<PAGE>

                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, DC  20549

                                    FORM 10-KSB

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

(MARK ONE)

    [ X ]  Annual report pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934 for the fiscal year ended May 31, 1998;

     or

    [   ]  Transition Report pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934 for the transition period from ___________ to
           ___________.


Commission File Number 0-11791



                              GREENTREE SOFTWARE, INC.
                   (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)


New York                                                              13-2897997
-------------------------------                            ---------------------
(State or Other Jurisdiction of                            (IRS Employer ID No.)
 Incorporation or Organization)

7901 Flying Cloud Drive
Suite 200                                                                  55344
Eden Prairie, Minnesota  55344                                   ---------------
----------------------------------------                              (Zip Code)
(Address of Principal Executive Offices)


Issuer's Telephone Number, Including Area Code:                   (612) 941-1500

Securities Registered Under Section 12(b) of the Exchange Act:              None
Securities Registered Under Section 12(g) of the Exchange Act:

Title of Each Class
--------------------------------------
Common Shares, par value $0.01 per share

<PAGE>

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

               Yes  [ X ]               No   [   ]

Check if there is no disclosure of delinquent filers in response to Item 405 or
Regulation S-B in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB.  [ ]

Issuer's revenues for its most recent fiscal year:   $616,639

The aggregate market value of the Common Shares, par value $0.01 per share
("Common Shares"), held by non-affiliates of the Registrant (totaling
approximately 2,463,799 shares) was approximately $5,235,573 as of June 30, 1998
(based upon the closing bid of the Registrant's Common Shares in the OTC
Bulletin Board on June 30, 1998 of $2.125 per share).  The term affiliates is
deemed, for this purpose only, to refer only to directors, officers, and
principal stockholders of the Registrant.

State the number of shares outstanding in each of the issuer's classes of common
equity, as of June 30, 1998.

<TABLE>
<CAPTION>

                 CLASS                        OUTSTANDING
                 -----                        -----------
<S>                                          <C>
          Common Shares, par value           8,029,761 shares
          $0.01 per share


</TABLE>


                        DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's definitive Proxy Statement to be delivered to
Shareholders in connection with the Annual Meeting of Shareholders to be held on
September 17, 1998 are incorporated by reference into Part III hereof.  With the
exception of the portions of such Proxy Statement expressly incorporated into
this Annual Report on Form 10-KSB by reference, such Proxy Statement shall not
be deemed filed as part of this Annual Report on Form 10-KSB.


                                          2
<PAGE>

                              GREENTREE SOFTWARE, INC.
                            ANNUAL REPORT ON FORM 10-KSB
                                    MAY 31, 1998

                               CROSS REFERENCE SHEET


<TABLE>
<CAPTION>

                                        PART I                          PAGE
                                                                        ----
<S>       <C>                                                           <C>
Item 1    Description of Business                                         1

Item 2    Description of Property                                         8

Item 3    Legal Proceedings                                               8

Item 4    Submission of Matters to a Vote of Security Holders             9


                                       PART II

Item 5    Market for Common Equity and Related Stockholder Matters        9

Item 6    Management's Discussion and Analysis or Plan of Operations     11

Item 7    Financial Statements                                           13

Item 8    Changes in and Disagreements With Accountants on Accounting
          and Financial Disclosure                                       13


                                       PART III

Item 9    Directors, Executive Officers, Promoters, and Control
          Persons; Compliance with Section 16(a) of the Exchange Act     14

Item 10   Executive Compensation                                         14

Item 11   Security Ownership of Certain Beneficial Owners and
          Management                                                     15

Item 12   Certain Relationships and Related Transactions                 15

Item 13   Exhibits, List and Reports on Form 8-K                         15

</TABLE>

<PAGE>


Except for the historical information contained herein, this Annual Report on
Form 10-KSB may contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including, but not limited to, (i) the Company's belief in the growth
of the purchasing and procurement systems software market and (ii) expectations
for the Company's strategy and future performance.  Investors are cautioned that
forward-looking statements are inherently uncertain.  Actual performance and
results of operations may differ materially from those projected or suggested in
the forward-looking statements due to certain risks and uncertainties,
including, but not limited to, the risks and uncertainties set forth under the
heading "Risk Factors" and the following risks and uncertainties:  (i) the
Company's history of losses and accumulated deficit, limited revenues, and the
uncertainty of future profitability; (ii) the uncertainty of market acceptance
of PurchaseSoft software; (iii) new management and ability to recruit sales,
service, and implementation personnel; (iv) the intense competition in the
software field; (v) the dependence on one product and rapid technological change
in the industry; and (vi) fluctuations in quarterly operating results.  The
forward-looking statements contained herein represent the Company's judgment as
of the date of this Annual Report on Form 10-KSB, and the Company cautions
readers not to place undue reliance on such statements.

Except as otherwise noted, all information in this Annual Report on Form 10-KSB
reflects a one-for-six reverse stock split of the Company's Common Shares
effected on July 22, 1997.


PART I:

ITEM 1:   DESCRIPTION OF BUSINESS

THE COMPANY

     Greentree Software, Inc. (the "Company" or "Greentree") was incorporated in
New York in June 1977 and began operations as a management consulting firm
specializing in the area of purchasing and materials management.  In 1985, the
Company introduced its first software product for purchasing and materials
management, Computer Aided Purchasing-Registered Trademark-  ("CAP1") for use on
IBM compatible personal computers.  Since 1991, all of the Company's revenues
have been derived from the sale and maintenance of software products.

     The Company released its first Microsoft Windows and client/server based
purchasing and materials management software system (GT Purchase PRO) in May
1994.  In March 1996, the Company released its GT Purchase PRO version 5.0.  In
May 1997, GT Purchase PRO version 6.0 was released, which provided additional
major enhancements to the product.  In a press release dated October 4, 1997,
the Company announced that the product name was being changed from GT Purchase
Pro to PurchaseSoft 2.0.  The Company believes this name more accurately
describes the new enterprise scope of their software solution.

PURCHASESOFT

     PurchaseSoft is a full life-cycle suite of software for improving the
performance of Purchasing and Materials Management.  As a companion to Financial
Accounting Software, PurchaseSoft gives everyone, including requisitioners,
managers, buyers, and executives, a better and more efficient solution for
purchasing and materials management automation.  PurchaseSoft is compatible with
Structured Query Language ("SQL") databases, the client/server architecture, and
e-mail.  PurchaseSoft is an enterprise-wide application developed in
Powerbuilder 5.0 that is shipped as a 16-bit application for Windows 3.1 users
or as a true 32-bit application for Windows 95, 98 and NT users.

                                          1
<PAGE>


     The complete PurchaseSoft software suite includes the following modules:

          Purchasing                         Inventory
          Requisitioning                     Invoice Matching
          Receiving                          Asset Management
          Quotations                         Blanket Orders
          Request for Quotations (RFQ's)     Accounts Payable Interface

     All of the modules can be integrated into one common logical system, and
interfaces are available for supporting external Accounts Payable and MRO
applications and systems.  The software routes electronic purchase requisitions
as application-level communication.  Requisitions flow via corporate LANs, WANs,
Internet, or Intranet to back-office solution processing.  Requisitions are
created using on-line, electronic product, and services catalogs.  Before
reaching back-office processing, requisitions must be approved, and this is
achieved using an authorization cycle as established through user-defined
workflow routed on top of existing e-mail systems.

     Requisitions can be converted to RFQ's to support the bidding and sourcing
process, or requisitions can be turned directly into purchase orders.  All
information is processed at the line item level.  Buyers can turn one
requisition into many P.O.'s or many requisitions into one P.O.  A Blanket
Purchase Order feature handles routine and repetitive purchases.  Purchase
orders can be sent to vendors via paper, fax, and e-mail or exported for EDI
exchange.

     The system uses industry standard, leading technology.  Internet/intranet
technologies are combined with client/server technologies, creating a versatile,
highly reliable software solution.  Modules are available for creating and
sending purchase requisitions via the internet, and the system also allows for
remote receipt of goods via the internet.  There are multiple security levels
for requisition authorization.

     Requisitions move over existing e-mail systems using MAPI.  Contracts,
product specifications, and other documents are managed as file attachments
using OLE automation.  Also, the system supports robust industry standard
databases - Microsoft SQL Server and Oracle.

     For corporations embracing internet/intranet technologies, the Company
believes that the system is well planned.  A thin client approach is available
for purchase requisitioners via their intranet, and remote users with no WAN
access can create and send requisitions via a web browser and the internet.  In
addition, vendor web sites can be easily launched from within the system.  The
vendor file maintains URL's for quick launch of a desktop web browser.

MARKETS

     Purchasing, procurement and materials management automation is an emerging
market within the supply chain segment of software applications.  Movement to
Client/Server Systems began when corporations migrated from host-based systems
to Client/Server Human Resources and Financial Systems followed by the migration
of Manufacturing Management Systems.  Over the next few years, the Company
believes that MMS (Materials Management Systems) or SCM (Supply Chain Management
Systems) will continue to emerge in the area of financial applications.

     With the advent of internet/intranet technologies, self-service 
applications, such as material requisitions and approvals, can now be 
efficiently deployed on every desktop of the enterprise.  This streamlines 
the expenditure cycle within an organization allowing for more effective 
purchasing control and management and enhanced supplier relationships.  To 
capture this market, applications vendors will need to offer sensible 
implementations of client/server, intranet/internet, and workflow 
technologies.  More importantly, the applications must integrate best 
practices purchasing and supplier management.

                                          2
<PAGE>

     According to Purchasing Magazine, an estimated $250 billion was spent last
year on maintenance, repairs, and operations (MRO) purchases by the top 100
"buying" companies.  Most of these companies have either paper systems or
automated systems that are not integrated with an automated materials management
procurement system.  The Gartner Group states that world class procurement
leaders will enjoy an 8% to 10% revenue advantage by year 2000.  By targeting
customers within fast-growing industries, such as telecommunication, computer
technologies, and financial services, the Company's goal is to gain momentum and
capture an early market share of this emerging segment.  By offering executive
management a practical implementation of client/server, intranet, and workflow
technologies, such as materials management automation, the Company's strategy is
to obtain larger contract values with shorter sales cycles.

DISTRIBUTION STRATEGY

     The enterprise wide, client/server and browser markets, because they are
emerging markets, afford the greatest immediate revenue opportunity.  The
Company's strategy is two-fold:  first; build a direct sales force to sell
directly to Fortune 2000 accounts and second;  build partnerships and alliances
with system integrators, strategic partners and other software vendors.  There
can be no assurance that the Company will be successful in developing its
alliance and partner network or in recruiting a sales staff to meet its needs.

COMPETITION

     The market for purchasing and procurement software in which the Company 
competes is highly competitive.  The Company faces competition from several 
sources ranging from large ERP vendors (SAP, BAAN, Oracle and PeopleSoft), 
medium sized vendors (Great Plains Software and Lawson Software), industry 
specific vendors and best of breed vendors.  The Company believes it competes 
on the basis of product features, performance, and price and compares 
favorably to the competition on each of these categories.  The Company 
believes that its history of financial performance has negatively affected 
its image in the marketplace and that it has lost potential business from 
potential customers whom expressed concerns about the Company's financial 
status and ability to remain solvent. The Company believes that the 
investment made by L-R Global Partners, L.P. in April 1998, that has allowed 
the Company to report a cash balance of $2,918,548 and a Total Stockholders' 
Equity of $2,379,458 as of May 31, 1998 will position the Company to overcome 
these past objections.  It is impossible to predict what effect these issues 
may have on the Company's future market image, overall competitiveness, and 
ability to market its products.  There can be no assurance that the Company 
will be able to grow sufficiently to enable it to compete effectively.

DEVELOPMENT

     Since its inception, the Company has made substantial investments in
research and development.  The Company spent approximately $227,000 and $261,000
in fiscal 1998 and fiscal 1997, respectively, on research and development
activities, including amounts capitalized as part of deferred software
development costs of approximately $75,000 and $228,000, respectively.  The
Company believes that timely development of new software product enhancements to
existing software products is essential to build its position in the
marketplace.  From February 1996 to July 1997, the Company had all software
development work on the Company's product performed by outside developers.
Beginning in July 1997, the Company moved all software development and product
support to internal operations.

     As with any new software product, PurchaseSoft has, and may continue to 
contain, "bugs."  The Company has a formal quality assurance program, as well 
as beta testing by select customers and/or prospects to identify those bugs 
which are considered significant and need to be corrected prior to general 
release of the product/module to prospects and customers.  Management 
believes that all significant bugs with respect to the modules released to 
date have been identified and corrected or are being corrected.

                                          3
<PAGE>


SOFTWARE MAINTENANCE

     Maintenance revenues for fiscal 1998 and fiscal 1997 were $79,090 and
$175,871, respectively.  This decrease reflects non-renewals for many of the
DOS-based product users.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional comments related to the
trend of billings for these revenues.  Maintenance contracts have been generally
sold to customers for 15% of the software product cost.  These contracts entitle
the customer to telephone support and upgrades, as they become available.

WARRANTIES

     The Company's standard maintenance agreement for its CAPS System and
PurchaseSoft modules provide that the Company will furnish services as are
necessary to correct any malfunction in the software.  Under the terms of these
agreements, if the Company is unable to correct a malfunction by means of
telephone or telecommunication assistance, repairs may, at the customer's
option, be performed on the premises where the software is located.  For such
services rendered, the customer is obligated to pay the Company fees at certain
prescribed rates as set forth in the agreement and to provide reimbursement for
travel and other expenses.  Such services were not significant during fiscal
1998 or 1997.

COPYRIGHTS, TRADEMARKS, AND PATENTS

     The trade names "Computer Aided Purchasing" or "CAP" and CAPlink" have been
registered by the Company with the United States Patent and Trademark Office and
will expire in March 1999 and December 2000, respectively, unless renewed.
Under the Trademark Revision Act of 1988, trademark registrations in the United
States have a ten-year term and can be renewed repeatedly for ten-year terms
provided certain criteria are met. The Company has applied to register its
trademark PurchaseSoft for its purchasing and materials management software
product.

     The Company has sought, and will continue to seek, to protect all software
programs and documentation developed by it under a combination of contract,
patent, copyright, trademark and trade secret laws. Existing copyright laws
afford only limited protection. There can be no assurance that these protections
will be adequate or that the Company's competitors will not independently
develop technologies that are superior to the Company's technology.  There can
be no assurance that third parties will not assert infringement claims against
the Company in the future.  Management intends to protect aggressively the
Company's trademark, copyright and proprietary rights against any attempt by a
competitor to infringe or interfere with such rights.  However, litigation in
this area is expensive and the Company may not wish to commit funds to commence
or pursue such litigation, especially because the high costs thereof could
adversely affect the Company's results of operation.  Even if the Company
commences such litigation, there is no assurance that the Company would prevail.

EMPLOYEES

     As of July 22, 1998, the Company had twenty-one full-time employees
consisting of:  four executive officers, eight sales and marketing personnel,
six in development and support and three in administration. None of the
Company's employees are subject to a collective bargaining agreement.  The
Company believes relations with employees are good.


                                          4
<PAGE>

"Executive Officers"

     As of July 22, 1998, the executive officers of the Company were as follows:

<TABLE>
<CAPTION>
                                                              Year Became
       Name             Age    Position With Company            Officer
---------------------   ---    ---------------------------    -----------
<S>                     <C>    <C>                            <C>
Joseph D. Mooney         60    Chairman of the Board,            1996
                               Chief Executive Officer,
                               and Director

Jeffrey B. Pinkerton     50    President and Director            1994

Robert Kilpatrick        46    Chief Operating Officer           1998

Philip D. Wolf           46    Chief Financial Officer
                               and Secretary                     1998

</TABLE>

     JOSEPH D. MOONEY has served as Chairman of the Board since June 1997 and as
Chief Executive Officer and a director of the Company since December 1996.  From
August 1996 to December 1996, Mr. Mooney served as a consultant to the Company
to assist the Company in product development and marketing strategy.  Since
1973, Mr. Mooney has served in various management and marketing positions with
Benchmark Computer Systems, Inc., a software management company.  He is also
currently a member of the Board of Directors of Benchmark Computer Systems, Inc.
and Spanlink Communications, Inc.

     JEFFREY B. PINKERTON has served as President of the Company since August
1996 and as a member of the Board of Directors since October 1995.  Since 1994
and from 1987 to 1991, Mr. Pinkerton has served in various positions for the
Company, including President, Executive Vice President, Vice President-Product
Development, and as a member of the Board of Directors.  From 1991 to 1994, Mr.
Pinkerton served as the owner of Viewpoint Consulting, a reseller of the
Company's software products.

     ROBERT KILPATRICK has served as Chief Operating Officer of the Company
since July 1998.   From 1994 to 1998, Mr. Kilpatrick has served in various
management positions with Integral Partners and KPCB Java Fund.  Mr. Kilpatrick
was a director of Calico Technologies.  From 1989 to 1994, Mr. Kilpatrick was
President of FirstSource Financial.  FirstSource Financial developed complex
underwriting software for the residential mortgage and insurance industry.  From
1984 to 1989, Mr. Kilpatrick worked as an independent consultant at various
venture capital and investment firms specializing in distessed investments.
From 1977 to 1984, Mr. Kilpatrick served as a Vice President for Primerica (now
Travelers).   Mr. Kilpatrick holds degrees from the University of Texas and
Stanford.

     PHILIP D. WOLF received his B.S. Degree in Accounting from the University
of Minnesota in 1974, following which he has spent 24 years in various financial
management positions.  Mr. Wolf joined the Company in October 1997 and has
served as Chief Financial Officer since January 1998.  During 1997, Mr. Wolf
served as a consultant to several start-up companies.  From 1989 to 1997, Mr.
Wolf was Vice President of Finance and CFO for Nice Man Merchandising, a
worldwide entertainment merchandising company.  From 1987 to 1989, he was Chief
Financial Officer for Benchmark Computer Systems, Inc., a value added reseller
and software developer of integrated computer systems.  From 1983 to 1987, he
was Vice President of Finance and Administration for National Information
Systems, Inc., which provided computer and information services to the direct
marketing industry.  From 1974 to 1983, Mr. Wolf was staff accountant and became
the Controller for Patchin Appraisals, Inc., a national valuation firm.

ENVIRONMENTAL REGULATIONS

     The Company believes that compliance with federal, state, and local laws
and regulations which have been enacted or adopted regulating the discharge of
materials into the environment currently have, or in the foreseeable future,
will not have any material adverse effect upon the capital expenditures,
earnings, or competitive position of the Company.

                                          5
<PAGE>



RISK FACTORS

     Stockholders and prospective purchasers of the Company's Common Stock
should carefully consider the following risk factors in addition to the other
information appearing in this Annual Report on Form 10-KSB.

HISTORY OF LOSSES AND ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE PROFITABILITY.

     The Company had a net loss of approximately $2.3 million for the fiscal
year ended on May 31, 1998 and had an accumulated deficit at May 31, 1998 of
approximately $16.9 million.  The Company has experienced ongoing losses from
operations and expects that such losses will continue for at least some period
until product sales may be generated in sufficient volume to offset expenses.
For the fiscal year ended May 31, 1998, the Company had revenues of $616,639.
For the fiscal year ended May 31, 1997, the Company had revenues of $599,373.
There can be no assurance the Company's revenues will continue at all or will
grow sufficiently to achieve profitability.  The Company does not expect to be
profitable unless and until such time as sales of its software products generate
sufficient revenue to fund its operations.

UNCERTAINTY OF MARKET ACCEPTANCE OF PURCHASESOFT SOFTWARE.

     The Company has invested heavily in research for, and development of, its
core purchasing and materials management software system - PurchaseSoft.  There
can be no assurance that the Company's PurchaseSoft product will achieve market
acceptance.  The Company believes that its history of financial performance has
negatively affected its image in the marketplace and that it has lost potential
business from potential customers whom expressed concerns about the Company's
financial status and ability to remain solvent.  The Company believes that the
investment made by L-R Global Partners, L.P. in April 1998, that has allowed the
Company to report a cash balance of $2,918,548 and a Total Stockholders' Equity
of $2,379,458 as of May 31, 1998 will position the Company to overcome these
past objections.  There can be no assurance that the improved balance sheet will
be successful in overcoming customer concerns.  The Company believes its largest
challenge is to gain wide spread market acceptance of its PurchaseSoft product.
The failure to obtain market acceptance would have a material adverse affect on
the Company's business.

NEW MANAGEMENT, ABILITY TO RECRUIT SALES, SERVICE, AND IMPLEMENTATION PERSONNEL.

     The Company's new management has a very limited history in operating the
Company even though they are experienced in managing companies with the
challenges similar to those being faced by the Company.  There can be no
assurance that the Company's management will be successful in meeting their
planned objectives for the Company.  The ability to achieve anticipated revenues
is substantially dependent on the ability of the Company to attract on a timely
basis and retain skilled personnel, especially key management, sales, support,
and implementation personnel.  The Company believes that its future success will
depend in large part on its ability to attract and retain highly skilled
technical, managerial, marketing, and professional services personnel to ensure
the quality of products and services provided to its customers.  Competition for
such personnel, in particular for product development and implementation
personnel, is intense, and the Company competes in the market for such personnel
against numerous companies, including larger, more established companies with
significantly greater financial resources than the Company.  There can be no
assurance that the Company will be successful in attracting and retaining
skilled personnel.  The Company's inability to attract and retain qualified
employees would have a material adverse effect on the Company's business.


                                          6
<PAGE>

INTENSE COMPETITION.

     The Company faces competition from several sources ranging from large ERP
vendors (SAP, BAAN, Oracle and PeopleSoft), medium sized vendors (Great Plains
Software and Lawson Software), industry specific vendors and best of breed
vendors.  These competitors all offer software products performing functions
similar to the Company's products.  The market space in which the Company
competes is going through tremendous growth and this will invite new
competitors.  Existing competitive products offered by companies with greater
financial or marketing resources impact and limit the Company's revenues.  There
can be no assurance that competitors do not have or will not offer or develop
products that are superior to the Company's products or that achieve greater
market acceptance.  In addition, suppliers of relational database management
systems and companies that develop management information software applications
for large multinational manufacturers have begun to target the firms targeted by
the Company and offer applications that compete in the Company's markets.  As a
result, competition (including pricing competition) may increase, which could
result in price reductions and loss of market share.  The Company may also face
market resistance from potential customers within the large installed base of
legacy systems, who may be reluctant to commit the time and resources necessary
to convert to an open systems-based client/server software product.  As the
client/server computing market expands, a large number of companies, many with
significantly greater resources than the Company, may enter the market or
increase their market share by acquiring or entering into the alliances with
competitors of the Company.  There can be no assurance that the Company will be
able to compete successfully against its competitors or that the competitive
pressures faced by the Company will not adversely affect its financial
performance.

RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS.

     The market for the Company's software products is characterized by rapid
technological advances, evolving industry standards, change 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 the Company's existing products and products
currently under development as obsolete and unmarketable.  Accordingly, the
Company's future success will depend upon its ability to enhance its current
products and develop and introduce new products that keep pace with
technological developments, satisfy varying end-user requirements, and achieve
market acceptance.  Any failure by the Company to anticipate or respond
adequately to technological developments or end-user requirements, or any
significant delays in product development or introduction, could severely damage
the Company's competitive position and have a material adverse effect on
revenues.  There can be no assurance that the Company will be successful in
developing and marketing new products or product enhancements on a timely basis
or that the Company will not experience significant delays in the future which
could have a material adverse effect on the Company's results of operations.  In
addition, there can be no assurance that new products or product enhancements
developed by the Company will achieve market acceptance.

DEPENDENCE ON ONE PRODUCT.

     Substantially all of the Company's revenues are expected to be derived from
the sale of its PurchaseSoft product and related support services.  Accordingly,
any event that adversely affects revenue generated from the sale of software or
from the professional fees derived from the installation of such product, such
as competition from other products, significant flaws in the product, or
incompatibility with third party hardware or software products, negative
publicity or evaluation, or obsolescence of the hardware platforms or software
environments in which the product runs, could have a material adverse effect on
the Company's results of operations.  The Company's future financial performance
will depend on the continued development and introduction of new and enhanced
versions of PurchaseSoft and other products and on customer acceptance of such
new enhanced products.


                                          7
<PAGE>

FLUCTUATION IN QUARTERLY OPERATING RESULTS

     The Company's revenues and operating results can vary substantially from
quarter to quarter.  Sales revenues in any quarter are substantially dependent
on aggregate contracting activity and the Company's ability to recognize revenue
in that quarter in accordance with its revenue recognition policies.

     Revenues may vary from quarter to quarter due to variances in prior quarter
contracting activity, which impacts revenue on a lag and which may not reflect
positively or adversely the Company's future financial performance.  The
Company's sales cycle is relatively long and variable.  The Company's ability to
increase revenue is dependent on its ability to grow sales activity which
provides opportunities for consulting, training and subsequent maintenance
revenues.  Additionally the Company may not be able to recruit, hire, and train
sufficient numbers of qualified consultants to perform such services.

     Due to the forgoing, it is likely that in one or more future quarters the
Company's operating results will be below expectations of public securities
market analysts.  In such event, the price of the Company's Common Shares would
likely be materially adversely affected.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.

     The Company intends to rely on a combination of copyright, trademark and
trade secret laws, employee and third party nondisclosure agreements, and other
industry standard methods for protecting ownership of its proprietary software.
There can be no assurance, however, that in spite of these precautions, an
unauthorized third party will not copy or reverse-engineer certain portions of
the Company's products or obtain and use information that the Company regards as
proprietary.  In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States.  There can be no assurance that the mechanisms used by the Company to
protect its software will be adequate or that the Company's competition will not
independently develop software products that are substantially equivalent or
superior to the Company's software products.

     The Company expects that, as the number of software products in the
industry increases and the functionality of these products further overlaps,
software products will increasingly be subject to claims of infringement on
third party proprietary rights.  Any such claim, whether with or without merit,
could result in costly litigation and require the Company to enter into royalty
or licensing arrangements.  Such royalty or license arrangements, if required,
may not be available on terms acceptable to the Company or at all.


ITEM 2:   DESCRIPTION OF PROPERTY

     In October 1996, the Company relocated its corporate office to 7901 Flying
Cloud Drive in Eden Prairie, Minnesota, where it currently occupies 3,163 sq.
ft. under a lease that expires on March 1, 2001.  The Company has entered into a
two-year lease that expires on August 31, 2000 for 10,262 sq. ft. of office
space in Edina, Minnesota (approximately five miles from the present
headquarters) and the Company intends to relocate its corporate office to this
space in August 1998.  Once the Company relocates to its new office space, the
Company intends to negotiate a release from their Eden Prairie lease once the
landlord locates a new tenant for the space.  The Company also leases an office
in Westborough, Massachusetts that expires on November 15, 1999 and has a lease
for office space in Sarasota, Florida that expires on October 1, 2000, which it
subleases at a rate approximating its lease obligation.


ITEM 3:   LEGAL PROCEEDINGS

     The Company is not currently a party to any material litigation
proceedings.


                                          8
<PAGE>

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

     No matters were submitted to a vote of security holders during the last
quarter of the fiscal year ended May 31, 1998.


PART II:


ITEM 5:   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

     The Common Shares are traded in the National Association of Securities
Dealers OTC Bulletin Board (Symbol:  GTSW).  The following table sets forth the
range of high and low bid quotations of the Common Shares for each quarterly
period during the two fiscal years ended May 31, 1998 and May 31, 1997 as
reported by NASD Bulletin Board.  The quotations in the table and the succeeding
paragraph represent prices in the over-the-counter market between dealers in
securities, do not include retail markup, markdown, or commissions, and may not
necessarily represent actual transactions.


<TABLE>
<CAPTION>
                                                               BID

     PERIOD                                            HIGH           LOW
                                                       ----           ---
<S>                                                  <C>            <C>
FISCAL YEAR ENDING:
     May 31, 1998
     First Quarter                                   $3.3000        $1.0000
     Second Quarter                                  $1.9370        $1.1250
     Third Quarter                                   $1.6250        $0.9370
     Fourth Quarter                                  $3.7500        $0.9060

FISCAL YEAR ENDING:
     May 31, 1997
     First Quarter                                   $6.0000        $2.6220
     Second Quarter                                  $4.8750        $2.2500
     Third Quarter                                   $6.3750        $2.2500
     Fourth Quarter                                  $4.3125        $2.7000

</TABLE>

     The closing bid sales price of the Common Shares on June 30, 1998 in the
NASD OTC Bulletin Board (as reported by the NASD) was $2.125 per share.

HOLDERS

     The number of holders of record of the Common Shares at June 30, 1998 was
approximately 400.  Management of the Company is of the opinion that, based on
copies of proxy statements and Annual Reports requested by brokers, banks, and
other record holders for beneficial owners in connection with the last two
meetings of shareholders, that approximately 2,000 registered shares are held
for beneficial owners.

                                          9
<PAGE>


DIVIDENDS

     The Company has never paid cash dividends on the Common Shares nor does the
Board of Directors anticipate the Company paying cash dividends in the
foreseeable future because of the financial requirements necessary to develop
operations.

NASD REQUIREMENTS

     The Company's Common Shares are traded in the over-the-counter market and
reported in the NASD's OTC Bulletin Board or in the "pink sheets" as reported by
the National Quotation Bureau, Inc.  However, because the bid price of the
Common Shares was below $5.00 per share when the Common Shares were delisted
from the NASDAQ System, the Common Shares, when recommended by a broker-dealer,
are subject to the limitations of Rule 15g-9 under the Exchange Act, which Rule
imposes additional sales practices requirements on broker-dealers which sell the
Common Shares (1) to persons other than (a) existing customers with a previous
history of trading through such broker-dealer, (b) institutional accredited
investors (for example, a bank or savings and loan association), and (c) a
director and/or officer of the Company and/or the beneficial owner of 5% or more
of the Common Shares, or (2) in transactions not exempt by the Rule.  For
transactions under Rule 15g-9, the broker-dealer must obtain written information
from the prospective purchaser as to his or her financial situation, investment
experience, and investment objectives, and based on such information, reasonably
determine that transactions in the security are suitable for that person and
that the prospective investor (or his or her independent advisor) has sufficient
knowledge and experience in financial matters so as to be reasonably expected to
be capable of evaluating the risks of transactions in such security.  The
broker-dealer must also receive the purchaser's written agreement to the
transaction prior to the sale.  Certain broker-dealers, particularly if they are
market makers in the Common Shares, will have to comply with the disclosure
requirements of Rules 15g-2, 15g-3, 15g-4, 15g-5, and 15g-6 under the Exchange
Act.  Consequently, Rule 15g-9 and these other Rules may adversely affect the
ability of broker-dealers to sell the Common Shares as a result of the
delisting.

RECENT SALES OF UNREGISTERED SECURITIES

     In April and May 1998, the Company sold 458,250 shares of Common Shares at
a price of $.80 per share, raising $364,600 in gross proceeds.  The issuance and
sale of the Common Shares in this offering were made in reliance on Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended, and
Section 4(2) of the Securities Act.

     On April 17, 1998, the Company sold a convertible promissory note in the
principal amount of $3.2 million to L-R Global Partners, L.P. ("L-R Global"), an
accredited investor.  The note was convertible at any time into shares of Common
Shares at a conversion price of the lesser of $.80 or 80% of the average closing
bid price of the Common Shares for the five trading days preceding the
conversion date.  The note would have automatically converted into shares of
Common Shares at the applicable conversion price upon the later of the filing of
certain amendments to the Corporation's Certificate of Incorporation or July
16,1998, provided that certain covenants were not in default.  On May 29, 1998,
L-R Global elected to convert their note into 4,000,000 shares of Common Shares
at a price of $.80 per share.  The issuance and sale of the convertible note in
this offering was made in reliance on Rule 506 of Regulation D, promulgated
under the Securities Act, and Section 4(2) of the Securities Act.


                                          10
<PAGE>


ITEM 6:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

     The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Financial Statements and Notes thereto and the other financial information
included elsewhere in the Form 10-KSB Annual Report.  This Discussion and
Analysis of Financial Condition and Results of Operations contains descriptions
of the Company's expectations regarding future trends affecting its business.
These forward-looking statements and other forward-looking statements made
elsewhere in this document are made in reliance upon the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995.  The discussion below
and under the heading "Risk Factors" sets forth certain factors the Company
believes could cause actual results to differ materially from those contemplated
by the forward looking statements.  The Company undertakes no obligation to
update the information contained in this Item 6.

     Fiscal 1998 showed improvements in certain areas, including the addition of
seasoned management and sales staff and also product improvements with
PurchaseSoft.  The Company has moved forward with an increase in its installed
customer base and referenceable sites.  In May 1997, GT Purchase Pro Version 6.0
(renamed PurchaseSoft 2.0 in October 1997) was released, which provided
additional major enhancements to the product, including additional modules and
web capabilities.

FISCAL YEAR ENDED MAY 31, 1998 VS. 1997

REVENUES

     Total revenue, which includes product and service revenue for fiscal 1998
was $616,639 compared to $599,393 for fiscal 1997.  Product revenue for fiscal
1998 was $383,877 compared to $368,915 for fiscal 1997.  Service revenue for
fiscal 1998 was $232,762 compared to $230,458 for fiscal 1997.  Included in
service revenue for fiscal 1998 were professional services of $153,672 compared
to $54,587 for fiscal 1997, an increase of $99,085 or 181.5%.  Also included in
service revenues for fiscal 1998 were maintenance revenues of $79,090, compared
to $175,871 for fiscal 1997, a decrease of $96,781 or 55.0%.

     The increase in professional services revenue is the result of the Company
mandating that customers purchase training and implementation services to insure
a successful installation.  The decrease in maintenance revenues is the result
of non-renewal of many of the DOS-based users, as this version of the software
has required very little support, and these customers do not receive free
upgrades as the DOS-based product is no longer being developed.

     Product revenues increased 4.1%, but were constrained due to limited
financial resources during the bulk of fiscal 1998.  Due to the Company's
continued losses from operations and low sales volume, the Company has
previously experienced difficulties in securing the funds necessary to support
the negative cash flow from operations during fiscal 1998 and 1997 (see the
section "Liquidity and Capital Resources" in this section for further comments).
In addition, the Company believes that certain prospective customers may have
deferred orders, or not placed orders, due to concerns with respect to the
financial viability of the Company.


                                          11
<PAGE>


EXPENSES

     Cost of revenues for fiscal 1998 increased to $611,468 from $508,705 in
fiscal 1997, an increase of $102,763 or 20.2%.  The primary reason for this was
the write-off of $119,000 of capitalized software due to impairment.  As of May
31, 1998, the Company had written off all capitalized software costs.

     Selling expenses for fiscal 1998 were $635,039 compared to $584,984 in
fiscal 1997, an increase of $50,055 or 8.6%.  This increase was primarily due to
an increase in sales personnel as the Company continues to expand its sales and
marketing activities in connection with the improved PurchaseSoft product and
attempts to reach new customers.

     General and administrative expenses for fiscal 1998 were $1,670,549
compared to $1,321,842 in fiscal 1997, an increase of $348,707 or 26.4%.  This
increase was due primarily to an increase in salaries and related payroll
expenses for administrative management as the Company works to build a stable
and qualified management team and administrative support group.

     Fiscal 1998 reflects interest income of $11,200 compared with interest
expense of $7,042 for fiscal 1997.  Interest income in fiscal 1998 resulted from
the interest earned on the proceeds of the Company's private placement on April
17, 1998.

NET INCOME

     For fiscal 1998, the Company reported a net loss of $2,289,217 (or $.79 per
share) as compared with a net loss of $1,823,200 ($1.14 per share) for fiscal
1997.  The fiscal 1998 loss increased over the fiscal 1997 loss due to the
write-off of the remaining capitalized software balance, the Company's increased
sales and marketing efforts and the Company's continued investment in building
its management and support infrastructure.  The decrease in the loss per share
resulted from an increase in the average outstanding shares of 1,596,510 for
fiscal 1997 to 2,885,760 for fiscal 1998.

LIQUIDITY AND CAPITAL RESOURCES

     During fiscal 1998, the Company raised gross proceeds of $4,274,989 from
the issuance of Common Shares in Private Placements in October 1997, March 1998
and April 1998 and from the issuance of convertible Notes Payable in December
1997, March 1998 and April 1998, which have all been converted into Common
Shares. The Company incurred $103,190 in expenses in connection with these
capital raising efforts.  All such proceeds were used to fund product
development, sales, and the Company's general operating expenses.

     The Company had working capital of $2,324,267 as of May 31, 1998 as
compared with a working capital deficit of $2,181,387 as of May 31, 1997, an
increase of $4,505,654.  The primary reason for this increase in working capital
was the cash proceeds from the sale of Common Shares and the issuance of the
convertible Notes Payable and the conversion of the Notes Payable to Common
Stock, all of which were used to fund operations for fiscal 1998.

     The Company made $13,691 in capital expenditures during fiscal 1998 as
compared with $24,567 in fiscal 1997.  The Company had no significant
commitments as of May 31, 1998 for capital expenditures.


                                          12
<PAGE>


     The Company believes that its existing capital resources, interest 
income, and revenue from software sales and services will be sufficient to 
fund its planned operating expenses and capital requirements through the end 
of fiscal 1999.  However, there can be no assurance that such funds will be 
sufficient to meet the Company's operating expenses and capital requirements 
during such period.  The Company's actual cash requirements may vary 
materially from those now planned and will depend upon numerous factors, 
including the results of the Company's software development efforts, the 
level of resources the Company commits to marketing and sales efforts, the 
ability of the Company to maintain existing and develop new  customers, and 
activities of competitors and other factors.

YEAR 2000 ISSUES

     The Company has and will continue to evaluate year 2000 issues and their
potential impact on its information systems and computer technologies.  All
evaluation costs will be expensed as incurred.  Year 2000 issues are not
expected to have a significant impact on the Company's ongoing results of
operations, however, there can be no assurance that the Company will not suffer
adverse effects from the failure of any of its vendors, suppliers or partners to
be year 2000 compliant.


ITEM 7:   FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

                                                                           PAGE
<S>                                                                        <C>

Report of PricewaterhouseCoopers LLP                                       F-2

Balance Sheets at May 31, 1998 and 1997                                    F-3

Statements of Operations For the Years Ended May 31, 1998 and 1997         F-4

Statements of Stockholders' Equity (Deficit) for the Years Ended
 May 31, 1998 and 1997                                                     F-5

Statements of Cash Flows for the Years Ended May 31, 1998 and 1997         F-6

Notes to Financial Statements                                              F-7

</TABLE>

ITEM 8:   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

CHANGE IN INDEPENDENT ACCOUNTANTS

     On May 15, 1997, the Board of Directors of the Company authorized the
Company to engage Price Waterhouse LLP ("PW") rather than KPMG Peat Marwick LLP
("KPMG") as the Company's independent public accountants for the fiscal year
ending May 31, 1997, subject to the Chief Financial Officer of the Company
confirming acceptance by PW of such appointment and notifying KPMG.  On May 15,
1997, the Company advised KPMG and PW of its decision.  On May 15, 1997, PW
advised the Company that it accepted the appointment, and the Company officially
engaged PW as its independent public accountants for the fiscal year ending
May 31, 1997.


                                          13
<PAGE>

     KPMG served as the Company's independent public accountants and auditors
since November 21, 1994.  KPMG was dismissed by the Board of Directors as of May
15, 1997.  The Company's decision to employ PW rather than KPMG was the result
of the Company's decision to move its executive offices to Eden Prairie,
Minnesota, upon the hiring of Mr. Mooney as Chief Executive Officer, and the
fact that the Company wanted to utilize the services locally of a large
independent public accounting firm which had particular expertise in the
software industry.

     In fiscal 1996, KPMG in its report noted that, although the financial
statements had been prepared assuming that the Company will continue as a going
concern, the Company has suffered recurring losses from operations that raise
substantial doubt about its ability to continue as a going concern.  Such firm
also stated that the financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

     There were no disagreements with KPMG, whether or not resolved, on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to that firm's satisfaction,
would have caused it to make reference to the subject matter of the
disagreements in connection with its report.  The Company notes that, in
connection with the fiscal year 1996 audit, certain matters concerning the
Company's internal controls were brought to the Company's attention in a letter
to the Board of Directors dated September 11, 1996.  These concerns were
discussed with the former accountant and addressed by the Board of Directors of
the Company.  All required adjustments were made in the Company's annual
financial statements in connection with the audit.  KPMG's audit opinion was not
qualified as to these matters, and no disagreement existed between the Company
and KPMG with respect to these issues.  The Company has authorized KPMG to
respond fully to the inquiries of PW concerning the internal control issues
raised in the Management Letter.

     Neither the Company, nor any person acting on its behalf, prior to the
engagement of PW, consulted PW regarding the application of accounting
principles to a specific completed or contemplated transaction, or the type of
audit opinion that might be rendered on the Company's financial statements.


PART III:

Certain information required by Part III is omitted from this report because the
Company will file a definitive Proxy Statement pursuant to Regulation 14A (the
"Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.


ITEM 9:   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     The information concerning the Company's executive officers required by
this item is included in the section in Part I hereof entitled "Employees."  The
information concerning the Company's directors, promoters and control persons
required by this Item is incorporated by reference to the Company's Proxy
Statement under the heading "Election of Directors."  Information concerning the
Company's officers, directors, and 10% shareholders compliance with Section
16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by
reference to the Company's Proxy Statement under the heading "Section 16(a)
Beneficial Ownership Reporting Compliance."


ITEM 10:   EXECUTIVE COMPENSATION

     The information required with respect to this item may be found in the
section captioned, "Executive Compensation" appearing in the definitive Proxy
Statement to be delivered to Shareholders in connection with the Annual Meeting
of Shareholders to be held on September 17, 1998.  Such information is
incorporated herein by reference.


                                          14
<PAGE>


ITEM 11:   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required with respect to this item may be found in the
section captioned, "Security Ownership of Certain Beneficial Owners and
Management" appearing in the definitive Proxy Statement to be delivered to
Shareholders in connection with the Annual Meeting of Shareholders to be held on
September 17, 1998.  Such information is incorporated herein by reference.


ITEM 12:   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     The information required with respect to this item may be found in the
section captioned, "Certain Relationships and Related Transactions" appearing in
the definitive Proxy Statement to be delivered to Shareholders in connection
with the Annual Meeting of Shareholders to be held on September 17, 1998.  Such
information is incorporated herein by reference.


ITEM 13:   EXHIBITS, LIST AND REPORTS ON FORM 8-K

EXHIBITS

     The following exhibits which are designated with a footnote reference are
incorporated by reference to a prior registration statement declared effective
under the Securities Act or a periodic report file pursuant to Section 13 of the
Exchange Act.  Exhibits which are designated with an asterisk are filed with
this Report.

<TABLE>
<CAPTION>

Number         Exhibit
<S>    <C>

3.1    Certificate of Incorporation of the Company.  (1)

3.2    Amendment to Certificate of Incorporation of the Company as filed in the
       State of New York on August 18, 1983.  (1)

3.3    Amendment to Certificate of Incorporation of the Company as filed in the
       State of New York on January 26, 1988.  (2)

3.4    Amendment to Certificate of Incorporation of the Company as filed in the
       State of New York on December 23, 1993.  (6)

3.5    Amendment to Certificate of Incorporation of the Company as filed in the
       State of New York on April 28, 1994.  (6)

3.6    Amendment to Certificate of Incorporation of the Company as filed in the
       State of New York on June 22, 1997.  (8)

3.7    By-laws of the Company.  (3)

4.1    Specimen Certificate for Shares of Common Stock

4.2    Warrant expiring January 31, 1999 issued by the Company to Wm. Smith &
       Co.

4.3    Form of Warrant issued to Wm. Smith Securities & Gilmore & Co.  (5)

                                          15
<PAGE>

4.4    Form of Warrant issued to TIS Acquisitions and Management Group, Inc.,
       The Travelers Indemnity Company, and Mark Cahill, dated October 25,
       1996.  (8)

4.5    Form of Warrant issued to Wm. Smith Securities, Inc., dated October 25,
       1996.  (8)

4.6    Form of Warrant issued to Wm. Smith Securities, Inc., dated October 25,
       1996.  (8)

10.1   The Company's Stock Option Plan of 1987.  (4)

10.2   The Company's Stock Option Plan of 1994.  (6)

10.3   The Company's 1997 Stock Option Plan.  (8)

10.4   Employment Agreement dated April 1, 1998 between the Company and Jeffrey
       B. Pinkerton.  (9)

10.5   Agreement dated September 23, 1993 between Focus Capital Corp. and the
       Company.  (6)

10.6   Registration Rights Agreement dated as of December 25, 1995 among the
       Company and certain of its Shareholders.  (5)

10.7   Registration Rights Agreement dated as of April 23, 199_ among the
       Company and certain of its Shareholders.  (5)

10.8   Lease between the Company and Fruitville-Tuttle, Ltd.  (7)

10.9   Employment Agreement dated February 2, 1998 between the Company and
       Joseph D. Mooney.  (9)

10.10  Lease between the Company and The Protective Group.  *

10.11  Lease between the Company and Racotek, Inc.  *

10.12  Registration Rights Agreement dated October 25, 1996 between the Company
       and certain of its Shareholders. (8)
</TABLE>

FOOTNOTES:

(1)    Incorporated herein by reference to the Company's Registration Statement
       on Form S-18, File No. 2-86249-NY.

(2)    Incorporated herein by reference to the Company's Annual Report on Form
       10-K for the fiscal year ended May 31, 1992.

(3)    Incorporated herein by reference to the Company's Annual Report on Form
       10-KSB for the fiscal year ended May 31, 1993.

(4)    Incorporated herein by reference to the Company's Annual Report on Form
       10-K for the fiscal year ended May 31, 1991.

(5)    Incorporated herein by reference to the Company's Registration Statement
       on Form S-1, File No. 333-45475.


                                          16
<PAGE>

(6)    Incorporated herein by reference to the Company's Annual Report on Form
       10-KSB for the fiscal year ended May 31, 1994.

(7)    Incorporated herein by reference to the Company's Annual Report on Form
       10-KSB for the fiscal year ended May 31, 1996.

(8)    Incorporated herein by reference to the Company's Annual Report on Form
       10-KSB for the fiscal year ended May 31, 1997.

(9)    Incorporated herein by reference to the Company's Quarterly Report on
       Form 10-QSB/A for the quarter ended February 28, 1998.


Reports on Form 8-K

1.     On April 17, 1998, the Company filed a report on Form 8-K announcing it
had raised $3.2 million through a private offering of convertible debt.

2.     On May 4, 1998, the Company filed an Item 1, Change in Control report on
Form 8-K announcing that on April 17, 1998, the Company consummated a private
offering of a convertible promissory note in the principal amount of $3.2
million to an accredited investor

3.     On May 18, 1998, the Company filed a report on Form 8-K announcing the
completion of its $4.2 million private placement, of which $3.2 million was
provided by L-R Global Partners, L.P. in the form of a convertible promissory
note.

4.     On May 29, 1998, the Company filed a report on Form 8-K announcing that
L-R Global Partners, L.P. had elected to convert the entire amount of its
convertible promissory note.






SIGNATURES


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

                                 Greentree Software, Inc.
                                 (Registrant)
Date:   July 24, 1998

                                 /s/ Joseph D. Mooney


                                 ____________________________________
                                 Joseph D. Mooney
                                 Chairman, Chief Executive Officer, & Director


                                          17
<PAGE>


     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
July 24, 1998.

Signature                                      Title
---------                                      -----

/s/ Joseph D. Mooney                    Chairman, Chief Executive Officer
                                        and Director

_________________________________
Joseph D. Mooney




/s/ Philip D. Wolf                      Chief Financial Officer and Secretary


_________________________________
Philip D. Wolf




/s/ Jeffrey B. Pinkerton                President and Director


_________________________________
Jeffrey B. Pinkerton




/s/ Brad I. Markowitz                   Director


_________________________________
Brad I. Markowitz


/s/ J. Murray Logan                     Director


_________________________________
J. Murray Logan




/s/ Don LaGuardia                       Director


_________________________________
Don LaGuardia


                                          18
<PAGE>




                                Greentree Software, Inc.
                           Index to Financial Statements






<TABLE>
<CAPTION>

Description                                                           Page
--------------------------------------------------------------------------
<S>                                                                   <C>

Report of PricewaterhouseCoopers LLP                                  F-2

Balance Sheets as of May 31, 1998 and 1997                            F-3

Statements of Operations for the years ended May 31, 1998 and 1997    F-4

Statements of Stockholders' Equity (Deficit) for the years
  ended May 31, 1998 and 1997                                         F-5

Statements of Cash Flows for the years ended May 31, 1998 and 1997    F-6

Notes to Financial Statements                                         F-7
</TABLE>

<PAGE>

                          REPORT OF INDEPENDENT ACCOUNTANTS





To the Board of Directors
   and Stockholders of
   Greentree Software, Inc.

In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Greentree Software, Inc. at
May 31, 1998 and 1997, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.  These financial statements are the responsibility of the Company's
management, our responsibility is to express an opinion on these financial
statements based on our audits.  We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for the opinion expressed above.



/S/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
July 1, 1998


                                        F-2


<PAGE>



                               GREENTREE SOFTWARE, INC
                                    BALANCE SHEETS
                                MAY 31, 1998 AND 1997


<TABLE>
<CAPTION>


                                                              1998                1997
                                                         -------------        ------------
<S>                                                      <C>                  <C>
Assets

Current Assets:
     Cash and cash equivalents                           $  2,918,548        $    245,649
     Accounts receivable, net                                 103,145             164,556
     Prepaid expenses and other current assets                  5,045              30,204
                                                         ------------        ------------
Total Current Assets                                        3,026,738             440,409
                                                         ------------        ------------

Property and Equipment, net                                    46,067              54,554
                                                         ------------        ------------

Other Assets:
     Customer list                                                  -              29,345
     Capitalized software development costs                         -             526,372
     Security deposits                                          9,124               9,124
     Debt issue costs                                               -              76,261
                                                         ------------        ------------
Total Other Assets                                              9,124             641,102
                                                         ------------        ------------

Total Assets                                             $  3,081,929        $  1,136,065
                                                         ------------        ------------
                                                         ------------        ------------


Liabilities and Stockholders' Equity (Deficit)

Current Liabilities:
     Accounts payable                                    $    219,092        $    348,148
     Convertible notes payable                                      -           2,049,566
     Accrued expenses                                         389,781             146,214
     Deferred revenues                                         93,598              77,868
                                                         ------------        ------------
Total Current Liabilities                                     702,471           2,621,796
                                                         ------------        ------------

Commitments and Contingencies (Note 5)

Stockholders' Equity (Deficit)
     Common stock, $.01 par value, 15,000,000
     shares authorized, 8,029,761 and 1,610,610
     shares issued and outstanding, respectively               80,298              16,106
     Additional paid-in-capital                            19,321,482          13,231,268
     Accumulated deficit                                  (16,933,290)        (14,644,073)
                                                         ------------        ------------
                                                            2,468,490          (1,396,699)
Less treasury stock (4,780 shares) at cost                    (89,032)            (89,032)
                                                         ------------        ------------
Total Stockholders' Equity (Deficit)                        2,379,458          (1,485,731)
                                                         ------------        ------------

Total Liabilities and Stockholders' Equity (Deficit)     $  3,081,929        $  1,136,065
                                                         ------------        ------------
                                                         ------------        ------------

</TABLE>


                   See accompanying notes to financial statements.
                                         F-3

<PAGE>

                               GREENTREE SOFTWARE, INC
                               STATEMENTS OF OPERATIONS
                          YEARS ENDED MAY 31, 1998 AND 1997



<TABLE>
<CAPTION>

                                                             1998                1997
                                                         ------------        ------------
<S>                                                      <C>                 <C>
Net revenues:

     Product                                             $    383,877        $    368,915
     Services                                                 232,762             230,458
                                                         ------------        ------------
Total net revenues                                            616,639             599,373
                                                         ------------        ------------

Costs and expenses:
     Cost of revenues                                         611,468             508,705
     Selling expenses                                         635,039             584,984
     General and administrative                             1,670,549           1,321,842
                                                         ------------        ------------
Total costs and expenses                                    2,917,056           2,415,531
                                                         ------------        ------------

Operating loss                                             (2,300,417)         (1,816,158)

Interest income (expense), net                                 11,200              (7,042)
                                                         ------------        ------------

Net loss                                                 $ (2,289,217)       $ (1,823,200)
                                                         ------------        ------------
                                                         ------------        ------------

Net loss per common share                                $      (0.79)       $      (1.14)
     (Basic and diluted)                                 ------------        ------------
                                                         ------------        ------------

Weighted average shares outstanding                         2,885,760           1,596,510
                                                         ------------        ------------
                                                         ------------        ------------
</TABLE>


                   See accompanying notes to financial statements.
                                         F-4

<PAGE>

                              GREENTREE SOFTWARE, INC
                    STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                         YEARS ENDED MAY 31, 1998 AND 1997


<TABLE>
<CAPTION>

                                                 Common Stock                                                         Total
                                         ------------------------     Additional      Accumulated     Treasury     Stockholders'
                                           Shares          Amount  Paid-in-Capiltal     Deficit        Stock          Equity
                                         ---------        -------  ----------------  ------------     --------     -------------
<S>                                      <C>              <C>      <C>               <C>              <C>          <C>
Balance, May 31, 1996                    1,583,944        $15,839    $13,198,158     $(12,820,873)    $(89,032)    $  304,092
Sale of common stock, net                   26,666            267         33,110                -            -         33,377
Net loss                                         -              -              -       (1,823,200)           -     (1,823,200)
                                         ---------        -------    -----------     ------------     --------     ----------
Balance, May 31, 1997                    1,610,610         16,106     13,231,268      (14,644,073)     (89,032)    (1,485,731)


Convertible notes converted
 to common stock                         5,060,253         50,603      5,172,457                -            -      5,223,060
Sale of common stock                     1,358,898         13,589        986,400                -            -        999,989
Warrants issued for services                     -              -         34,547                -            -         34,547
Capital raising expenses                         -              -       (103,190)               -            -       (103,190)
Net loss                                         -              -              -       (2,289,217)           -     (2,289,217)
                                         ---------        -------    -----------     ------------     --------     ----------
Balance, May 31, 1998                    8,029,761        $80,298    $19,321,482     $(16,933,290)    $(89,032)    $2,379,458
                                         ---------        -------    -----------     ------------     --------     ----------
                                         ---------        -------    -----------     ------------     --------     ----------
</TABLE>


                   See accompanying notes to financial statements.


                                         F-5

<PAGE>

                               GREENTREE SOFTWARE, INC
                               STATEMENTS OF CASH FLOWS
                          YEARS ENDED MAY 31, 1998 AND 1997


<TABLE>
<CAPTION>



                                                                                   1998           1997
                                                                               ------------   ------------
<S>                                                                            <C>            <C>
Cash flows from operating activities:
   Net loss                                                                    $(2,289,217)   $(1,823,200)
   Adjustments to reconcile net loss to net cash
   used in operating activities:
      Depreciation and amortization                                                 51,524        139,228
      Amortization of deferred software costs                                      601,733        470,513
   Changes in operating assets and liabilities:
      Accounts receivable                                                           61,412        (51,807)
      Prepaid expenses and other                                                    29,913       (111,308)
      Accounts payable and accrued expenses                                        149,057       (383,725)
      Deferred revenue                                                              15,730        (73,584)
                                                                               -----------    -----------
   Net cash used in operating activities                                        (1,379,848)    (1,833,883)
                                                                               -----------    -----------

   Cash flows from investing activities:
      Additions to property and equipment                                          (13,691)       (24,567)
      Additions to capitalized software development costs                          (75,361)      (228,369)
                                                                               -----------    -----------
   Net cash used in investing activities                                           (89,052)      (252,936)
                                                                               -----------    -----------

   Cash flows from financing activities:
      Net proceeds from sale of common stock                                     4,171,799         33,377
      Net proceeds from issuance of convertible notes                                    -      2,049,566
      Repayment of note payable                                                    (30,000)             -
                                                                               -----------    -----------
   Net cash provided by financing activities                                     4,141,799      2,082,943
                                                                               -----------    -----------

   Net increases (decrease) in cash and cash equivalents                         2,672,899         (3,876)
   Cash and cash equivalents, beginning of year                                    245,649        249,525
                                                                               -----------    -----------
   Cash and cash equivalents, end of year                                      $ 2,918,548    $   245,649
                                                                               -----------    -----------
                                                                               -----------    -----------



   Supplemental disclosure of cash flow information:
      Cash paid for interest                                                   $     1,879    $     8,282
                                                                               -----------    -----------
                                                                               -----------    -----------

   Supplemental disclosure of non-cash transaction:
      Conversion of convertible notes payable
            issued in fiscal 1997                                              $ 2,049,566    $         -
                                                                               -----------    -----------
                                                                               -----------    -----------
</TABLE>


                   See accompanying notes to financial statements.
                                         F-6



<PAGE>

                              Greentree Software, Inc.
                           Notes to Financial Statements
                               May 31, 1998 and 1997


NOTE 1-GENERAL INFORMATION

     Greentree Software, Inc. (the "Company" or "Greentree") was incorporated in
New York in June 1977 and began operations as a management consulting firm
specializing in the area of purchasing and materials management.  In 1985, the
Company introduced its first software product for purchasing and materials
management, Computer Aided Purchasing-Registered Trademark-  ("CAP1") for use on
IBM compatible personal computers.  Since 1991, all of the Company's revenues
have been derived from the sale and maintenance of software products.

     The Company released its first Microsoft Windows and client/server based
purchasing and materials management software system (GT Purchase PRO) in May
1994.  In March 1996, the Company released its GT Purchase PRO version 5.0.  In
May 1997, GT Purchase PRO version 6.0 was released, which provided additional
major enhancements to the product.  In a press release dated October 4, 1997,
the Company announced that the product name was being changed from GT Purchase
Pro to PurchaseSoft 2.0.  The Company believes this name more accurately
describes the new enterprise scope of their software solution.

     PurchaseSoft is a full life-cycle suite of software for improving the
performance of Purchasing, Requisitioning and Materials Management in the
growing market of MRO (maintenance, repair and operating) Resource Management.


NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


     (a)  Use of Estimates

     Management is required to make estimates and assumptions during the
preparation of financial statements in conformity with generally accepted
accounting principles.  These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements.  They also affect reported
amounts of net income (loss) during the period.  Actual results could differ
materially from these estimates and assumptions.


     (b)  Revenue Recognition and Accounts Receivable

     The Company recognizes revenue in accordance with the provisions of
Statement of Position (SOP) No. 91-1, "Software Revenue Recognition."  The
Company recognizes software license revenue at the time products are shipped
provided that no significant Company obligations remain outstanding and
collection of the resulting receivable is deemed probable by management.
Insignificant obligations remaining at the time of shipment are accrued.
Revenues related to software licenses for which there are significant remaining
performance obligations are deferred and recognized once such obligations are
fulfilled.

     Service revenues are comprised of revenues derived from software
maintenance agreements and professional services.  Maintenance fees are recorded
as deferred revenue and recognized ratably over the maintenance period, which is
usually twelve months.  Professional service revenue is recognized as the
services are performed.

                                        F-7

<PAGE>

     Accounts receivable is presented net of an allowance for uncollectible
accounts of $30,000 and $57,096 at May 31, 1998 and 1997, respectively.  Bad
debt expense is recorded in general and administrative expenses.


     (c)  Software Development Costs

     The Company is engaged in research and development activities in the area
of computer software.  In accordance with generally accepted accounting
principles, costs incurred prior to determination of technological feasibility
are considered research and development and expensed as incurred.  Once
technological feasibility has been established, development costs are
capitalized and amortized over the shorter of an economic life of one to three
years or the proportion of current period product revenues to total expected
product revenues.  Amortization charged to cost of revenues amounted to $601,733
and $470,513 during the fiscal years ended May 31, 1998 and 1997, respectively.


     (d)  Property and Equipment

     Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is charged to operations over the estimated useful lives of the
related assets, generally 5 to 7 years, using the straight-line method.
Depreciation expense, was $22,178 and $90,013 for the years ended May 31, 1998
and 1997, respectively.


     (e)  Customer List

     The Company acquired a customer list of one of its resellers for $80,000 in
1994 and amortized these costs over the last four years.  Amortization expense
related to this intangible asset was $29,345 and $15,996 for the fiscal years
ended May 31, 1998 and 1997, respectively.


     (f)  Cash and Cash Equivalents

     The Company considers all highly liquid instruments with original
maturities of 90 days or less to be cash equivalents for financial statement
purposes.


     (g)  Income Taxes

     The Company accounts for income taxes using the liability method in
accordance with the provisions of the Statement of Financial Accounting Standard
(SFAS) No. 109, "Accounting for Income Taxes."  SFAS No. 109 requires that
deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts.


                                         F-8

<PAGE>

     (h)  Loss Per Common Share

     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share".  SFAS No. 128 applies to entities with publicly
held common stock and is effective for financial statements issued for periods
ending after December 15, 1997.  Under SFAS No. 128 the presentation of primary
earnings per share is replaced with a presentation of basic earnings per share.
SFAS No. 128 requires dual presentation of basic and diluted earnings per share
for entities with complex capital structures.  Basic earnings per share includes
no dilution and is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares outstanding for the
period.  Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share.  Due to the Company's continued net losses there has
been no impact from unexercised stock options and warrants on diluted net loss
per share as the effect would be anti-dilutive.  Earnings per share amounts for
all periods have been presented or restated to conform with the provisions of
SFAS No. 128.

     (i)  Recently Issued Accounting Standard

     The American Institute of Certified Public Accountants' has approved a new
Statement of Position, SOP 97-2, which will supersede Statement of Position
91-1, "Software Revenue Recognition."  Management has assessed this new
statement and believes that its adoption beginning June 1, 1998 will not have a
material effect on the timing of the Company's revenue recognition or cause
significant changes to its revenue recognition policies.

NOTE 3-PROPERTY AND EQUIPMENT

At May 31, 1998 and 1997, property and equipment balances consisted of the
following:

<TABLE>
<CAPTION>

                                                 1998          1997
                                                 ----          ----
<S>                                           <C>           <C>
Property and equipment, at cost               $ 519,475     $ 505,784
Less accumulated depreciation                 (473,408)     (451,230)
                                              ---------     ---------
  Net property and equipment                  $  46,067     $  54,554
                                              ---------     ---------
                                              ---------     ---------

</TABLE>

NOTE 4 - INCOME TAXES

     The Company has available net operating loss carry forwards (NOL's) for
Federal income tax purposes of approximately $5,000,000 at May 31, 1998.  The
NOL's expire at various times from 1999 through 2012.

          No future tax benefit for the Company's NOL's and other cumulative
temporary differences has been recognized since utilization of the benefit is
not determinable.  The tax effects of NOL's and other cumulative temporary
differences that give rise to the Company's deferred tax asset are presented
below as of May 31, 1998 and 1997:

<TABLE>
<CAPTION>

                                                      1998           1997
                                                      ----           ----
<S>                                               <C>              <C>
Deferred tax assets:
Net operating loss carryforwards                  $1,914,000       $858,000
Other, net                                            58,000              -
                                                 -----------    -----------
Total gross deferred tax assets                    1,972,000        858,000
Less valuation allowance                         (1,972,000)      (858,000)
                                                 -----------    -----------
Net deferred tax asset                           $        0     $         0
                                                 -----------    -----------
                                                 -----------    -----------

</TABLE>


                                         F-9

<PAGE>

NOTE 5-COMMITMENTS AND CONTINGENCIES

     Operating Leases

     The Company leases office space in several locations under non-cancelable
operating leases, which expire on various dates through March 2001. Rent expense
amounted to $80,245 and $57,922 for the fiscal years ended May 31, 1998 and
1997, respectively.

     Future minimum lease payments under the noncancelable operating leases as
of May 31, 1998 are as follows:

<TABLE>
<CAPTION>

     Years
     Ending                             Committed
     May 31           Commitment        Sublease                 Net
     ------           ----------        ---------                ---
<S>                   <C>               <C>                    <C>

     1999             $128,864           $(46,613)             $82,251
     2000              116,007            (15,538)             100,469
     2001               59,425                   0              59,425
                      --------          ----------             -------

     Total            $304,296           $(62,151)            $242,145
                      --------          ----------             -------
                      --------          ----------             -------

</TABLE>

    Contingencies

     The Company is involved in various contingent matters in the normal course
of business.  Management is of the opinion that the outcome of such matters will
not have a significant adverse effect on the Company's financial position,
results of operations or cash flows.

NOTE 6-STOCKHOLDERS' EQUITY

     Private Placements

     During the fiscal year ended May 31, 1998 and 1997, the following equity
and convertible debt placements occurred:

     FISCAL YEAR ENDED MAY 31, 1998

     During the period from October 1997 through December 1997, the Company sold
     an aggregate of 567,315 shares of its common stock at a price of $.68 per
     share in a private placement offering.  Gross proceeds realized by the
     Company were $385,389.

     On March 26, 1998, the Company sold an aggregate of 333,333 shares of its
     common stock at a price of $.75 per share.  Gross proceeds realized by the
     Company were $250,000.  In addition, a warrant to purchase 125,000 shares
     of common stock was issued with an exercise price of $1.50 per share.  The
     exercise price was subsequently reduced to $1.14 per share due to an
     anti-dilution clause in the warrant agreement.  The warrants can be called
     by the Company if the bid price of the common stock trades at or above
     $2.00 per share for ten trading days.  On June 15, 1998, the Company called
     these warrants and the holder has exercised the warrant by remitting to the
     Company the sum of $142,500 to purchase 125,000 shares of common stock.


                                        F-10


<PAGE>

     During April and May 1998, the Company sold an aggregate of 458,250 shares
     of its common stock at a price of $.80 per share.  Gross proceeds realized
     by the Company were $364,600.

     On December 19, 1997, the Company issued a convertible note in the original
     principal amount of $50,000.  This convertible note was converted in May
     1998 into 72,727 shares of common stock at an exchange price of $.69 per
     share.

     On March 11, 1997, the Company issued a convertible note in the original
     principal amount of $25,000.  This convertible note was converted in May
     1998 into 33,333 shares of common stock at an exchange price of $.75 per
     share.  In addition, a warrant to purchase 3,333 shares of common stock was
     issued with an exercise price of $1.50 per share.

     On April 17, 1998, the Company issued a convertible note in the original
     principal amount of $3,200,000.  This convertible note was converted in May
     1998 into 4,000,000 shares of common stock at an exchange price of $.80 per
     share.

     The Company incurred $103,190 in expenses associated with raising this
     capital during the fiscal year ended May 31, 1998.


     FISCAL YEAR ENDED MAY 31, 1997

     During October and December 1996 (October Private Placement) the Company
     sold an aggregate of 26,666 shares of its common stock at a price of $1.50
     per share in a private placement offering.  Net proceeds realized by the
     Company were $33,377.

     During October 1996, The Company issued a Convertible Term Promissory Note
     in the original principal amount of $750,000.  The note automatically
     converted to 500,000 shares of the Company's common stock upon the
     Amendment to the Company's Articles of Incorporation effecting a
     one-for-six reverse stock split of the issued and outstanding common
     shares.  The Amendment became effective and the conversion took place in
     July 1997.

     During March and April 1997, (February 1997 Private Placement), The Company
     issued Convertible Term Promissory Notes in the aggregate principal amounts
     of $1,299,566.  The notes automatically converted to 457,322 shares of the
     Company's common stock upon the Amendment to the Company's Articles of
     Incorporation effecting a one-for-six reverse stock split.  The Amendment
     became effective and the conversion took place in July 1997.

     STOCK OPTIONS

     The Company maintains three Stock Option Plans, the 1997 Stock Option Plan,
the 1994 Stock Option Plan and the 1987 Stock Option Plan, under which stock
options can be granted to consultants, key employees, directors and officers of
the Company.  Generally, options granted vest over a period of up to two years
and expire five to ten years from the date of grant.  Options cancelled under
the 1997 plan can be re-granted.  As of May 31, 1998, there are 637,954 options
under the 1997 Stock Option Plan, which are available for future grant.


                                        F-11

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                  Weighted
                                                                                                  Average
                                      1987 Plan      1994 Plan      1997 Plan        Total    Exercise Price
                                      ---------      ---------      ---------      --------   --------------
<S>                                   <C>            <C>            <C>            <C>        <C>

Outstanding at May 31, 1996            18,167         86,250              -        104,417        $ 16.32
     Grants                                 -         33,333              -         33,333           2.16
     Exercise                               -              -              -              -              -
     Cancelled                           (625)       (41,667)             -        (42,292)        (17.04)
                                      -------        -------                       -------        -------

Outstanding at May 31, 1997            17,542         77,916              -         95,458          11.02
     Grants                                 -              -        868,544        868,544           1.08
     Exercise                               -              -              -              -              -
     Cancelled                         (9,209)       (32,083)        (6,498)       (47,790)        (14.65)
                                      -------        -------        -------        -------        -------

Outstanding at May 31, 1998             8,333         45,833        862,046        916,212        $  1.42
                                      -------        -------        -------        -------        -------
                                      -------        -------        -------        -------        -------

</TABLE>


As of May 31, 1998 options outstanding covering 883,160 shares were exercisable
at prices ranging from $.94 to $16.80 per share.

<TABLE>
<CAPTION>

                                      Number           Average      Weighted
     Range of                       Outstanding       Remaining     Average
 Exercise Prices                    May 31,1998         Life     Exercise Price
----------------                   ------------    ------------  --------------
<S>                                 <C>              <C>         <C>
$  .94  -  1.50                       859,156            5.4          $1.07
$ 1.51  -  3.00                        36,223            3.8           2.23
$ 7.20  - 11.52                         8,333            1.7          10.44
$16.80                                 12,500            1.7          16.80
----------------                   ------------    ------------  --------------
$  .94  - 16.80                       916,212            5.2          $1.42
----------------                   ------------    ------------  --------------
----------------                   ------------    ------------  --------------

</TABLE>

     The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."  Accordingly, no compensation cost
has been recognized for the Company's stock options.  For purposes of the pro
forma disclosures below, the estimated fair value of options has been calculated
and is expensed over the options' vesting period.  Pro forma compensation cost
for the Company's stock plans for awards granted in 1997 was immaterial.  Had
compensation cost for the Company's stock options been recognized based on the
fair value at the date of grant for awards during 1998 consistent with the
provisions of SFAS No. 123, the Company's net loss would have been increased to
the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                                 1998
                                                                 ----
<S>                                                         <C>
Net loss - as reported                                      $(2,289,217)
Net loss - pro forma                                        $(2,996,681)

Net loss per share - basic and diluted, as reported         $     (0.79)
Net loss per share - basic and diluted, pro forma           $     (1.04)

</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1998:  dividend yield of 0%; risk-free
interest rate of 6.2%; expected volatility of 103%; and expected lives of 5
years.  The weighted-average fair value of options granted during fiscal 1998
using the Black-Scholes option-pricing model was $0.84.


                                         F-12

<PAGE>

     Warrants to Purchase Common Stock

     At May 31, 1998, the Company had a total of 728,987 outstanding warrants
for the purchase of the Company's common stock.  Exercise prices range from
$1.11 to $2.66 per share, with the price of certain warrants subject to
adjustment for anti-dilution provisions.  Warrants expire at various times from
January 1999 through October 2001.  These warrants have a weighted-average
exercise price of $1.29, which would result in an aggregate exercise value of
$936,801.  Using the fair value method prescribed in SFAS No. 123, the fair
value of warrants issued in fiscal 1998 and 1997 was immaterial.

     Stock Split

     In July 1997, the Company effected a one-for-six reverse stock split.  All
applicable share and per share amounts contained in the financial statements and
notes thereto reflect the retroactive application of such reverse stock split
for all periods presented.


NOTE 7-RELATED PARTY TRANSACTIONS

     There were no related party transactions during the fiscal years ended May
31, 1998 and 1997 other than deferred compensation awarded, compensation costs
paid and stock options granted to officers of the Company.  Such individuals
also own shares of the Company's common stock.


NOTE 8-SIGNIFICANT CUSTOMERS

     During the fiscal year ended May 31, 1998, two customers accounted for
approximately $199,000 (32%) of total revenues.  No single customer accounted
for 10% or more of total revenues for the fiscal year ended May 31, 1997.


NOTE 9-EXPORT SALES

     During the fiscal year ended May 31, 1998, Export sales to customers in
Canada accounted for approximately $175,000 (28%) of total revenues.  Export
sales were less than 10% of total revenues for the fiscal year ended May 31,
1997.


                                         F-13