515       $    879       $  1,591        $  2,535
    Cost of services                                 $  3,898       $  4,467       $  7,884       $ 12,109        $ 14,000
    Cost of hardware                                 $  4,752       $  4,146       $  5,118       $  4,979        $  3,260
                                                     ========      =========       ========       ========        ========
                  Total cost of products/services    $  9,397       $  9,925        $15,300        $21,163         $22,860


    Gross Margin                                     $  9,897        $12,739        $13,724        $20,094         $19,785
                                                     ========        =======        =======        =======         =======

    Selling and marketing expenses                   $  5,546       $  7,407       $  9,479        $14,060         $15,957
    General and administrative expenses              $  2,038       $  2,227       $  3,029        $ 3,416         $ 3,838
    Software development expenses (1)                $    621       $   752        $  1,086        $ 2,235         $ 2,391
                                                     ========       ========       ========       ========        ========
                         Total Operating Expenses    $  8,205        $10,386        $13,594        $19,711         $22,186


    Operating income (loss)                          $  1,692       $  2,353      $     130       $    383        $ (2,401)
    Other income (expense)                           $    (32)      $    342      $      80       $   (118)       $   (377)

    Income (loss) before income taxes                $  1,660       $  2,695      $     210      $     265        $ (2,778)
    Income tax expense (benefit)                     $    650       $    975      $      79      $     112        $   (618)
                                                     ========       ========      =========      =========        ========
    Net income (loss)                                $  1,010       $  1,720      $     131      $     153        $ (2,160)

    Net income per share                             $   0.39       $   0.53      $    0.04      $    0.04        $  (0.53)
                                                     ========       ========      =========      =========        ========

    Weighed average common and common equivalent                                                             
    share outstanding (2)                               2,574          3,268          3,669          3,965           4,048
 

    Other Statistical Data:

    Software investment (3)                          $  1,312       $  1,857       $  3,407       $  5,607        $  6,862

    Software investment as a percentage of                                                                              
    software license fees                                18.4%          18.3%          29.5%          29.4%           31.6%


    Balance Sheet Data:

    Working Capital                                  $     42       $  4,749       $  4,677       $  4,396        $  1,785
    Capitalized software development
    costs, net                                       $  1,271       $  1,861       $  4,000       $  5,781        $  7,717
                                                     ========       ========       ========       ========        ========
                                      Total assets   $  8,043        $17,903        $24,332        $27,446         $28,797


    Long-term obligations                            $    580       $     50       $     21       $  2,123        $  3,966
    Stockholder's equity                             $  1,541       $ 10,354       $ 14,177       $ 14,597        $ 12,573



        (1)  Does not include capitalized software development costs of $691, $1,105, $2,321, $3,372, and $4,471 recorded for the
             years ended November 1993, 1994, 1995, 1996, and 1997, respectively.

        (2)  Weighed average common and common equivalent shares outstanding for the periods shown include the effect of common
             stock equivalents, if dilutive.

        (3)  Software investment consists of product development expense and capitalized software development costs.

        (4)  Includes results of Effective Management Systems of Illinois, Inc. and Intercim Corporation since being acquired
             effective March 31, 1995 and September 6, 1995, respectively.

   </TABLE>

   <PAGE>

   CONDENSED QUARTERLY RESULTS (UNAUDITED)
   (In thousands, except per share data)


   The following table sets forth certain unaudited condensed operating results
   for each of the eight quarters in the two-year period ended November 30, 
   1997.  This information has been prepared by EMS on the same basis as the 
   Consolidated Financial Statements appearing elsewhere in this report and
   includes, in the opinion of management, all adjustments (consisting only of
   normal recurring adjustments) necessary for a fair presentation of the 
   information when read in conjunction with the Consolidated Financial 
   Statements and notes thereto included elsewhere herein.  EMS's operating
   results for any one quarter are not necessarily indicative of results for 
   any future period.

   <TABLE>

                                                 Three Months Ended

   <CAPTION>

                                      Feb. 28       May 31  Aug. 31      Nov. 30   Feb. 28    May 31      Aug. 31   Nov. 30
                                       1996         1996     1996          1996     1997       1997        1997       1997
   <S>                               <C>          <C>       <C>          <C>      <C>         <C>        <C>       <C>   
   Statements of
   Operations Data:

    Net Revenues:
    Software license fees            $  3,675     $  4,255  $  4,040     $  7,124 $  4,211    $  5,317   $  4,963  $  7,261
    Services                         $  3,617     $  3,780  $  3,755     $  4,260 $  4,246    $  4,020   $  4,095  $  4,420
    Hardware                         $  2,351     $  1,668  $  1,278     $  1,454 $  1,018    $  1,045   $    624  $  1,425
                                     ========     ========  ========     ======== ========    ========   ========  ========
                 Total Net Revenues  $  9,643     $  9,703  $  9,073      $12,838 $  9,475     $10,382   $  9,682   $13,106

           Cost of Products & Total
                 Operating Expenses
                                     $  9,818     $  9,861  $  9,616      $11,579  $10,910     $10,957    $10,687   $12,492
                                     ========     ========  ========      =======  =======     =======    =======   =======
    Operating income (loss)          $   (175)     $  (158)  $  (543)    $  1,259 $ (1,435)   $   (575)  $ (1,005) $    614
    Net income (loss)                $    (91)    $    (87)  $  (333)    $    664 $   (883)   $   (381)  $ (1,044) $    148
    Net income per share            $    (.02)    $   (.02) $   (.08)    $   0.17 $  (0.22)   $  (0.09)  $  (0.26) $   0.04

    Weighed average common and                                                            
    equivalent shares outstanding       3,932        3,950     3,973        4,006    4,025       4,041      4,054     4,048
                                     --------      -------   -------      ------- --------    --------   --------  --------

   </TABLE>


   Item 7. Management's Discussion and Analysis of Financial Condition and
   Results of Operation   (for the fiscal years ended November 30, 1997,
   1996, and 1995)


   Overview

   Effective Management Systems, Inc.("EMS" or  the "Company") recorded a
   loss of approximately $2.2 million in fiscal 1997 as compared with net
   income of $153,000 in fiscal 1996.  The decline in results of operation
   was due in part to the delayed  introduction of version 6.0 of the
   Company's TCM software product as well as increased service costs
   associated with the implementation of new products and technologies.  On
   November 26, 1997, the Company released version 6.0 of its TCM product
   which management believes will positively impact the Company's position in
   the market.  TCM version 6.0 of the Company's product basically completed
   the application of a Windows compliant interface, the lack of which had
   negatively impacted software sales in the past.  Also in fiscal 1997, the
   Company initiated a cost reduction program (the "1997 Cost Reduction")
   with the goal of reducing costs by $2 million per annum.  The Company also
   announced a restructuring of executive management, which included the
   departure of two executives.  The  results of both these cost reductions
   are expected to be fully realized as fiscal 1998 progresses.  
   The Company recorded a small increase in net income for fiscal 1996
   compared with fiscal 1995.  The increase was mainly the result of the
   introduction of new products and technologies along with the expansion of
   new market channels.  During fiscal 1996, the Company became the first
   pre-integrated supplier of manufacturing software to fully integrate
   customer service, engineering, production control, dispatching, quality
   control and machine tool communication.  

   Effective March 31,1995,  the Company acquired the remaining 50% interest
   (in addition to the 50% interest previously owned) in Effective Management
   System of Illinois, Inc. ("EMS-ILL") for a cost of approximately $793,000 
   in Company common stock, cash, and related direct acquisition costs.  The
   acquisition was accounted for as a purchase and resulted in the Company
   recording $395,000 of goodwill, which is being amortized over a twenty-
   year period.

   On September 6, 1995, the Company acquired  all of the common stock of
   Intercim Corporation  ("Intercim")  for a cost of approximately $3,355,000
   in Company common stock , warrants and related direct acquisition costs. 
   The warrants have a ten-year term and an exercise price of $6.75.  The
   acquisition was accounted for as a purchase.  Goodwill of $1,437,000
   resulted from the transaction, which is being amortized over a twelve-year
   period.  The acquisitions of EMS-ILL and Intercim are herein referred to
   as the "1995 Acquisitions".


   Results of Operations
   Total Revenue

   Total revenue for fiscal 1997 increased 3.4% to $42,645,000 from
   $41,257,000 in fiscal 1996 and grew 42.2% from $29,024,000 in fiscal 1995
   to fiscal 1996.  The mix of software, services, and hardware revenues was
   51.0%, 39.4%, and 9.6%, respectively, in fiscal 1997 as compared to 46.3%,
   37.4%, and 16.3%, respectively, in 1996, and 39.7%, 37.8%, and 22.5%,
   respectively, in 1995.  The growth in software and service revenues  as a
   percentage of total revenues during these years was the result of a
   strategic decision by the Company to focus its marketing and selling
   efforts on generating an increased percentage of its revenues from higher
   margin software and services as opposed to lower margin hardware sales. 
   International revenues represented less than 10% of total revenues for all
   periods presented.

   Software License Fee Revenues

   Software license fee revenues are customer charges for the right to use
   the Company's software products.  These revenues increased 13.9% to
   $21,752,000 in fiscal 1997 from $19,094,000 in fiscal 1996.   The main
   reason for this increase was the additional sales made to new customers
   during fiscal  1997.  Software license fee revenues increased to
   $19,094,000 in fiscal 1996 from $11,534,000 in fiscal 1995.  The 1995
   Acquisitions accounted for $4,623,000 of the fiscal 1996 increase in
   revenues.  Exclusive of the revenues from the 1995 Acquisitions, the
   increase in software license fees during fiscal 1996 was mainly the result
   of new sales from a marketing relationship with International Business
   Machines Corporation, the hiring of additional sales personnel, and
   increased productivity of existing sales personnel. 

   Service Revenues

   The Company offers both mandatory and optional services to its customers. 
   Services provided include a telephone support program, systems
   integration, custom software development, implementation consulting, and
   formal classroom and on-site training.  Service revenues increased 8.9% to
   $16,781,000 in fiscal 1997 from $15,412,000 in fiscal 1996.  Service
   revenues increased  40.6% to $15,412,000 from $10,962,000 in fiscal 1995.
   These increases were primarily due to growth in the customer base and
   normal price increases. Of the increase in fiscal 1996, $4,496,000 was
   attributable to the 1995 Acquisitions.

   Hardware Revenues

   As an option, the Company sells computer hardware manufactured by others,
   along with the Company's software and services, to provide its customers
   "integrated" solutions to their management information system needs. 
   Hardware revenues decreased 39.1% to $4,112,000 in fiscal 1997 from
   $6,751,000 in fiscal 1996.  The decrease was mainly due to increased sales
   of software on platforms for which the Company does not supply hardware.
   The Company has decided to reduce its sales of commodity priced hardware
   products and those which require specific expertise beyond the scope of
   the Company's product focus.  The Company has developed relationships with
   various system integrators which sell the hardware and provide these
   value-added hardware services.  Hardware revenues increased 3.4% to
   $6,751,000 in fiscal 1996 from $6,528,000 in fiscal 1995.  This increase
   was  primarily attributable to the 1995 Acquisitions.  

   Cost of Third-Party Software License Fees

   Most of the Company's system sales also include the sale of a report
   writer, a word processor, and/or other software components provided by
   outside suppliers.  The integration of these products into the Company's
   software products generally requires that the Company pay royalties to
   these suppliers.  Cost of third-party software license fees increased to
   $3,065,000 in fiscal 1997 from $2,484,000 in fiscal 1996, and from
   $1,419,000 in fiscal 1995.  Since these third-party software products are
   generally sold in conjunction with the Company's software license, the
   increase was primarily attributable to a rise in the level of  the
   Company's software license fees.  In fiscal 1996,  the 1995 Acquisitions
   added  $470,000 to the cost of third-party software license fees.

   Software Development Amortization

   Software development amortization represents  the amortization of past
   investments made by the Company in product development. Software
   development amortization increased from $879,000 in fiscal 1995 to
   $1,591,000 in fiscal 1996, and to $2,535,000 in fiscal 1997.  In 1994, the
   Company made a decision to significantly advance software products and
   technologies. This strategic decision resulted in a substantial increase
   in the Company's investment in software product development.  During the
   three-year period ended November 30, 1997 and prior to the final
   completion of the software products,  growth in software development
   amortization exceeded the growth of software license fees. 

   Cost of Services

   Cost of services as a percentage of related revenues increased to 83.4% in
   1997 from 78.6% in 1996. The main reasons for the increases include
   allocation of resources to assist in developing new product, educational
   costs related to new products and technologies, training costs associated
   with new personnel, increased costs related to warranty work, and the
   costs of establishing a sales and service presence in China ($245,000). 
   The 1997 Cost Reduction reduced fiscal 1997 cost of services by $264,000
   through a work force reduction and a decrease of indirect activities.  
   Cost of services as a percentage of related revenues increased to 78.6% in
   fiscal 1996 from 71.9% in fiscal 1995.  The increase was attributable to a
   rising cost of labor; additional management expense relating to expanding
   the service organization; additional expenses to further develop a
   worldwide learning initiative related to new selling relationships (3.5%
   of related revenues in fiscal 1996); and the training expense related to
   newly-hired employees.

   Cost of Hardware

   Cost of hardware as a percentage of related revenues increased to 79.3% in
   fiscal 1997 compared to 73.8% in fiscal 1996.  Cost of hardware as a
   percentage of hardware revenues decreased to 73.8% in 1996 from 78.4% in
   fiscal 1995.  Cost of hardware as a percentage of related revenues varies
   with the amount of price discounting, the proportion of high margin
   hardware sales where the Company brings technical expertise to the
   process, and the proportion of customers who purchase low margin hardware
   from the Company.  Cost of hardware as a percentage of related revenues
   can rise or fall depending on the mix of these factors.  Additionally, the
   cost of hardware as a percentage of hardware revenues can vary due to the
   proportion of lower-margin sales (cost plus 11%) made to the Company's
   joint ventures and affiliates, which were $534,000, $1,264,000, and
   $1,091,000 in fiscal 1997, 1996, and 1995, respectively.  Commencing
   January 1, 1996, the Company began charging 11% over cost on hardware
   sales (previously sold at cost) to EMS Solutions, Inc., an affiliated
   entity owned by certain officers of the Company, to match similar terms
   offered to the Company's joint ventures.  In  June, 1997, EMS Solutions,
   Inc. ceased the purchase of  hardware from the Company and began sourcing
   the hardware through non-affliated outside vendors.   Sales of hardware to
   EMS Solutions, Inc. were $331,000 in fiscal 1997,  $851,000 in fiscal 1996
   and $926,000 in fiscal 1995.  

   Net Product Development Expenses

   Product development expenses, net of amounts capitalized, increased from
   $1,086,000 in fiscal 1995 to $2,235,000 in fiscal 1996 and to $2,391,000
   in fiscal 1997.  These increases were mainly the result of the Company's
   strategic initiative to increase investment in the development of future
   products, including the incorporation of various new technologies into the
   Company's software products. The 1997 Cost Reduction lowered new product
   development expense by $876,000 through reduction of the use of third-
   party consultants  and a work force reduction.  Management does not expect
   the reductions to impair the Company's research and development  since
   such cost reductions represent a reduction in a temporary  ramp-up to
   speed delivery of version 6.0 of the Company's software and a reduction in
   the number of consultants retained in respect to a customer project which
   was subsequently discontinued by the customer.  In  fiscal 1996,  the 1995
   Acquisitions added $659,000 to product expense, excluding $1,329,000 
   which was capitalized in accordance with Statement of Financial Standards
   (SFAS) No. 86.  Management expects product development expense to
   stabilize in 1998 as efforts relating to the incorporation of certain new
   technologies concludes.  Total development expense (defined as net
   development expense plus amounts capitalized) increased to $6,862,000 in
   fiscal 1997 from  $5,607,000 in fiscal 1996 and from $3,407,000 in fiscal
   1995.  These expenses expressed as a percent of related software revenues
   were 31.6%, 29.4% and 29.5% in fiscal 1997, 1996 and 1995, respectively.

   Selling and Marketing Expenses

   Selling and marketing expenses increased to $15,957,000 in fiscal 1997
   from $14,060,000 in fiscal 1996 and $9,479,000 in fiscal 1995.  As a
   percent of gross margin (total net revenues minus total costs of products
   and services), selling and marketing expense  increased from 70.0% to
   80.7% between fiscal 1996 and fiscal 1997, and from 69.1% to 70.0% between
   fiscal 1995 and fiscal 1996, respectively.  The increase in selling and
   marketing expense as a percent of gross margin between fiscal 1997 and
   fiscal 1996 was due to: 1) lower margin due to higher costs of software
   license fees (see above) and higher costs of services (see above);  2)
   increased expenses from  developing international markets ($134,000) and
   lower productivity of new personnel; and 3) concern of prospective
   customers regarding  the Company's negative operational results for fiscal
   1997. The 1997 Cost Reduction lowered selling and marketing expense by
   $730,000 in fiscal 1997, mainly through a decrease in international market
   expansion, a focusing of market communications, and work force reduction. 
   The  1995 Acquisitions accounted for $1,756,000 of the increase in the
   selling and marketing expenses in fiscal 1996.

   General and Administrative Expenses

   For fiscal 1997, general and administrative expense increased to
   $3,838,000 from $3,416,000 in fiscal 1996 and from $3,029,000 in fiscal
   1995.  As a percent of gross margin (total net revenues minus total costs
   of products and services), these expenses were 22.0%, 17.0% and 19.4% in
   fiscal 1995, 1996 and 1997, respectively.  The  increase in general and
   administrative expense as a percent of gross margin from fiscal 1996 to
   fiscal 1997 was mainly due to an increase in the provision for bad debts
   (2.5%).  The 1997 Cost Reduction lowered general and administrative
   expense by $303,000 in fiscal 1997 mainly through a work force reduction.  
   The 1995 Acquisitions increased general and administrative expense by
   $1,009,000 in fiscal 1996.  Other primary reasons for the increase in
   fiscal 1996 compared to fiscal 1995 include additional depreciation from
   rising levels of capital purchases ($161,000); added support personnel for
   system and facilities needs ($71,000); and additional administrative costs
   attributable to the growth in hardware and service revenues. 

   Other Income/Expense

   Other income/expense provided $377,000 of expense for fiscal 1997 compared
   with $118,000 of expense for fiscal 1996 and $80,000 of income for fiscal
   1995.  Equity losses from affiliates were  $25,000 in fiscal 1997 compared
   with $25,000 of income for fiscal 1996 and $31,000 of losses in fiscal
   1995.  The equity earnings for fiscal 1995 declined , in part, due to the
   merger with EMS-ILL, which resulted in reduced equity earnings from this
   former joint venture.  Interest expense and interest income were $399,000
   and $47,000, respectively, in fiscal 1997; $145,000 and $89,000,
   respectively, in fiscal 1996; and $52,000 and $176,000, respectively, in
   fiscal 1995.  The decrease in interest income and the simultaneous rise in
   interest expense were mainly due to the Company's reduction in cash and
   short-term assets  to fund investments in products, distribution channels,
   and service infrastructure.  The Company anticipates that interest expense
   will continue to rise in the short-term with continued application of cash
   for operating and capital expenditure purposes.

   Income Tax Expense

   The effective income tax benefit rate was 22.2% for fiscal 1997 versus an
   effective income tax rate of 42.3% for fiscal 1996 and 37.6% for fiscal
   1995.  In fiscal 1997, the Company recorded a valuation allowance equal to
   100% of the net deferred tax assets based on uncertainty regarding
   realization of such assets and thereby reduced the amount of tax benefit
   recorded by $329,000.  In fiscal 1996, the effective income tax rate was
   higher than in fiscal 1995 due to reduced tax-exempt interest income and
   non-deductible meals and entertainment expenses. 

   Liquidity and Capital Resources

   Cash provided by operations was $1,733,000 in fiscal 1997,  $2,906,000 in
   fiscal 1996 and $1,915,000 in fiscal 1995.  Non-cash expenditures,
   including both depreciation relating to capital expenditures and
   amortization associated with software product development, contributed to
   the cash provided. 

   Investment activities used cash of $5,363,000 in fiscal 1997 compared to
   $4,163,000 of cash in fiscal 1996 and $1,850,000 of cash in fiscal 1995. 
   The cash was used to fund capital expenditures of $1,177,000, $1,424,000,
   and $1,430,000 in fiscal 1997, 1996, and 1995, respectively, and to fund 
   investment in capitalized software product development of $4,471,000,
   $3,372,000 and $2,321,000 in fiscal 1997, 1996, and 1995, respectively. 
   The Company sold $505,000 of available-for-sale securities in fiscal 1997, 
   $1,247,000 of available-for-sale securities in fiscal 1996, and $1,584,000
   of available-for-sale securities  and  $743,000 hold-to-maturity
   securities in fiscal 1995, which funded, in part, the capital expenditures
   and capitalized product development.  For fiscal 1998, the Company
   estimates that capital expenditures will approximate $1,000,000 and
   capitalized software product development will approximate $4,000,000.
    
   Financing activities provided $2,778,000 of cash in fiscal 1997,
   $1,788,000 of cash in fiscal 1996, and  used $10,000 of cash in fiscal
   1995.  As of November 30, 1997, the Company had $ 2,538,000 of
   availability under its then existing $6,300,000 revolving line of credit
   based on the level of the Company's eligible accounts receivable.  On
   December 31, 1997, the Company entered into a new borrowing agreement with
   Foothill Capital Corporation to replace its prior facility.  The new
   facility includes a $6,000,000 revolving line of credit and a three-year
   term note for $3,112,500.  Interest on the revolver is payable monthly
   based on the bank's base rate plus .75% (9.25% on December 31, 1997); the
   term note bears interest at 13.5% per year.  The new agreement does
   contain certain restrictive covenants relating to income (EBITDA) ,
   tangible net worth and level of capital expenditures.  In order to meet
   these covenants, the Company will need positive operational results in
   fiscal 1998.  As of December 31, 1997, the Company had $3,751,000 of
   availability under the new revolving line of credit.

   The Company believes its cash flows from operations and funds available
   under its line of credit will be adequate to finance capital expenditures
   and working capital requirements for at least the next twelve months.

   The Company utilizes a combination of its own software and custom written
   systems for running its own operations. Based on its own evaluation, the
   Company believes that there will be no significant costs associated with
   ensuring year 2000 compliance of its internal systems.  Since the release
   of version 5.1.2 of the Company's software product, the Company's software
   product has been year 2000 compliant.

   American Institute of Certified Public Accountants Statement of Position
   97-2, "Software Revenue Recognition" (SOP 97-2), was issued in October
   1997. SOP 97-2 is effective for transactions entered into in fiscal years
   beginning after December 15, 1997. Therefore, SOP 97-2 will effect
   transactions entered into by the Company beginning December 1, 1998. SOP
   97-2 addresses various aspects of the recognition of revenue on software
   transactions and supersedes SOP 91-1, the policy currently followed by the
   Company. SOP 97-2 provides guidance on software arrangements consisting of
   multiple elements, evidence of fair value, delivery of elements,
   accounting for service elements, and software arrangements requiring
   significant production, modification, or customization of software. The
   Company is currently evaluating the impact SOP 97-2 will have on the
   Company's consolidated financial statements. 

   Note Regarding Forward-Looking Statements

   Certain matters discussed in Management's Discussion and Analysis (as well
   as elsewhere in the Company's Annual Report) are "forward-looking
   statements" intended to qualify for the safe harbor from liability
   established by the Private Securities Litigation Reform Act of 1995. 
   Statements other than statements of historical fact are forward-looking
   statements.  Such forward-looking statements are subject to certain risks
   and uncertainties which could cause actual results to differ materially
   from those currently anticipated.  In addition to the factors set forth in
   Item 1 of Part I of this Annual Report on Form 10-K (See "Business-
   Business Risk Factors"),  risks and uncertainties include customer
   acceptance of version 6.0 of the Company's software product, the Company's
   ability to implement successfully its cost reduction initiatives, 
   generation of adequate cash  to fund on-going research and development
   needs and requirements, and maintenance of an experienced level of sales
   and service personnel.  Shareholders, potential investors, and other
   parties are urged to consider these factors carefully in evaluating the
   forward-looking statements and are cautioned not to place undue reliance
   on such forward-looking statements. 

   Item 7A. Quantitative and Qualitative Disclosures About Market Risk 

                   Not Applicable


   Item 8.  Financial Statements and Supplementary Data

                       Effective Management Systems, Inc.

                        Consolidated Financial Statements

                  Years ended November 30, 1997, 1996 and 1995


                                    Contents

   Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . 28

   Consolidated Financial Statements

   Balance Sheets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
   Statements of Operations  . . . . . . . . . . . . . . . . . . . . . . . 31
   Statements of Stockholders' Equity  . . . . . . . . . . . . . . . . . . 32
   Statements of Cash Flows  . . . . . . . . . . . . . . . . . . . . . . . 33
   Notes to Consolidated Financial 
     Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35


   <PAGE>

   Report of Ernst & Young LLP, Independent Auditors

   The Board of Directors and Stockholders
   Effective Management Systems, Inc.

   We have audited the accompanying consolidated balance sheets of Effective
   Management Systems, Inc. (the Company) and subsidiaries as of November 30,
   1997 and 1996, and the related consolidated statements of operations,
   stockholders' equity and cash flows for each of the three years in the
   period ended November 30, 1997.  Our audits also included the financial
   Statement Schedule listed in the Index at Item 14.  These financial 
   statements and schedule are the responsibility of the Company's management.
   Our responsibility is to express an opinion on these financial statements 
   and schedule based on our audits.

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

   In our opinion, the consolidated financial statements referred to above
   present fairly, in all material respects, the consolidated financial
   position of the Company and subsidiaries at November 30, 1997 and 1996,
   and the consolidated results of their operations and their cash flows for
   each of the three years in the period ended November 30, 1997, in
   conformity with generally accepted accounting principles.  Also, in our 
   opinion, the related financial statement schedule, when considered in 
   relation to the basic financial statements taken as a whole, presents 
   fairly in all material respects the information set forth therein.


   /s/ Ernst & Young
   Ernst & Young

   Milwaukee, Wisconsin
   January 16, 1998

   <PAGE>

                       EFFECTIVE MANAGEMENT SYSTEMS, INC.

                           Consolidated Balance Sheets
                             (Dollars in Thousands)

                                                           November 30
    Assets                                           1997              1996
    Current Assets:
      Cash and cash equivalents                    $   14         $   866
      Investment in available-for-sale
        securities (Note 3)                             -             505
      Accounts receivable:
         Trade, less allowance for doubtful
         accounts of $462-1997; $346-1996          12,370          11,146
    Related parties                                   604             693
                                                   ------          ------
                                                   12,988          11,839

      Refundable income taxes                         312             159
      Inventories                                     280             391
      Deferred income taxes (Note 10)                   -             175
      Prepaid expenses and other current assets       146             174
                                                   ------          ------
    Total current assets                           13,726          14,109

    Software development costs, net                 7,717           5,781
    Investments in and advances to
      unconsolidated joint ventures                   182             199
    Equipment and leasehold improvements, net
      (Note 4)                                      3,917           3,961
    Intangible assets, net (Note 5)                 2,444           2,690
    Other assets                                      811             706
                                                   ------         -------
    Total assets                                  $28,797         $27,446
                                                   ======         =======
                                                         
    Liabilities and stockholders' equity
    Current liabilities:
      Accounts payable                            $ 2,272         $ 2,026
      Accrued liabilities                           2,773           2,846
      Deferred revenue                              5,887           4,605
      Customer deposits                                63             109
      Current portion of long-term obligations        946             127
        (Note 7)                                  -------         -------
    Total current liabilities                      11,941           9,713

    Deferred revenue and other long-term
    liabilities                                       317             453
    Long-term obligations (Note 7)                  3,966           2,123
    Deferred income taxes (Note 10)                     -             560

    Commitments and contingencies (Note 7)

    Stockholders' equity:
      Preferred stock, $.01 par value;  
        authorized 3,000,000 shares, none issued
        or outstanding                                  -               -
      Common stock, $.01 par value; authorized
        20,000,000 shares, issued 4,067,310 and
        4,011,018 shares; outstanding 4,054,685
        and 4,008,393 shares                           41              41
      Common stock warrants                             4               4
      Additional paid-in capital                   11,328          11,137
      Retained earnings                             1,260           3,420
      Cost of common stock in treasury 
        (12,625 and 2,625 shares)                     (60)             (5)
                                                  -------         -------
                                                   12,573          14,597
                                                  -------         -------
    Total liabilities and stockholders'
      equity                                      $28,797         $27,446
                                                  =======         =======

   See accompanying notes.

   <PAGE>

   <TABLE>

                       EFFECTIVE MANAGEMENT SYSTEMS, INC.

                      Consolidated Statements of Operations
                    (In Thousands, except per share amounts)
   <CAPTION>
                                                                            Year Ended November 30
                                                                 1997                    1996              1995
    <S>                                                         <C>                    <C>               <C>
    Net revenues:
      Software license fees                                     $21,752                $19,094           $11,534
      Services                                                   16,781                 15,412            10,962
      Hardware                                                    4,112                  6,751             6,528
                                                               --------               --------          --------
                                                                 42,645                 41,257            29,024
    Costs of products and services:
      Cost of third-party software license fees                   3,065                  2,484             1,419
      Software development amortization                           2,535                  1,591               879
      Cost of services                                           14,000                 12,109             7,884
      Cost of hardware                                            3,260                  4,979             5,118
                                                               --------               --------          --------
                                                                 22,860                 21,163            15,300

    Selling and marketing expenses                               15,957                 14,060             9,479
    General and administrative expenses                           3,838                  3,416             3,029
    Software development expenses                                 2,391                  2,235             1,086
                                                               --------               --------          --------
                                                                 45,046                 40,874            28,894
                                                        
    Income (loss) from operations                                (2,401)                   383               130

    Other income (expense):
      Equity in earnings (losses) of unconsolidated
        joint ventures                                              (25)                    25               (31)
      Interest income                                                47                     89               176
      Interest expense                                             (399)                  (145)              (52)
      Other                                                           -                    (87)              (13)
                                                               --------               --------           -------
                                                                   (377)                  (118)               80
 
   Income (loss) before income taxes                             (2,778)                   265               210
    Income tax benefit (expense)                                    618                   (112)              (79)
                                                               --------               --------           ------- 
   Net income (loss)                                            $(2,160)               $   153            $  131
                                                                =======               ========           =======

    Net income (loss) per common share -
      Primary and fully diluted                                   $(.53)                 $ .04             $ .04   
                                                                =======                =======            ======

    Weighted average common and common equivalent
    shares -
      Primary and fully diluted                                   4,048                  3,965             3,669
                                                               ========               ========           =======

   See accompanying notes

   </TABLE>

   <PAGE>
   <TABLE>

                       EFFECTIVE MANAGEMENT SYSTEMS, INC.

                 Consolidated Statements of Stockholders' Equity
                             (Dollars in Thousands)
   <CAPTION>

                                                                              Common
                                                                               Stock
                                                                                and
                                                                    Common   Warrants
                                                        Common      Stock      to be    Paid-in  Retained   Treasury
                                           Shares        Stock     Warrants   Issued    Capital  Earnings    Stock      Total

    <S>                                 <C>                <C>        <C>        <C>    <C>      <C>            <C>   <C> 
    Balance, November 30, 1994          3,545,215          $36        $-         $-     $7,187   $3,136         $(5)  $10,354
      Issuance of common stock:
         Acquisitions                     328,393            3         -          -      2,338        -           -     2,341
         Stock options                     30,002            -         -          -         71        -           -        71
         Employee stock purchase
            plan                           18,671            -         -          -         96        -           -        96
      Issuance of common stock
        warrants for acquisitions               -            -         3          -        970        -           -      9763
      Common stock and warrants to
        be issued to complete Intercim
        transaction                             -            -         -        211          -        -           -       211
      Net income                                -            -         -          -          -      131           -       131
                                        ---------        -----      ----      -----     ------    -----       -----    ------
    Balance, November 30, 1995          3,922,281           39         3        211     10,662    3,267          (5)   14,177
      Issuance of common stock:
         Acquisitions                      24,000            -         -          -        132        -           -       132
         Stock options                     35,000            1         -          -         60        -           -        61
         Employee stock purchase
            plan                           29,718            -         -          -        113        -           -       113
         Warrants                              19            -         -          -          -        -           -         -
      Issuance of additional common
        stock and warrants to complete
        Intercim transaction                    -            1         1       (172)       170        -           -         -
      Purchase of shares from
        dissenting former Intercim
        shareholder                             -            -         -        (39)         -        -           -       (39)
      Net income                                -            -         -          -          -      153           -       153
                                        ---------        -----      ----       ----     ------    -----        ----    ------
    Balance, November 30, 1996          4,011,018           41         4          -     11,137    3,420          (5)   14,597
      Issuance of common stock:
         Stock options                     39,500            -         -          -         68        -           -        68
         Employee stock purchase
            plan                           26,792            -         -          -        123        -           -       123
      Purchase of treasury shares         (10,000)           -         -          -          -        -         (55)      (55)
      Net loss                                  -            -         -          -          -   (2,160)          -    (2,160)
                                        ---------        -----      ----       ----    -------  -------       -----   -------
    Balance, November 30, 1997          4,067,310          $41        $4        $ -    $11,328  $ 1,260        $(60)  $12,573
                                        =========        =====      ====       ====    =======  =======       =====   =======
   See accompanying notes.

   </TABLE>
   <PAGE>

   <TABLE>

                       EFFECTIVE MANAGEMENT SYSTEMS, INC.

                      Consolidated Statements of Cash Flows
                             (Dollars in Thousands)
   <CAPTION>
                                                                                    Year ended November 30
                                                                      1997                   1996                1995

    <S>                                                              <C>                    <C>               <C> 
    Operating activities
    Net income (loss)                                                $(2,160)               $ 153             $ 131
    Adjustments to reconcile net income (loss) to net
      cash provided by operating activities:
      Depreciation                                                     1,234                1,037               730
      Amortization, other                                                246                  189                82
      Amortization of capitalized computer software
        development costs                                              2,535                1,591               879
      Equity in losses (earnings) of joint ventures                       25                  (25)               31
      (Gain) loss on disposal of equipment and
        leasehold improvements                                             -                  (24)                4
      Deferred income taxes                                             (385)                 202               554
      Changes in operating assets and liabilities:
         Accounts receivable                                          (1,135)              (1,770)             (297)
         Inventories and other current assets                            100                  341               265
         Accounts payable and other liabilities                        1,273                1,212              (464)
                                                                    --------             --------          --------
    Total adjustments                                                  3,893                2,753             1,784
                                                                    --------             --------          --------
    Net cash provided by operating activities                          1,733                2,906             1,915

    Investing Activities
    Acquisition of Darwin Data Systems, net of cash
      received of $19                                                      -                  (51)                -
    Acquisition of EMS-Illinois, net of cash received
      of $160                                                              -                    -              (238)
    Acquisition of Intercim                                                -                    -              (225)
    Additions to equipment and leasehold
      improvements                                                    (1,177)              (1,424)           (1,430)
    Purchases of available-for-sale securities                             -                 (495)                -
    Proceeds from sales of available-for-sale
    securities                                                           505                1,247             1,584
    Proceeds from sales of held-to-maturity securities                     -                    -               743
    Proceeds from sale of equipment and leasehold
      improvements                                                         7                   68                39
    Increase in cash surrender value of life insurance                   (25)                 (25)              (31)
    Software development costs capitalized                            (4,471)              (3,372)           (2,321)
    Other                                                               (202)                (111)               29
                                                                     -------             --------           -------
    Net cash used in investing activities                             (5,363)              (4,163)           (1,850)

    Financing activities
    Proceeds from issuance of stock to employees                         191                  174               167
    Proceeds from increase in debt                                     2,797                1,864                 -
    Payments on long-term debt and capital lease
      obligations                                                       (155)                (250)             (177)
    Purchase of treasury stock                                           (55)                   -                 -
    Net cash provided by (used in) financing
    activities                                                         2,778                1,788               (10)
                                                                     -------             --------            ------
    Net increase (decrease) in cash                                     (852)                 531                55
    Cash:
      Beginning of year                                                  866                  335               280
      End of year                                                      $  14                $ 866             $ 335
                                                                     =======             ========           =======
    Supplemental cash flow information:
      Interest paid                                                    $ 399                $ 133              $ 52
      Income taxes paid (refunded), net                                 (172)                (464)              357
      Noncash transactions:
         Equipment recorded under capital lease
            obligations                                                   20                  371                 -
         Issuance of common stock and warrants
            for acquisitions                                               -                  132             3,525
   See accompanying notes.

   </TABLE>
   <PAGE>

                       Effective Management Systems, Inc.

                   Notes to Consolidated Financial Statements

                                November 30, 1997
                (Dollars in thousands, except per share amounts)

   1. Basis of Presentation and Significant Accounting Policies

   Consolidation

   The accompanying consolidated financial statements include the accounts of
   Effective Management Systems, Inc. (the Company) and its subsidiaries. All
   significant intercompany accounts and transactions have been eliminated in
   consolidation.

   Business and Concentration of Credit Risk

   The Company develops, sells, and services computer software and related
   hardware throughout the United States and certain foreign countries that
   meet the Company's credit policies. The Company performs periodic credit
   evaluations of its customers' financial condition and generally follows a
   policy to obtain deposits for sales to new customers.

   Cash and Cash Equivalents

   For purposes of the statement of cash flows, the Company considers all
   highly liquid investments purchased with a maturity of three months or
   less to be cash equivalents.

   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 amounts reported in the financial statements
   and accompanying notes. Actual results could differ from those estimates.

   Revenue Recognition

   Revenue is recognized in accordance with the provisions of AICPA Statement
   of Position (SOP) 91-1, "Software Revenue Recognition," as follows:

   Software and Hardware Sales

   Revenue is recognized when the product is delivered.

   Professional Fees and Services

   Revenue is recognized as time and material costs are incurred.

   Software Support Fees

   Revenue is recognized ratably over the terms of the nonrefundable support
   contract.

   Annual Upgrade Fees

   Revenue is recognized ratably over the nonrefundable annual upgrade
   contract period.

   In October 1997, the AICPA issued SOP 97-2, "Software Revenue
   Recognition," which changes the requirements for revenue recognition and
   supersedes SOP 91-1 effective for transactions that the Company will enter
   into beginning December 1, 1998. The Company intends to review the
   provisions of its software license contracts and make the changes
   necessary to have them meet the standards of the new SOP.

   Investments

   Debt securities are classified as available-for-sale and are carried at
   fair value, which approximates cost. Realized gains and losses and
   declines in value judged to be other-than-temporary on available-for-sale
   securities are included in interest income. The cost of securities sold is
   based on the specific identification method. Interest on securities
   classified as available-for-sale is included in interest income.

   Inventory Valuation

   Inventories are carried at the lower of cost or market with cost
   determined on a first-in, first-out (FIFO) basis.

   Software Development Costs

   In accordance with Statement of Financial Accounting Standards (SFAS) No.
   86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
   Otherwise Marketed," the Company capitalizes internal costs in developing
   software products upon determination that technological feasibility has
   been established for the product, whereas costs incurred prior to the
   establishment of technological feasibility are charged to product
   development expense. When the product is available for general release to
   customers, capitalization ceases and such costs are amortized on a
   product-by-product basis based on current and future revenue with an
   annual minimum equal to the straight-line amortization over the remaining
   estimated economic useful life of the product.

   Capitalized software development costs, stated at the lower of cost or net
   realizable value, were $7,717 and $5,781 at November 30, 1997 and 1996,
   respectively, which is net of accumulated amortization of $7,877 and
   $5,342, respectively.

   Investment in Unconsolidated Joint Ventures

   Investments in unconsolidated joint ventures are accounted for on the
   equity method wherein the Company's share of the joint ventures' net
   earnings or losses is recorded as an adjustment to the investment. 

   Equipment and Leasehold Improvements

   Equipment and leasehold improvements are recorded at cost and are
   depreciated using the straight-line method for financial reporting
   purposes. The estimated useful lives used to calculate depreciation are as
   follows:

                                                        Years

                   Leasehold improvements                 5
                   Furniture and fixtures                10
                   Equipment                              5

   Assets under capital leases are amortized on a straight-line basis over
   their useful lives.

   Intangible Assets

   Intangible assets are amortized using the straight-line method for
   financial reporting purposes over the following estimated lives:

                                                        Years

                   Customer list                         15
                   Goodwill                             12-20
                   Other intangibles                     6-40

   Income Taxes

   Deferred income taxes are provided for temporary differences between
   financial reporting and income tax bases of assets and liabilities, and
   are measured using the enacted tax rates and laws that will be in effect
   when the differences are expected to reverse. 

   Net Income (Loss) Per Common Share

   Net income (loss) per common share is computed based on the weighted
   average number of common shares outstanding for the periods presented. Net
   income per common share includes the dilutive effect of stock options and
   warrants calculated using the "treasury stock" method. 

   In February 1997, the Financial Accounting Standards Board issued
   Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
   which is required to be adopted for periods ending after December 15,
   1997. In the first quarter of fiscal 1998, the Company will be required to
   change the method currently used to compute earnings per share and to
   restate all prior periods. Under the new requirements, basic earnings per
   share will exclude the dilutive effect of stock options and warrants.
   Basic earnings per share for the year ended November 30, 1997 and 1996
   would have been the same as previously reported primary earnings per
   share. The impact of Statement No. 128 on the calculation of fully diluted
   earnings per share is not expected to be material.

   Fair Value of Financial Instruments

   The Company's financial instruments consist primarily of cash and cash
   equivalents, marketable securities, trade receivables, related-party
   receivables, trade payables and debt instruments. The book values of cash
   and cash equivalents, marketable securities, trade receivables, related-
   party receivables and trade payables are considered to be representative
   of their respective fair values. None of the Company's debt instruments
   that are outstanding as of November 30, 1997, have readily ascertainable
   market values; however, the carrying values are considered to approximate
   their respective fair values. See Note 8 for the terms and carrying values
   of the Company's various debt instruments.

   Stock Compensation

   As is permitted under SFAS No. 123, "Accounting for Stock-Based
   Compensation," the Company accounts for employee stock compensation (e.g.,
   stock options) in accordance with APB Opinion No. 25 (APB 25), "Accounting
   for Stock Issued to Employees." Under APB 25, the total compensation
   expense recognized is equal to the difference between the award's exercise
   price and the underlying stock's market price (referred to as "intrinsic
   value") at the measurement date, which is the first date that both the
   exercise price and number of shares to be issued is known. See Note 9.

   New Pronouncements

   The Company will be required to adopt SFAS No. 130, "Reporting
   Comprehensive Income," for years beginning after December 15, 1997. This
   statement requires that all items that are required to be recognized under
   accounting standards as components of comprehensive income be reported in
   a financial statement that is displayed with the same prominence as other
   financial statements. Since this standard applies only to the presentation
   of comprehensive income, it will not have any impact on the Company's
   results of operations, financial position or cash flows.

   SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
   Information," is effective for years beginning after December 15, 1997.
   This statement changes the way that public business enterprises report
   information about operating segments in annual financial statements and
   requires that those enterprises report selected information about
   reportable segments in interim financial reports issued to shareholders.
   Management has not completed its review of SFAS No. 131, but does not
   anticipate that the adoption of this statement will have a significant
   effect on the Company's reported segments.

   Reclassifications

   Certain reclassifications have been made to the 1996 and 1995 financial
   statements to conform to the 1997 presentation.

   2. Acquisitions

   Effective April 15, 1996, the Company completed the purchase of the
   remaining 75% of Darwin Data Systems (Darwin). Consideration for this
   acquisition was $303, consisting of $101 in notes payable, 24,000 shares
   of the Company's common stock valued at $132 and $70 of acquisition costs.

   Effective March 31, 1995, the Company completed the purchase for $793 of
   the remaining 50% of the capital stock of EMS-Illinois not then owned by
   the Company.

   The purchase price consisted of 50,200 shares of the Company's common
   stock valued at $395, $380 in cash and $18 of acquisition costs.

   On September 6, 1995, the Company acquired all of the common stock of
   Intercim for approximately $3,355, composed of 278,193 shares of the
   Company's common stock valued at $7.50 per share and 278,193 of the
   Company's warrants valued at $3.75 per share, and direct acquisition costs
   of $225. Because the average trading price (Price) of the warrants for the
   15 trading days prior to April 18, 1996, was less than $3.8075, the
   Company was required to issue 123,719 additional warrants, which was equal
   to the difference between the number of warrants originally issued and the
   warrants which should have been issued at the Price above, had the Price
   been known at September 6, 1995.
    
   The acquisitions have been accounted for under the purchase method of
   accounting. Accordingly, the assets and liabilities of such companies have
   been adjusted to their estimated fair values. The excess of cost over the
   net assets acquired has been allocated to goodwill.

   The results of operations for Darwin, EMS-Illinois and Intercim have been
   included in the Company's consolidated financial statements from their
   respective acquisition dates. The unaudited pro forma results of
   operations below for EMS-Illinois and Intercim assume that the
   acquisitions had occurred at the beginning of the period. In addition to
   combining the historical results of all the entities, the pro forma
   calculations include adjustments for amortization of various intangibles
   acquired in conjunction with the acquisition and elimination of
   intercompany transactions with EMS-Illinois. However, no adjustments have
   been reflected for nonrecurring expenses as a result of the combination of
   the entities.


   Year ended November 30, 1995 (Unaudited):

               Total net revenue                        $ 34,174 
               Net income (loss)                            (505)
               Earnings per share                           (.13)


   Pro forma results have not been included for 1996 for the Darwin
   acquisition because the impact was not significant.

   3. Investments

   The following is a summary of investment securities at November 30, 1996:

                                            Available-for-Sale Securities
                                                         Gross
                                                       Unrealized   Estimate
                                                         Gains       d Fair
                                            Cost        (Losses)     Value
    Obligations of states and
       political subdivisions                $505           $ -      $505

   All of the above securities were due in one year or less.

   During the years ended November 30, 1997 and 1996, debt available-for-sale
   and certain debt held-to-maturity securities with fair market value of
   $505 and $1,247, respectively, were sold, with proceeds received
   approximating cost. The sales were made to provide funding for certain
   acquisitions, software development and normal operations. No unrealized
   holding gains (losses) on available-for-sale securities, which would be
   included as a separate component of shareholders' equity, have been
   recorded as cost approximated estimated fair value as of November 30,
   1996.

   4. Equipment and Leasehold Improvements

   Equipment and leasehold improvements consisted of the following at
   November 30:

                                                     1997           1996

    Equipment                                       $7,119         $6,090
    Furniture and fixtures                           1,346          1,199
    Leasehold improvements                             478            426
    Equipment under capital leases                     416            454
                                                  --------        -------    
                                                     9,359          8,169
    Less accumulated depreciation and
    amortization                                    (5,442)        (4,208)
                                                  --------        -------
    Equipment and leasehold improvements, net       $3,917         $3,961
                                                  ========        =======


   5. Intangible Assets

   Intangible assets consisted of the following at November 30:

                                                  1997            1996

    Goodwill                                    $1,445             $1,445
    Customer list                                1,400              1,400
    Other                                          200                200
                                               -------             ------
                                                 3,045              3,045
    Less accumulated amortization                 (601)              (355)
                                               -------             ------ 
    Intangible asset, net                       $2,444             $2,690
                                               =======             ======


   6. Affiliated Company

   Certain of the Company's stockholders also own all of the common stock of
   an affiliated company, EMS Solutions, Inc. (Solutions), which develops and
   sells computer software and related hardware to the food vending and food
   distribution industry. The Company has provided certain services to
   Solutions for which the Company received fees of $122, $269 and $321 in
   1997, 1996 and 1995, respectively, that are recorded as an offset to
   general and administrative expense. The Company also sells computer
   hardware to Solutions that totaled $331, $851 and $926 in 1997, 1996 and
   1995, respectively. Amounts due from Solutions were $404 and $445 at
   November 30, 1997 and 1996, respectively. Material transactions with
   Solutions must be approved by a majority of the Company's external
   directors.

   On July 1, 1997, Solutions moved to new facilities and no longer utilizes
   office space or other material services of the Company. In addition,
   Solutions no longer purchases computer hardware from the Company.

   7. Long-Term Debt and Lease Commitments

   Long-term obligations consist of the following at November 30:

                                                  1997               1996

    Line of credit                               $3,762            $1,864
    Notes payable                                   910                27
    Capital lease obligations                       240               359
                                               --------           -------
                                                  4,912             2,250
    Less amounts due within one year               (946)             (127)
                                               --------           -------
                                                 $3,966            $2,123
                                               ========           =======

   On December 31, 1997, the Company entered into a loan and security
   agreement (Agreement) with Foothill Capital Corporation (Foothill), which
   includes a revolving line of credit facility (Revolver) providing for
   maximum borrowings of $6,000 and a three-year term note for $3,112. The
   term note calls for 36 monthly payments of $65 with the remaining balance
   of principal due December 30, 2000. Amounts outstanding have been
   classified as long-term based upon the stated maturity date and the
   Company's estimates that borrowings will not decrease during fiscal 1998.
   Interest on the Revolver is payable monthly based on the bank's base rate
   plus .75% (9.25% at December 31, 1997); the term note bears interest at
   13.5% per year.

   Borrowings under the Agreement are secured by substantially all assets of
   the Company (except inventory subject to the lien of a vendor). In
   addition, the Agreement requires the Company to maintain compliance with
   various covenants, including minimum levels of tangible net worth and
   adjusted operating income. The Company is also required to pay a monthly
   commitment fee of .50% per annum on the difference between the commitment
   amount and balance outstanding under the Revolver in lieu of a minimum
   monthly interest payment.

   The Company leases computer and other equipment under capital leases. The
   Company also leases office space, automobiles, and certain other equipment
   under operating leases. 

   At November 30, 1997, future payments under capital and noncancellable
   operating leases were as follows:

    Fiscal Year Ending November 30      Capital Leases     Operating Leases

    1998                                         $162              $1,198
    1999                                          111               1,159
    2000                                            -               1,132
    2001                                            -                 989
    2002                                            -                 713
    Thereafter                                      -                 849
    Total minimum lease obligations               273              $6,040
    Amounts representing interest                 (33)
    Capital lease obligations                    $240

   Amortization expense relating to assets under capital leases is included
   in total depreciation expense for the period.

   Total rent expense on all operating leases was approximately $1,663,
   $1,404 and $1,042 in 1997, 1996 and 1995, respectively.

   8. Stockholders' Equity

   As of November 30, 1995, the Company had 18,801 shares of common stock and
   18,801 warrants with an aggregate value of $211 that were to be issued in
   exchange for common stock of former Intercim stockholders. These amounts,
   which were classified as common stock and warrants to be issued in
   stockholders' equity at November 30, 1995, were substantially issued in
   1996.

   In connection with the acquisition of Intercim (see Note 2), the Company
   issued common stock warrants. Each warrant entitles the holder, at any
   time prior to September 6, 2005, to purchase one share of the Company's
   common stock at $6.75 per share.

   9. Stock Options and Employee Stock Purchase Plans

   The Company maintains the 1986 Employees' Stock Option Plan (the 1986
   Plan) pursuant to which executive officers and other key employees of the
   Company have received options to purchase shares of the Company's common
   stock. Options under the 1986 Plan were granted at exercise prices equal
   to the fair market value of the common stock on the date of grant. Options
   to purchase an aggregate of 57,000 shares have previously been granted and
   remain outstanding at November 30, 1997. No additional options will be
   granted under the 1986 Plan.

   In December 1993, the Company's Board of Directors adopted the Effective
   Management Systems, Inc. 1993 Stock Option Plan (the 1993 Plan). The 1993
   Plan, as amended, provides for the granting of both incentive stock
   options and nonqualified stock options to employees and nonqualified stock
   options to non-employee directors of the Company covering up to a maximum
   of 550,025 shares. Under the 1993 Plan, the exercise price of options
   granted cannot be less than 100% of the fair market value of a share of
   the Company's stock at the date of grant. 

   On September 6, 1995, in conjunction with the merger of Intercim (see Note
   2), the Company adopted a new stock option plan, pursuant to which the
   Company granted stock options to those holders who agreed to the
   cancellation of their Intercim stock options.

   The Company has also issued nonqualified stock options to certain of its
   executives and other nonemployee directors. These options have various
   vesting schedules.

   Information with respect to stock options granted under all plans is as
   follows:

   <TABLE>
   <CAPTION>
                                                                                                  
                                                             Number of      Exercise Price Per    Weighted Average
                                                               Shares              Share           Exercise Price
    <S>                                                        <C>                <C>                      <C>
    Outstanding at November 30, 1994                           389,424            $1.57-$8.00
      Granted                                                  518,352             6.125-7.25
      Exercised                                                (29,949)             1.57-6.25
      Canceled or expired                                      (47,399)                  6.25
                                                               -------             ----------           --------
    Outstanding at November 30, 1995                           830,428              1.57-8.00
      Granted                                                  124,043              4.75-7.00
      Exercised                                                (35,000)                  1.71
      Canceled or expired                                      (14,569)             5.75-7.50
                                                               -------             ----------           --------
    Outstanding at November 30, 1996                           904,902              1.71-7.50              $6.13   
      Granted                                                  109,938              4.63-6.75               5.73
      Exercised                                                (39,500)             1.71-1.71               1.71
      Canceled or expired                                      (54,961)             4.75-7.50               6.63
                                                               -------              ---------           --------
    Outstanding at November 30, 1997                           920,379            $2.29-$8.25              $6.24
                                                               =======             ==========           ========
   </TABLE>


   At November 30, 1997, options to purchase 513,287 shares were exercisable
   under all plans, at a weighted average exercisable price of $6.29 and a
   weighted average contractual life of 7.3 years. 

   In determining the effect of FASB Statement No. 123, the Black-Scholes
   option pricing model was used with the following weighted-average
   assumptions for 1997: risk-free interest rates of 5.36%, dividend yields
   of 0%, volatility factors of the expected market price of the Company's
   common stock of .92, and a weighted-average expected life of the options
   of 4.93 years.

   The Black-Scholes option valuation model was developed for use in
   estimating the fair value of  traded options which have no vesting
   restrictions and are fully transferable. In addition, option valuation
   models require the input of highly subjective assumptions including the
   expected stock price volatility. Because the Company's employee stock
   options have characteristics significantly different from those of traded
   options, and because changes in the subjective input assumptions can
   materially affect the fair value estimate, in management's opinion, the
   existing models do not necessarily provide a reliable single measure of
   the fair value of its employee stock options.

   The Company's pro forma information, as if these options had been expensed
   in accordance with FASB Statement No. 123, follows:

                                                     1997           1996

       Pro forma net income (loss)                $(2,286)           $114
       Pro forma earnings (loss) per share           (.56)            .03

   In December 1993, the Board of Directors adopted the 1994 Employee Stock
   Purchase Plan (Stock Purchase Plan), which permits employees to purchase
   shares of the Company's common stock during six-month periods beginning on
   June 1 and December 1 of each year. The purchase price of such shares will
   be equal to the lesser of 85% of the fair market value of the stock at the
   beginning or end of each six-month offering period. During fiscal 1997 and
   1996, 26,792 and 29,718 shares, respectively, were purchased under the
   Stock Purchase Plan. The maximum cumulative number of shares that may be
   purchased under the Stock Purchase Plan is 100,240.

   The Company has reserved 1,508,813 shares of its common stock for
   potential conversion of common stock warrants and issuance under the stock
   option and purchase plans described above.

   10. Income Taxes

   Income tax expense (credit) in the consolidated statement of operations
   consists of the following:

                                      Year ended November 30
                                1997            1996           1995
    Current:
      Federal                   $(233)          $(170)         $(485)
      State                         -              80             10
                              -------         -------       --------
                                 (233)            (90)          (475)
    Deferred                     (385)            202            554
                              -------         -------       --------
                                $(618)           $112           $ 79
                              =======         =======       ========
             

   The reconciliation of income tax expense (benefit) computed at the U.S.
   federal statutory rate to income tax expense (benefit) is:

   <TABLE>
   <CAPTION>

                                                                              Year ended November 30
                                                                   1997                  1996                 1995
    <S>                                                           <C>                   <C>                 <C>
    Tax at U.S. statutory rate of 34%                             $(945)                $ 90                $ 71
    State income taxes, net of federal benefit                        -                   14                   7
    Nondeductible items                                               -                  112                  82
    Tax-exempt investment income                                      -                  (13)                (32)
    General business credits                                          -                  (98)                (69)
    Change in valuation allowance                                   329                    -                  22
    Other                                                            (2)                   7                  (2)
                                                                 ------              -------             -------
                                                                  $(618)                $112                $ 79
                                                                 ======              =======             =======

   </TABLE>
   
   The significant components of the deferred tax accounts recognized for
   financial reporting purposes at November 30 were as follows:


                                                        1997             1996
    Deferred tax liabilities:
      Capitalized computer software costs              $3,087           $2,341
      Depreciation                                        342              328
      Other, net                                           16               15
                                                      -------          -------
    Total deferred tax liabilities                      3,445            2,684

    Deferred tax assets:
      Net operating loss carryforwards                  2,902            1,578
      Allowance for doubtful accounts                     185              108
      Deferred revenue                                    127               72
      Inventory                                            30               40
      General business credit                             442              448
    carryforwards
      Other, net                                           88               53
                                                      -------          -------
    Total deferred tax assets                           3,774            2,299
    Valuation allowance                                  (329)               -
    Net deferred tax liabilities                         $  -           $  385
                                                      =======         ========


   At November 30, 1997, the Company had net federal and state operating loss
   carryforwards (NOLs) of approximately $6.8 million and $8.3 million,
   respectively, available to offset future federal and state taxable income.
   The utilization of $2,730,000 of the NOLs is subject to an annual
   limitation of approximately $182,000 annually and expires in the year
   2010. The carryforwards resulted from the Company's acquisition of
   Intercim Corp. (Intercim) in 1995 and net operating losses. In addition,
   the Company has general business credits totaling $442,000 which can be
   used to reduce federal taxable income through 2011.

   In 1997, a valuation allowance equal to 100% of the net deferred tax
   assets has been recognized based on uncertainty regarding realization of
   such assets.

   11. Savings Plan

   The Company has a defined contribution 401(k) savings plans that covers
   substantially all employees meeting certain minimum eligibility
   requirements. Participating employees can elect to defer a portion of
   their compensation and contribute it to the plan on a pretax basis. The
   Company also matches certain amounts and/or provides additional
   discretionary contributions, as defined. The Company's contributions to
   the various plans were $310, $345 and $246 for 1997, 1996 and 1995,
   respectively.

   <PAGE>

   <TABLE>

   Schedule II Valuation and qualifying accounts

   <CAPTION>

                                                     COL. A           COL. B         COL. C          COL. D        COL. E
                                                                                   Additions

                                                                        (1)            (2)
                                                                    Charged to     Charged to
                                                   Balance at        costs and   other accounts-    Deductions-   Balance at end
                   Description                beginning of period    expenses       describe         describe        of period
        <S>                                           <C>               <C>           <C>             <C>              <C>
 
        Years ended November 30, 1997

        Deducted from Asset Accounts:
        Allowance for doubtful accounts                $346.00            0           $120.00         $4.00            $462.00

        Years ended November 30, 1996

        Deducted from Asset Accounts:
        Allowance for doubtful accounts                $262.00            0           $187.00        $103.00           $346.00

        Years ended November 30, 1995

        Deducted from Asset Accounts:
        Allowance for doubtful accounts                $228.00         $44.00          $25.00         $35.00           $262.00

        Years ended November 30, 1994

        Deducted from Asset Accounts:
        Allowance for doubtful accounts                $115.00            0           $178.00         $65.00           $228.00


   </TABLE>

   <PAGE>

                                    Part III

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

   Not Applicable


   Item 10. Directors and Executive Officers of the Registrant

   Pursuant to Instruction G, information required by this item is hereby
   incorporated by reference from the Company's definitive proxy statement
   for its 1998 annual meeting of shareholders under the captions "Election
   of Directors", "Executive Officers" and "Miscellaneous-Other Matters". 
   The definitive proxy statement will be filed with the Securities and
   Exchange Commission within 120 days after the end of the Company's fiscal
   year.

   Item 11. Executive Compensation

   Pursuant to Instruction G, information required by this item is hereby
   incorporated by reference from the Company's definitive proxy statement
   for its 1998 annual meeting of shareholders under the caption "Board of
   Directors-Director Compensation" and "Executive Compensation"; provided,
   however, that the subsection entitled "Executive Compensation-Report on
   Executive Compensation" shall not be deemed to be incorporated herein by
   reference.  The definitive proxy statement will be filed with the
   Securities and Exchange Commission within 120 days after the end of the
   Company's fiscal year.

   Item 12. Security Ownership of Certain Beneficial Owners and Management

   Pursuant to Instruction G, information required by this item is hereby
   incorporated by reference from the Company's definitive proxy statement
   for its 1998 annual meeting of shareholders under the caption "Principal
   Shareholders".  The definitive proxy statement will be filed with the
   Securities and Exchange Commission within 120 days after the end of the
   Company's fiscal year.

   Item 13. Certain Relationships and Related Transactions

   Pursuant to Instruction G, information required by this item is hereby
   incorporated by reference from the Company's definitive proxy statement
   for its 1998 annual meeting of shareholders under the caption "Related
   Party Transactions".  The definitive proxy statement will be filed with
   the Securities and Exchange Commission with 120 days after the end of the
   Company's fiscal year.

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

   1.   Exhibits

        Reference is made to the separate exhibit index contained on pages E-
        1 through E-5 hereof.

   2.   Financial Statements and Financial Statement Schedules

        Reference is made to the separate index in Item 8 of this Annual
        Report on Form 10-K with respect to the financial statements and
        schedule filed herewith.

   3.   Reports on Form 8-K

        No Current Reports on Form 8-K were filed during the fourth quarter
        of the Company's fiscal year ended November 30, 1997.

   <PAGE>

                                   SIGNATURES

        In accordance with Section 13 or 15 (d) of the Securities Exchange
   Act of 1934, the registrant caused this report to be signed on its behalf
   by the undersigned, thereunto duly authorized on February 23, 1998.

                                 EFFECTIVE MANAGEMENT SYSTEMS, INC.


                                 By: /s/ Michael D. Dunham                    
                                 Michael D. Dunham
                                 President 


        In accordance with the Securities Exchange Act of 1934, this report
   has been signed below by the following persons on behalf of the registrant
   and in the capacities indicated on February 23, 1998.


        Signature                          Title


   /s/ Michael D. Dunham              President and Director
   Michael D. Dunham                  (Principal executive Officer)



   /s/ Jeffrey J. Fossum              Chief Financial Officer and Assistant
   Jeffrey J. Fossum                  Treasurer (Principal Financial and
                                      Accounting Officer)


   /s/ Helmut M. Adam                 Director
   Helmut M. Adam


   /s/ Thomas M. Dykstra              Director
   Thomas M. Dykstra



   /s/ Scott J. Mermel                Director
   Scott J. Mermel


   /s/ Robert E. Weisenberg           Director
   Robert E. Weisenberg

   <PAGE>
                                INDEX TO EXHIBITS

     Exhibit                     Exhibit Description
       No.
    2.1        Agreement and Plan of Merger, dated as of February 17,
               1995 among Effective Management Systems, Inc., EMS
               Acquisition Corp. and Intercim Corporation
               [Incorporated by reference to Exhibit 2.1 to Effective
               Management Systems, Inc.'s Registration Statement on
               Form S-4 (Registration No. 33-95338)]

    2.2        Amendment No. 1 to Agreement and Plan of Merger
               described in Exhibit 2.1, dated as of June 30, 1995
               [Incorporated by reference to Exhibit 2.2 to Effective
               Management Systems, Inc. Registration Statement on Form
               S-4 (Registration No. 33-95338)]

    2.3        Amendment No. 2 to Agreement and Plan of Merger
               described in Exhibit 2.1, dated as of July 31, 1995
               [Incorporated by reference to Exhibit 2.3 to Effective
               management Systems, Inc.'s Registration Statement on
               Form S-4 (Registration No. 33-95338)]

    2.4        Agreement of Merger, dated as of March 22, 1995, among
               Effective Management Systems, Inc., EMS Illinois
               Acquisition Corp., Effective Management Systems of
               Illinois, Inc., Richard W. Grelck and Daniel E. Long
               [Incorporated by reference to Exhibit 2.2 to Effective
               Management Systems, Inc.'s Quarterly Report on Form 10-
               QSB for the quarter ended February 28, 1995]

    3.1        Restated Articles of Incorporation of Effective
               Management Systems, Inc. [Incorporated by reference to
               Exhibit 3.1 to Effective Management Systems, Inc.'s
               Registration Statement on Form SB-2 (Registration No.
               33-73354)]

    3.2        By-laws of Effective Management Systems, Inc.
               [Incorporated by reference to Exhibit 3.2 to Effective
               Management Systems, Inc.'s Registration Statement on
               Form SB-2 (Registration No. 33-73354)]

    4.1        Article 4 of the Restated Articles of Incorporation of
               Effective Management Systems, Inc. [Incorporated by
               reference to Exhibit 3.1 of Effective Management
               Systems, Inc.'s Registration Statement on Form SB-2
               (Registration No. 33-73354)]

    4.2        Loan and Security Agreement, dated November 9, 1992, by
               and between Bank One, Milwaukee, National Association,
               and Effective Management Systems, Inc. and certain
               affiliated [Incorporated by reference to Exhibit 4.2 to
               Effective Management Systems, Inc.'s Registration
               Statement on Form SB-2 (Registration No. 33-73354)]

    4.3        First Amendment to Loan and Security Agreement, dated
               April 23, 1993, by and between Bank One, Milwaukee,
               National Association, and Effective Management Systems,
               Inc. and certain affiliates [Incorporated by reference
               to Exhibit 4.3 to Effective Management Systems, Inc.'s
               Registration Statement on Forms SB-2 (Registration No.
               33-73354)]

    4.4        Second Amendment to Loan and Security Agreement, dated
               February 8, 1994, by and between Bank One, Milwaukee,
               National Association, and Effective Management Systems,
               Inc. and certain affiliates [Incorporated by reference
               to Exhibit 4.4 to Effective Management Systems, Inc.'s
               Registration Statement on Forms SB-2 (Registration No.
               33-73354)]

    4.5        Third Amendment to Loan and Security Agreement, dated
               May 11, 1995, by and between Bank One, Milwaukee,
               National Association, and Effective Management Systems,
               Inc. and certain affiliates [Incorporated by reference
               to Exhibit 4.1 to Effective Management systems, Inc.'s
               Quarterly Report on Form 10-QSB for the quarter ended
               February 29, 1996]

    4.6        Fourth Amendment to Loan and Security Agreement dated
               August 31, 1995, by and between Bank One, Milwaukee,
               National Association, and Effective Management systems,
               Inc. and certain affiliates [Incorporated by reference
               to Exhibit 4.2 to Effective Management Systems, Inc.'s
               Quarterly Report on Form 10-QSB for the quarter ended
               February 29, 1996]

    4.7        Fifth Amendment to Loan and Security Agreement, dated
               August 31, 1995, by and between Bank One, Milwaukee,
               National Association, and Effective Management Systems,
               Inc., and certain affiliates. [Incorporated by
               reference to Form 10-KSB for the year ended November
               30, 1996]

    4.8        Sixth Amendment to Loan and Security Agreement, dated
               October 31, 1996, by and between Bank One, Milwaukee,
               National Association, and Effective Management Systems,
               Inc., and certain affiliates. [Incorporated by
               reference to Form 10-KSB for the year ended November
               30, 1996]

    4.9        Seventh Amendment to Loan and Security Agreement, dated
               February 27, 1997 by and between Bank One, Milwaukee,
               National Association, and Effective Management Systems,
               Inc., and certain affiliates [Incorporated by reference
               to Exhibit 4.1 to Effective Management systems, Inc.'s
               Quarterly Report on Form 10-Q for the quarter ended May
               31, 1997] 

    4.10       Eighth Amendment to Loan and Security Agreement dated
               July 11, 1997, by and between Bank One, Milwaukee,
               National Association, and Effective Management Systems,
               Inc., and certain affiliates [Incorporated by reference
               to Exhibit 4.2 to Effective Management Systems, Inc.'s
               Quarterly Report on Form 10-Q for the quarter ended May
               31, 1997]

    4.11       Ninth Amendment to Loan and Security Agreement dated
               September 9, 1997 by and between Bank One, Milwaukee,
               National Association, and Effective Management Systems,
               Inc. and certain affiliates [Incorporated by reference
               to Exhibit 4.1 to Effective Management Systems, Inc.'s
               Quarterly Report on Form 10-Q for the quarter ended
               August 31, 1997]

    4.12       Tenth Amendment to Loan and Security Agreement dated
               September 30, 1997 by and between Bank One, Milwaukee,
               National Association, and Effective Management Systems,
               Inc. and certain affiliates [Incorporated by reference
               to Exhibit 4.2 to Effective Management Systems, Inc.'s
               Quarterly Report on Form 10-Q for the quarter ended
               August 31, 1997]

    4.13       Warrant Agreement between Effective Management Systems,
               Inc. and American Stock Transfer & Trust company, dated
               as of September 6, 1995 [Incorporated by reference to
               Exhibit 4.2 to Effective management Systems, Inc.'s
               Current Report on Form 8-K, dated September 6, 1995]

    4.14       Loan and Security Agreement by and between Foothill
               Capital corporation and Effective Management Systems,
               Inc; EMS-East, Inc.; and Effective Management Systems
               of Illinois, Inc. dated December 31, 1997

    10.1       Business Agreement by and between Digital Equipment
               Corporation and Effective Management Systems, Inc.,
               effective as of February 8, 1994 [Incorporated by
               reference to Exhibit 10.1 to Effective Management
               Systems, Inc.'s Registration Statement on Form SB-2
               (Registration No. 33-73354)]

    10.2       Addendum to Business Agreement by and between Digital
               Equipment Corporation and Effective Management Systems,
               Inc., effective as of February 8, 1994 [Incorporated by
               reference to Exhibit 10.2 to Effective Management
               Systems, Inc.'s Registration Statement on Form SB-2
               (Registration No. 33-73354)]

    10.3       Value Added Reseller Agreement by and between Digital
               Information Systems corporation and Effective
               Management Systems, Inc., effective as of November 9,
               1992 [Incorporated by reference to Exhibit 10.3 to
               Effective Management Systems, Inc.'s Registration
               Statement on Form SB-2 registration No. 33-73354)]

    10.4       Domestic Value Added Reseller Agreement between
               Intermec Corporation and Effective Management Systems,
               Inc., dated as of March 4, 1991 [Incorporated by
               reference to Exhibit 10.4 to Effective Management
               system, Inc.'s Registration Statement on Form SB-2
               (Registration No. 33-73354)]

    10.5       Amendment No. 1 to domestic Value Added Reseller
               Agreement between Intermec Corporation and Effective
               Management Systems, Inc., dated as of October 29, 1991
               [Incorporated by reference to Exhibit 10.5 to Effective
               Management Systems, Inc.'s Registration Statement on
               Form SB-2 (Registration No. 33-73354)]

    10.6       Amendment No. 2 to Domestic Value Added Reseller
               Agreement between Intermec Corporation and Effective
               Management Systems, Inc., dated as of June 11, 1993
               [Incorporated by reference to Exhibit 10.6 to Effective
               Management Systems, Inc.'s Registration Statement on
               Form SB-2 (Registration No. 33-73354)]

    10.7       Software Supplier Agreement dated August 6, 1994, by
               and between Effective Management Systems, Inc. and
               Hewlett Packard Company [Incorporated by reference to
               Exhibit 10.7 to Effective Management Systems, Inc.'s
               Annual Report on Form 10-KSB for the year ended
               November 30, 1994]

    10.8       Joint Venture Agreement, dated September 15, 1985, by
               and between Effective Management Systems, Inc. and
               Joseph H. Schlanser, Aurinee M. Schansler and Barton R.
               Benjamin [Incorporated by reference to Exhibit 10.9 to
               Effective Management Systems, Inc.'s Registration
               Statement on Form SB-2 (Registration No. 33-73354)]

    10.9       International Marketing Agreement, dated July 5, 1994,
               by and between Effective Management Systems, Inc.
               Systems, Inc. and Systems Technology Management
               Corporation [Incorporated by reference to Exhibit 10.11
               to Effective Management Systems, Inc.'s Annual Report
               on Form 10-KSB for the year ended November 30, 1994]

    10.10      Lease by and between Effective Management Systems, Inc.
               and Milwaukee Park Place Limited Partnership, as
               amended [Incorporated by reference to Exhibit 10.10 to
               Effective Management Systems, Inc.'s Registration
               Statement on Form SB-2 (Registration No. 33-73354)]

    10.11      Effective Management Systems, Inc. 1986 Employee's
               Stock Option Plan [Incorporated by reference to Exhibit
               10.11 to Effective Management Systems, Inc.'s
               Registration Statement on Form SB-2 (Registration No.
               33-73354)]

    10.12      Effective Management Systems, Inc. 1993 Stock Option
               Plan, as amended [Incorporated by reference to Exhibit
               10.1 to Effective Management Systems, Inc.'s Quarterly
               Report on Form 10-QSB for the quarter ended May 31,
               1996]

    10.13      Stock Option Agreement by and between Helmut M. Adam
               and Effective Management Systems, Inc., dated as of
               December 17, 1993 [Incorporated by reference to Exhibit
               10.13 to Effective Management Systems, Inc.'s
               Registration Statement on Form SB-2 (Registration No.
               33-73354)]

    10.14      Stock Option Agreement by and between Scott J. Mermel
               and Effective Management systems, Inc., dated as of
               December 17, 1993 [Incorporated by reference to Exhibit
               10.14 to Effective Management Systems, Inc.'s
               Registration Statement on Form SB-2 (Registration No.
               33-73354)]

    10.15      Bonus Arrangement by and between Thomas G. Allen and
               Effective Management Systems, Inc. [Incorporated by
               reference to Exhibit 10.16 to Effective Management
               Systems, Inc.'s Annual Report on Form 10-KSB for the
               year ended November 30, 1994]

    10.16      IBM Business Partner Agreement between International
               Business Machines Corporation and Effective Management
               Systems, Inc., dated as of March 3, 1995 [Incorporated
               by reference to Exhibit 10.1 to Effective Management
               Systems, Inc.'s Quarterly Report on Form 10-QSB for the
               quarter ended February 28, 1995]

    10.17      Software Reseller Agreement between International
               Business Machines corporation and Effective Management
               Systems, Inc., dated as of September 6, 1995
               [Incorporated by reference to Exhibit 10.18 to
               Effective Management Systems, Inc.'s Annual Report on
               Form 10-KSB for the year ended November 30, 1995]

    10.18      Distributor Agreement with Pioneer Standard
               Electronics, Inc. [Incorporated by reference to Exhibit
               10.1 to Effective Management Systems, Inc.'s Quarterly
               Report on Form 10-Q for the quarter ended May 31, 1997]

    10.19      IBM Market Development Program Agreement dated
               September 3, 1997 [Incorporated by reference to
               Effective Management Systems, Inc.'s Quarterly Report
               on Form 10-Q for the quarter ended August 31, 1997]

    10.20      Relationship Agreement with CIMX, an Ohio Limited
               Liability Company and Effective Management Systems,
               Inc. dated December 31, 1997

    21         List of subsidiaries of Effective Management Systems,
               Inc.

    23         Consent of Ernst & Young, LLP

    27         Financial Data Schedule

    99         Proxy Statement for 1998 Annual Meeting of Shareholders

               The Proxy Statement for the 1998 Annual Meeting of
               Shareholders will be filed with the Securities and
               Exchange Commission under Regulation 14A within 120
               days after the end of the Company's fiscal year; except
               to the extent incorporated by reference, the Proxy
               statement for the 1998 Annual Meeting of Shareholders
               shall not be deemed to be filed with the Securities and
               Exchange Commission as part of this Annual Report on
               Form 10-K