<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number
0-22703
GREAT PLAINS SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 45-0374871
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1701 S.W. 38TH STREET, FARGO, NORTH DAKOTA 58103
(Address of principal executive offices) (Zip Code)
(701) 281-0550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of December 16, 1998, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 13,843,309.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
November 30, May 31,
1998 1998
----------- -----------
(unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents. . . . . . . . $22,563 $18,197
Investments. . . . . . . . . . . . . . . 48,326 48,721
Accounts receivable, net . . . . . . . . 9,927 8,790
Deferred income taxes. . . . . . . . . . 5,004 4,630
Other current assets . . . . . . . . . . 3,867 3,456
----------- -----------
Total current assets. . . . . . . . . 89,687 83,794
Property and equipment, net . . . . . . . . 10,542 8,501
Goodwill and other intangibles, net . . . . 4,371 4,946
Deferred income tax assets. . . . . . . . . 3,318 3,318
Other assets. . . . . . . . . . . . . . . . 3,670 2,286
----------- -----------
Total assets. . . . . . . . . . . . . $111,588 $102,845
----------- -----------
----------- -----------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable . . . . . . . . . . . . $3,256 $4,135
Accrued expenses . . . . . . . . . . . . 11,361 13,702
Deferred revenue . . . . . . . . . . . . 20,337 15,133
----------- -----------
Total current liabilities . . . . . . 34,954 32,970
Long-term liabilities:
Deferred tax liability . . . . . . . . . 204 204
----------- -----------
Total liabilities . . . . . . . . . . 35,158 33,174
Stockholders' equity:
Common stock . . . . . . . . . . . . . . 138 137
Additional paid-in capital . . . . . . . 69,514 67,801
Accumulated translation adjustment . . . 1 -
Retained earnings. . . . . . . . . . . . 6,777 1,733
----------- -----------
Total stockholders' equity. . . . . . 76,430 69,671
----------- -----------
Total liabilities and stockholders' equity. $111,588 $102,845
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
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<PAGE>
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six months Ended
November 30, November 30,
1998 1997 1998 1997
---------------------- ----------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License . . . . . . . . . . . . . . . . . . $18,441 $12,282 $34,555 $22,617
Service . . . . . . . . . . . . . . . . . . 13,366 7,763 24,381 14,202
------- ------- ------- -------
Total revenues . . . . . . . . . . . . . 31,807 20,045 58,936 36,819
Cost of revenues:
License . . . . . . . . . . . . . . . . . . 4,657 2,654 8,653 4,589
Service . . . . . . . . . . . . . . . . . . 4,148 2,511 7,724 4,762
------- ------- ------- -------
Total cost of revenues . . . . . . . . . 8,805 5,165 16,377 9,351
------- ------- ------- -------
Gross profit . . . . . . . . . . . . . . 23,002 14,880 42,559 27,468
Operating expenses:
Sales and marketing . . . . . . . . . . . . 11,740 7,709 21,273 13,908
Research and development. . . . . . . . . . 4,858 3,011 9,375 5,687
General and administrative. . . . . . . . . 2,336 1,662 4,854 3,556
------- ------- ------- -------
Total operating expenses . . . . . . . . 18,934 12,382 35,502 23,151
------- ------- ------- -------
Operating income . . . . . . . . . . . . . . . 4,068 2,498 7,057 4,317
Other income, net. . . . . . . . . . . . . . . 699 1,067 1,348 1,803
------- ------- ------- -------
Income before income taxes . . . . . . . . . . 4,767 3,565 8,405 6,120
Income tax provision . . . . . . . . . . . . . 1,907 1,426 3,361 2,448
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . $2,860 $2,139 $5,044 $3,672
------- ------- ------- -------
------- ------- ------- -------
Income per common share:
Basic . . . . . . . . . . . . . . . . . . . $0.21 $0.16 $0.37 $0.28
Diluted . . . . . . . . . . . . . . . . . . . $0.20 $0.15 $0.35 $0.27
Shares used in computing income per common share:
Basic . . . . . . . . . . . . . . . . . . . 13,831,659 13,475,717 13,797,818 13,093,015
Diluted . . . . . . . . . . . . . . . . . . . 14,475,674 14,169,837 14,455,749 13,820,984
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
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<PAGE>
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended November 30,
1998 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Operating activities:
Funds generated by current operations:
Net income . . . . . . . . . . . . . . . . . . . . . . . $5,044 $3,672
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . 2,280 1,295
Deferred income tax expense. . . . . . . . . . . . . . . (374) 511
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . (1,137) (1,226)
Other current assets. . . . . . . . . . . . . . . . . (411) (555)
Accounts payable. . . . . . . . . . . . . . . . . . . (879) 314
Accrued expenses. . . . . . . . . . . . . . . . . . . (1,980) (638)
Deferred revenue. . . . . . . . . . . . . . . . . . . 5,204 1,587
------- -------
Net cash provided by operating activities. . . . . 7,747 4,960
Investing activities:
Purchases of property and equipment . . . . . . . . . . . . (3,745) (2,591)
Net sale (purchase) of investments. . . . . . . . . . . . . 395 (50,286)
Purchase of other assets. . . . . . . . . . . . . . . . . . (1,384) (1,953)
------- -------
Net cash used by investing activities . . . . . . . . (4,734) (54,830)
Financing activities:
Exercise of stock options . . . . . . . . . . . . . . . . . 1,352 230
Proceeds from issuance of common stock, net . . . . . . . . -- 50,315
------- -------
Net cash provided by financing activities . . . . . . 1,352 50,545
Effect of exchange rate changes on cash. . . . . . . . . . . . 1 --
------- -------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . 4,366 675
Cash at beginning of period. . . . . . . . . . . . . . . . . . 18,197 12,101
------- -------
Cash at end of period. . . . . . . . . . . . . . . . . . . . . $22,563 $12,776
------- -------
------- -------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
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<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The information at November 30, 1998 and 1997 and for the three and six
month periods then ended is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) which the Company's management believes to
be necessary for the fair presentation of the financial position, results of
operations and changes in cash flows for the periods presented. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Despite management's best effort to establish good faith estimates and
assumptions, actual results may differ.
The accompanying interim financial statements should be read in conjunction
with the financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended May 31, 1998. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted as permitted by rules and regulations of the Securities and Exchange
Commission. Interim results of operations for the three and six month periods
ended November 30, 1998 are not necessarily indicative of operating results for
the full fiscal year.
2. Earnings per Share
Basic earnings per share includes no dilution and is computed by dividing
net income available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share.
The following table sets forth the computation of basic and diluted net income
per share:
<TABLE>
<CAPTION>
(Dollars in thousands, except share amounts)
For the Three Months For the Six Months
Ended November 30, Ended November 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic earnings per share calculation
Net income available to common shareholders $2,860 $2,139 $5,044 $3,672
Weighted average common shares 13,831,659 13,475,717 13,797,818 13,093,015
Basic net income per share $0.21 $0.16 $0.37 $0.28
Diluted earnings per share calculation:
Net income $2,860 $2,139 $5,044 $3,672
Shares calculation
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Weighted average number of common shares 13,831,659 13,475,717 13,797,818 13,093,015
Other common stock equivalents 644,015 694,120 657,931 727,969
------------------------------------------------------
14,475,674 14,169,837 14,455,749 13,820,984
Diluted net income per share $0.20 $0.15 $0.35 $0.27
</TABLE>
3. Comprehensive Income
On June 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting of Comprehensive Income". The standard
requires the display and reporting of comprehensive income, which includes
all changes in stockholders' equity with the exception of additional
investments by stockholders or distributions to stockholders.
Comprehensive income for the Company includes net income and the effects of
translation which are charged or credited to the cumulative translation
adjustments account within stockholders' equity. Comprehensive income for
the three and six months ended November 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended November 30, Ended November 30,
(Dollars in thousands) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $2,860 $2,139 $5,044 $3,672
Changes in cumulative translation adjustments 1 - 1 -
------ ------ ------ ------
Comprehensive income $2,861 $2,139 $5,045 $3,672
</TABLE>
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<PAGE>
GREAT PLAINS SOFTWARE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items reflected in the Company's
consolidated condensed statement of income.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
1998 1997 1998 1997
----------------- -----------------
<S> <C> <C> <C> <C>
As a percentage of total revenues
Revenues:
License. . . . . . . . . . . . . . . . . . . 58.0% 61.3% 58.6% 61.4%
Service. . . . . . . . . . . . . . . . . . . 42.0 38.7 41.4 38.6
----- ----- ----- -----
Total revenue . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0
Cost of revenues:
License. . . . . . . . . . . . . . . . . . . 14.7 13.2 14.7 12.5
Service. . . . . . . . . . . . . . . . . . . 13.0 12.5 13.1 12.9
----- ----- ----- -----
Total cost of revenues. . . . . . . . . . 27.7 25.7 27.8 25.4
----- ----- ----- -----
Gross profit. . . . . . . . . . . . . . . 72.3 74.3 72.2 74.6
Operating expenses:
Sales and marketing. . . . . . . . . . . . . 36.9 38.4 36.1 37.8
Research and development . . . . . . . . . . 15.3 15.0 15.9 15.4
General and administrative . . . . . . . . . 7.3 8.3 8.2 9.7
----- ----- ----- -----
Total operating expenses. . . . . . . . . 59.5 61.7 60.2 62.9
----- ----- ----- -----
Operating income. . . . . . . . . . . . . . . . 12.8 12.6 12.0 11.7
Other income, net . . . . . . . . . . . . . . . 2.2 5.3 2.3 4.9
----- ----- ----- -----
Income before income taxes. . . . . . . . . . . 15.0 17.9 14.3 16.6
Income tax provision. . . . . . . . . . . . . . 6.0 7.1 5.7 6.6
----- ----- ----- -----
Net income. . . . . . . . . . . . . . . . 9.0% 10.8% 8.6% 10.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
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<PAGE>
REVENUES
REVENUES. Revenues for the quarter ended November 30, 1998 were $31.8
million, representing an increase of 58.7% over revenues of $20.0 million for
the quarter ended November 30, 1997. Revenues for the six months ended
November 30, 1998 were $58.9 million, representing an increase of 60.1% over
revenues of $36.8 million for the six months ended November 30, 1997. These
increases in revenues were primarily due to increased demand for the Company's
Dynamics C/S+ and Dynamics products (together, the "client/server products")
and related service fees.
The following tables set forth for the periods indicated client/server and
heritage product revenues, each as a percentage of total revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
1998 1997 1998 1997
----------------- -----------------
<S> <C> <C> <C> <C>
Client/server product revenues . . . . . . . . . . 93.4% 89.5% 92.9% 86.9%
Heritage product revenues. . . . . . . . . . . . . 6.6% 10.5% 7.1% 13.1%
</TABLE>
Client/server product revenues, including license and service fees, were
$29.7 million for the quarter ended November 30, 1998, representing an
increase of 65.6% over client/server product revenues of $17.9 million for
the quarter ended November 30, 1997. For the six months ended November 30,
1998, client/server product revenues were $54.8 million, an increase of 71.1%
over the $32.0 million in client/server product revenues for the six months
ended November 30, 1997. These increases in revenues were primarily the
result of increases in new customer licenses as well as increased revenues
from maintenance and telephone support contracts due to an increased base of
client/server customers.
Heritage product revenues, including license and service fees, were $2.1
million for the quarter ended November 30, 1998, consistent with revenues of
$2.1 million for the quarter ended November 30, 1997. Heritage revenues did not
decline in the quarter, as in fiscal 1998 and the first quarter of fiscal 1999,
due to an increase in heritage license revenues as a result of the continued
sale of products, including the Great Plains Accounting for Windows upgrade, to
existing customers. For the six months ended November 30, 1998, heritage product
revenues were $4.1 million, a decrease of 13.3% compared with heritage product
revenues of $4.8 million for the six months ended November 30, 1997. Heritage
product revenues decreased for the six months ended November 30, 1998 due to a
decline in the number of customers purchasing the Version 9 upgrade to the
Company's heritage product. The most recent upgrades to the Company's heritage
product were released in February 1997 and December 1997 and, as anticipated,
demand for these products was strong throughout fiscal 1998 and has declined in
fiscal 1999. The Company anticipates that heritage product revenues will
decrease in future periods.
The Company's international revenues increased 71.2% to $5.4 million for
the quarter ended November 30, 1998, representing 17.0% of total revenues when
compared to $3.2 million for the quarter ended November 30, 1997. This increase
was a result of the addition of two new international subsidiaries in South
Africa and Scandinavia as well as growth in existing markets including the
Company's subsidiary operations in the United Kingdom, Australia, and Singapore.
International revenues for the six months ended November 30, 1998 were $10.0
million, representing an increase of 83.7% over international revenues of $5.4
million for the six months ended November 30, 1997. This increase is a result of
growth in existing international markets including its existing international
subsidiaries as well as the addition of three new international subsidiaries in
Singapore, South Africa and Scandinavia.
LICENSE. Total license fee revenues for the quarter ended November 30,
1998 were $18.4 million, representing an increase of 50.1% over license revenues
of $12.3 million for the quarter ended November 30, 1997. For the six
months ended November 30, 1998, license fee revenues were $34.5 million,
representing an increase of 52.8% over the $22.6 million in license
-8-
<PAGE>
revenues for the six months ended November 30, 1997. These increases in
total license fees were largely attributable to increased demand for the
Company's client/server products.
SERVICE. Service revenues for the quarter ended November 30, 1998 were
$13.4 million, representing an increase of 72.2% over service revenues of $7.7
million for the quarter ended November 30, 1997. Service revenues for the six
months ended November 30, 1998 were $24.4 million, representing an increase of
71.7% over service revenues of $14.2 million for the six months ended November
30, 1997. These increases in service revenues were largely a result of the
service revenues associated with new client/server licenses as well as renewals
of existing maintenance and support contracts from the increasing base of
client/server customers. Service revenues as a percentage of total revenues were
42.0% for the three months ended November 30, 1998 compared with 38.7% of total
revenues for the three months ended November 30, 1997. For the six months ended
November 30, 1998 and 1997, service revenues as a percentage of total revenues
were 41.4% and 38.6%, respectively.
COSTS AND EXPENSES
COST OF LICENSE FEES. Cost of license fees consists primarily of the
costs of product manuals, media, shipping and royalties paid to third-party
vendors. Cost of license fees for the quarter ended November 30, 1998
increased to $4.7 million from $2.7 million in the quarter ended November 30,
1997, representing 25.2% and 21.6% of total license fee revenues,
respectively. Cost of license fees for the six months ended November 30,
1998 increased to $8.7 million from $4.6 million, representing 25.0% and
20.3% of total license fee revenues, respectively. The dollar increases in
the cost of licenses for the quarter and six months ended November 30, 1998
were primarily attributable to the overall growth in license fee revenues, and
an increase in royalties paid to third-party vendors. The increases in cost
of license fees as a percentage of total license fee revenues for the quarter
and six months ended November 30, 1998 were primarily due to increased sales
of products that include third-party software. The cost of license fees as a
percentage of license fee revenues may increase if the Company continues to
add third-party vendors or if sales which include third-party products
increase as a percent of total license fee revenues.
COST OF SERVICES. Cost of services consists of the costs of providing
telephone support, training and consulting services to the Company's customers
and distribution channel. Cost of services for the quarter ended November 30,
1998 increased to $4.1 million from $2.5 million for the quarter ended November
30, 1997, representing 31.0% and 32.3% of total service revenues, respectively.
Cost of services for the six months ended November 30, 1998 increased to $7.7
million from $4.8 million for the six months ended November 30, 1997,
representing 31.7% and 33.5% of total service revenues, respectively. These
increases in cost of services for the quarter and six months ended November 30,
1998 were primarily due to the expansion of the Company's service resources.
Cost of services as a percentage of service revenues decreased for the quarter
and six months ended November 30, 1998 compared to the same periods last fiscal
year. This decrease was primarily a result of improved efficiency and continued
strong customer enrollment in maintenance plans and support contracts. The
Company anticipates that cost of services will increase in dollar amount as
service revenues increase and should remain relatively consistent as a
percentage of service revenues.
-9-
<PAGE>
SALES AND MARKETING. Sales and Marketing expenses consist primarily of
salaries, commissions, travel and promotional expenses. Sales and marketing
expenses increased to $11.7 million for the quarter ended November 30, 1998
compared with $7.7 million for the quarter ended November 30, 1997,
representing 36.9% and 38.4% of total revenues, respectively. Sales and
marketing expenses for the six months ended November 30, 1998 increased to
$21.3 million from $13.9 million for the six months ended November 30, 1997,
representing 36.1% and 37.8% of total revenues, respectively. The increases
in sales and marketing expenses for both the quarter and six months ended
November 30, 1998 were attributable to the hiring of additional sales
personnel, increased commission expenses associated with higher revenues,
increased marketing expenses for the Company's client/server products, and
continued investments in expanding the capacity and capability of the channel
for its Windows NT client/server products. In addition, the Company
increased sales and marketing expenses related to the operation of its
international subsidiaries in the United Kingdom, Australia, Singapore, South
Africa and Scandinavia. The decreases in sales and marketing as a percentage
of total revenues for the quarter and six months ended November 30, 1998
compared to the same periods in the last fiscal year were primarily a result
of increased productivity in the Company's Partner channel. The Company
anticipates that sales and marketing expenses will increase in dollar amount
as total revenues increase. However, the Company does not anticipate
significant changes in sales and marketing expenses as a percentage of total
revenues.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation of development personnel and depreciation of
equipment. Total research and development expenses were $4.9 million for the
quarter ended November 30, 1998 compared with $3.0 million for the quarter
ended November 30, 1997, representing 15.3% and 15.0% of total revenues,
respectively. For the six months ended November 30, 1998, total research and
development expenses were $9.4 million, compared with $5.7 million for the
six months ended November 30, 1997, representing 15.9% and 15.4% of total
revenues, respectively. Research and development expenditure increases and
increases in such expenditures as a percentage of total revenues were
primarily attributable to increases in the Company's salary cost for software
engineers and the infrastructure costs required to support product
development initiatives in the following areas: (i) expansion and enhancement
of the Company's client/server product offerings including through the
acquisition in the fourth quarter of fiscal 1998 of the additional solution
areas of manufacturing, human resources and enterprise reporting, (ii)
additional research and development to optimize the Company's client/server
products for the latest technologies and (iii) research and development of
Internet-based electronic commerce products which enhance the functionality
of the Company's financial management solutions. The Company anticipates
that it will continue to devote substantial resources to its research and
development effort and that research and development expenses will increase
in dollar amount in future periods and may increase as a percentage of total
revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive, financial, human resources and information
services personnel as well as outside professional fees. General and
administrative expenses for the quarter ended November 30, 1998 were $2.3
million, compared with $1.7 million for the quarter ended November 30, 1997,
representing 7.3% and 8.3% of total revenues, respectively. For the six months
ended November 30, 1998, general and administrative expenses were $4.9 million,
compared with $3.6 million for the six months ended November 30, 1997,
representing 8.2% and 9.7% of total revenues, respectively. These increases in
dollar amounts were primarily due to increased staffing to support the growth of
the Company. The Company believes that its general and administrative expenses
will increase in dollar amount in the future to support the expansion of its
operations.
-10-
<PAGE>
OTHER INCOME, NET. Other income, net consists primarily of earnings
from investments and gains or losses from disposal of fixed assets, net of
any interest expense. Other income, net was $0.7 million for the quarter
ended November 30, 1998, compared with $1.1 million for the quarter ended
November 30, 1997. For the six months ended November 30, 1998, other income,
net was $1.3 million compared with $1.8 million for the six months ended
November 30, 1997. The decrease in dollar amount for the quarter and six
months ended November 30, 1998 was, in part, a result of a one-time gain
recognized from the sale of the Company's Profit accounting software product
in the quarter ended November 30, 1997. In addition, the Company recognized
lower investment earnings in the quarter and six months ended November 30,
1998 as compared to the quarter ended November 30, 1997 due to lower interest
rates.
PROVISION FOR INCOME TAXES. The Company's income tax provision for the
quarter ended November 30, 1998 was $1.9 million, compared with $1.4 million for
the quarter ended November 30, 1997. The Company's income tax provision for the
six months ended November 30, 1998 was $3.4 million, compared with $2.5 million
for the six months ended November 30, 1997. The provision for income taxes
was 40% of income before income taxes for the quarter and six months ended
November 30, 1998 and for the quarter and six months ended November 30, 1997.
This increase in the provision for income taxes is primarily attributable to the
increased operating income for the quarter and six months ended November 30,
1998, compared with the quarter and six months ended November 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded operations primarily through cash
provided by operations and the sale of equity securities. Currently, the
Company meets its working capital needs and capital equipment needs with cash
provided by operations.
Cash provided by operating activities for the six months ended November 30,
1998 was $7.7 million, compared with $5.0 million for the six months ended
November 30, 1997. The increase in cash provided by operations for the six
months ended November 30, 1998, was primarily due to revenue growth, increased
profitability of the Company's operations and an increase in deferred revenues.
This increase was offset, in part, by a decrease in accounts payable and accrued
expenses.
The Company's investing activities used cash of $4.7 million for the six
months ended November 30, 1998, compared with $54.8 million for the six
months ended November 30, 1997. Cash used for the acquisition of computer
equipment and furniture required to support expansion of the Company's
operations for the six months ended November 30, 1998 and November 30, 1997
was $3.7 million and $2.6 million, respectively. The principal use of cash in
investing activities for the six months ended November 30, 1997 was
approximately $50 million for the purchase of investments following the
Company's initial public offering of common stock. In addition, cash used for
investing activities for the six months ended November 30, 1998 included
additional investment in minority interest positions in certain international
operations.
The Company's financing activities provided cash of $1.4 million during
the six months ended November 30, 1998, compared with cash provided of $50.5
million for the six months ended November 30, 1997. For the six months ended
November 30, 1998, cash provided by financing activities consisted of
proceeds received from the exercise of stock options. For the six months
ended November 30, 1997, cash provided from financing activities was
primarily the result of $50.2 million from the sale of the Company's common
stock in an initial public offering.
The Company's sources of liquidity at November 30, 1998 consisted
principally of cash, cash equivalents and
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investments of $70.9 million. The Company also has a $10.0 million revolving
line of credit facility with a bank. The line of credit expires in November
1999 and borrowings made thereunder are subject to certain covenants. No
amounts were outstanding under the line of credit at November 30, 1998. The
Company believes that its existing cash, cash equivalents and investments,
cash generated from operations and the amounts available under the line of
credit will be sufficient to fund its operations for the foreseeable future.
For information concerning the Company's acquisitions in the fourth quarter
of fiscal 1998 and related acquired in-process research and development, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Form S-3 filed January 5, 1999.
YEAR 2000
Many currently installed computer systems and software are coded to
accept only two-digit entries in the date code fields. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. This problem could result in system failures or
miscalculations causing disruptions of business operations (including, among
other things, a temporary inability to process transactions, send invoices or
engage in other similar business activities). As a result, many companies'
computer systems and software will need to be upgraded or replaced in order
to comply with Year 2000 requirements. The potential global impact of the
Year 2000 problem is not known. If Year 2000 problems are not corrected in a
timely manner, they could affect the Company and the U.S. and world economy
generally.
All of the Company's current products are Year 2000 compliant. The
Company's client/server products have been Year 2000 compliant since their
initial introduction, as are Versions 8 and 9 of the heritage product. The
Company is currently offering its heritage product customers a free Year 2000
compliant upgrade for prior versions of the heritage product. Even though the
Company's current products are Year 2000 compliant, there can be no assurance
that Midmarket businesses will have sufficient resources available for the
acquisition of new systems from the Company because they may be diverting
resources to assess and fix internal systems that may not be Year 2000
compliant.
The Company has formed a project team (consisting of representatives from
its information technology, finance, manufacturing, product development, sales,
marketing and legal departments) to address other internal and external Year
2000 issues. The Company's internal financial, manufacturing and other computer
systems are being reviewed to assess and remediate Year 2000 problems. The
Company's assessment of internal systems includes its information technology
("IT") as well as non-IT systems (which systems contain embedded technology in
manufacturing or process control equipment containing microprocessors or other
similar circuitry). The Company's Year 2000 compliance program includes the
following phases: (i) identifying systems that need to be modified or replaced;
(ii) carrying out remediation work to modify existing systems or convert to new
systems; and (iii) conducting validation testing of systems and applications to
ensure compliance. The Company is currently completing the second phase of this
program.
The amount of remediation work required to address Year 2000 problems is
not expected to be extensive. The Company has replaced certain of its financial
and operational systems in the last several years, and management believes that
the new equipment and software substantially addresses Year 2000 issues.
However, the Company will be required to modify some of its existing hardware
and software in order for its computer systems to function properly in the year
2000 and thereafter. The Company estimates that it will complete its Year 2000
compliance program for all of its significant internal systems no later than May
1, 1999.
In addition, the Company has received assurances from its major
suppliers that they are addressing the Year 2000 issue and that products
purchased by the Company from such suppliers will function properly in the
year 2000 and thereafter. However, it is impossible to fully assess the
potential consequences in the event service interruptions from suppliers
occur or in the event that there are disruptions in such infrastructure areas
as utilities, communications, transportation, banking or government. The
Company is currently assessing the year 2000 readiness of its Partners.
The total estimated cost for resolving the Company's Year 2000 issues is
$100,000, of which approximately $65,000 has been spent through November 30,
1998. The total cost estimate includes the cost of replacing of non-compliant
systems as a remediation cost in cases where the Company has accelerated
plans to replace such systems. Estimates of Year 2000 costs are based on
numerous assumptions, and there can be no assurance that the estimates are
correct or that actual costs will not be materially greater than anticipated.
Based on its assessments to date, the Company believes it will not
experience any material disruption as a result of Year 2000 problems in internal
manufacturing processes, information processing or interface with major
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customers, or with processing orders and billing. However, if certain
critical third-party providers, such as those providers supplying
electricity, water or telephone service, experience difficulties resulting in
disruption of service to the Company, the Company's operations at individual
facilities could be shut down for the duration of the disruption. The Company
has not yet developed a contingency plan to provide for continuity of
processing in the event of various problem scenarios, but it will assess the
need to develop such a plan based on the outcome of its validation phase of
its Year 2000 compliance program and the results of surveying its major
suppliers and customers. Assuming no major disruption in service from utility
companies or other critical third-party providers, the Company believes that
it will be able to manage its total Year 2000 transition without any material
effect on the Company's results of operations or financial condition.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements represent the Company's expectations or beliefs, including, but not
limited to, statements concerning the Company's operations and financial
performance and condition. For this purpose, any statements contained in this
Form 10-Q that are not statements of historical fact may be deemed to be
forward-looking statements. The Company cautions that these statements by their
nature involve risks and uncertainties, certain of which are beyond the
Company's control, and actual results may differ materially depending on a
variety of important factors, including those described in Exhibit 99.1 to
this Quarterly Report on Form 10-Q for the fiscal quarter ended November
30, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1998 Annual Meeting of Shareholders of Great Plains Software, Inc.
(the "Company") was held on September 16, 1998 (the "Annual Meeting").
Holders of the Company's common stock of record on July 31, 1998 were
entitled to one vote per share.
At the Annual Meeting, William V. Campbell and Bradley J. Burgum were
elected directors for a term of three years. The number of votes cast for
the election of each director and the number of votes withheld were as
follows:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
William V. Campbell 9,445,708 221,221
Bradley J. Burgum 9,653,293 13,636
</TABLE>
The other directors whose terms of office as directors continued after the
Annual Meeting are Douglas J. Burgum, Raymond F. Good, J.A. Heidi Roizen,
Joseph S. Tibbetts, Jr. and Frederick W. Burgum.
With respect to the proposal to approve the appointment of
PricewaterhouseCoopers LLP as the Company's independent auditors for the
fiscal year ending May 31, 1999, there were 9,660,817 votes cast for the
proposal, 3,636 votes cast against the proposal and 2,476 abstentions. There
were no broker nonvotes with respect to such matter.
ITEM 5. OTHER INFORMATION
BYLAWS AMENDMENT
On October 26, 1998, the Board of Directors amended the Company's Bylaws
to provide that, if a shareholder desires to introduce a proposal or to
nominate a person for director at a regular meeting of the shareholders,
written notice of such business must be received by the Company not less than
120 days before the date that is one year after the date of the Company's
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proxy statement for the prior year's regular meeting. If the Company does
not receive timely notice, the business may be excluded from consideration at
the meeting. This advance notice provision supersedes the statutory notice
period in revised Rule 14a-4(c)(1) of the federal proxy rules which addresses
the discretionary proxy voting authority of the Board of Directors in
connection with such shareholder business. The foregoing description of the
amended Bylaws is qualified in its entirety by reference to the full text of
the Company's Bylaws, as amended, filed as Exhibit 3.1 hereto and
incorporated by reference herein.
Based on the Bylaws, as amended, if a shareholder desires to make a proposal
or nominate a person for election as a director at the 1999 Annual Meeting of
Shareholders (and such business is not the subject of a shareholder proposal
timely submitted for inclusion in the proxy statement), written notice of
such business containing the information required under the Company's Bylaws
must be received by the Company at its principal executive office on or
before April 9, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended Bylaws of the Company
27.1 Financial Data Schedule
99.1 Cautionary Statements
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended November 30,
1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 4, 1999
GREAT PLAINS SOFTWARE, INC.
By /s/ Douglas J. Burgum
--------------------------------------------------
Douglas J. Burgum
Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
By /s/ Terri F. Zimmerman
--------------------------------------------------
Terri F. Zimmerman
Chief Financial Officer and Executive Vice President
(principal financial and accounting officer)
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EXHIBIT INDEX
3.1 Amended Bylaws of the Company
27.1 Financial Data Schedule
99.1 Cautionary Statements
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<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
GREAT PLAINS SOFTWARE, INC.
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. REGISTERED OFFICE. The registered office of the
corporation in Minnesota shall be that set forth in the Articles of
Incorporation or in the most recent amendment of the Articles of Incorporation
or resolution of the directors filed with the Secretary of State of Minnesota
changing the registered office.
Section 1.02. OTHER OFFICES. The corporation may have such other
offices, within or without the State of Minnesota, as the directors shall, from
time to time, determine.
Section 1.03. CORPORATE SEAL. The corporation shall have no seal.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. PLACE AND TIME OF MEETINGS. Except as provided
otherwise by Minnesota Statutes Chapter 302A, meetings of the shareholders may
be held at any place, within or without the State of Minnesota, as may from time
to time be designated by the directors and, in the absence of such designation,
shall be held at the registered office of the corporation in the State of
Minnesota. The directors shall designate the time of day for each meeting and,
in the absence of such designation, every meeting of shareholders shall be held
at ten o'clock a.m.
Section 2.02. REGULAR MEETINGS.
(a) A regular meeting of the shareholders shall be held on such date
as the Board of Directors shall by resolution establish.
(b) At the regular meeting the shareholders, voting as provided in
the Articles of Incorporation and these Bylaws, shall elect qualified successors
for directors whose terms have expired or are due to expire within six months
after the date of the meeting, and shall transact such other business as may
properly come before them.
(c) To be properly brought before a regular meeting of shareholders,
business must be (1) specified in the notice of the meeting, (2) directed to be
brought before the meeting by the Board of Directors or (3) proposed at the
meeting by a shareholder who (i) was a shareholder of record at the time of
giving of notice provided for in these Bylaws, (ii) is entitled to vote at the
meeting and (iii) gives prior notice of the matter, which must otherwise be a
proper
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matter for shareholder action, in the manner herein provided. For business
to be properly brought before a regular meeting by a shareholder, the
shareholder must give written notice to the Secretary of the corporation so
as to be received at the principal executive offices of the corporation at
least 120 days before the date that is one year after the date of the
Corporation's proxy statement for the prior year's regular meeting. Such
notice shall set forth (1) the name and record address of the shareholder and
of the beneficial owner, if any, on whose behalf the proposal will be made,
(2) the class and number of shares of the corporation owned by the
shareholder and beneficially owned by the beneficial owner, if any, on whose
behalf the proposal will be made, (3) a brief description of the business
desired to be brought before the regular meeting and the reasons for
conducting such business, and (4) any material interest in such business of
the shareholder and the beneficial owner, if any, on whose behalf the
proposal is made. The chair of the meeting may refuse to acknowledge any
proposed business not made in compliance with the foregoing procedure.
Section 2.03. SPECIAL MEETINGS. Special meetings of the shareholders
may be held at any time and for any purpose and may be called by the Chief
Executive Officer, the Chief Financial Officer, any two directors, or by a
shareholder or shareholders holding 10% or more of the shares entitled to vote
on the matters to be presented to the meeting, except that a special meeting for
the purpose of considering any action to directly or indirectly facilitate or
effect a business combination, including any action to change or otherwise
affect the composition of the Board of Directors for that purpose, must be
called by 25% or more of the voting power of all shares entitled to vote. A
shareholder or shareholders holding the requisite percentage of the voting power
of all shares entitled to vote may demand a special meeting of the shareholders
by written notice of demand given to the Chief Executive Officer or Chief
Financial Officer of the corporation and containing the purposes of the meeting.
Within 30 days after receipt of demand by one of those officers, the Board of
Directors shall cause a special meeting of shareholders to be called and held on
notice no later than 90 days after receipt of the demand, at the expense of the
corporation. Special meetings shall be held on the date and at the time and
place fixed by the Chief Executive Officer or the Board of Directors, except
that a special meeting called by or at demand of a shareholder or shareholders
shall be held in the county where the principal executive office is located.
The business transacted at a special meeting shall be limited to the purposes
stated in the notice of the meeting.
Section 2.04. QUORUM, ADJOURNED MEETINGS. The holders of a majority
of the shares entitled to vote shall constitute a quorum for the transaction of
business at any regular or special meeting. In case a quorum shall not be
present at a meeting, those present may adjourn to such day as they shall, by
majority vote, agree upon, and a notice of such adjournment shall be mailed to
each shareholder entitled to vote at least 5 days before such adjourned meeting.
If a quorum is present, a meeting may be adjourned from time to time without
notice other than announcement at the meeting. At adjourned meetings at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally noticed. If a quorum is present, the
shareholders may continue to transact business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
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<PAGE>
Section 2.05. VOTING. At each meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Each shareholder, unless the Articles of Incorporation or statute
provide otherwise, shall have one vote for each share having voting power
registered in such shareholder's name on the books of the corporation. Jointly
owned shares may be voted by any joint owner unless the corporation receives
written notice from any one of them denying the authority of that person to vote
those shares. Upon the demand of any shareholder, the vote upon any question
before the meeting shall be by ballot. All questions shall be decided by a
majority vote of the number of shares entitled to vote and represented at the
meeting at the time of the vote except if otherwise required by statute, the
Articles of Incorporation, or these Bylaws.
Section 2.06. RECORD DATE. The Board of Directors may fix a time,
not exceeding 60 days preceding the date of any meeting of shareholders, as a
record date for the determination of the shareholders entitled to notice of, and
to vote at, such meeting, notwithstanding any transfer of shares on the books of
the corporation after any record date so fixed. If the Board of Directors fails
to fix a record date for determination of the shareholders entitled to notice
of, and to vote at, any meeting of shareholders, the record date shall be the
20th day preceding the date of such meeting.
Section 2.07. NOTICE OF MEETINGS. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at his or her address as shown by the books of the corporation, a
notice setting out the time and place of each regular meeting and each special
meeting, except where the meeting is an adjourned meeting and the date, time and
place of the meeting were announced at the time of adjournment, which notice
shall be mailed at least five days prior thereto; except that notice of a
meeting at which an agreement of merger or exchange is to be considered shall be
mailed to all shareholders of record, whether entitled to vote or not, at least
fourteen days prior thereto. Every notice of any special meeting called
pursuant to Section 2.03 hereof, shall state the purpose or purposes for which
the meeting has been called, and the business transacted at all special meetings
shall be confined to the purpose stated in the notice. The written notice of
any meeting at which a plan of merger or exchange is to be considered shall so
state such as a purpose of the meeting. A copy or short description of the plan
of merger or exchange shall be included in or enclosed with such notice.
Section 2.08. WAIVER OF NOTICE. Notice of any regular or special
meeting may be waived by any shareholder either before, at or after such meeting
orally or in a writing signed by such shareholder or a representative entitled
to vote the shares of such shareholder. A shareholder, by his or her attendance
at any meeting of shareholders, shall be deemed to have waived notice of such
meeting, except where the shareholder objects at the beginning of the meeting to
the transaction of business because the item may not lawfully be considered at
that meeting and does not participate in the consideration of the item at that
meeting.
Section 2.09. WRITTEN ACTION. Any action which might be taken at a
meeting of the shareholders may be taken without a meeting if done in writing
and signed by all of the shareholders entitled to vote on that action.
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ARTICLE III.
DIRECTORS
Section 3.01. GENERAL POWERS. The business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors, except as otherwise permitted by statute.
Section 3.02. NUMBER, QUALIFICATION AND TERM OF OFFICE. The Board of
Directors shall consist of one or more directors. The number of directors shall
be fixed by resolution of the Board of Directors and thereafter shall be
increased or decreased from time to time by resolution of the Board of Directors
or the shareholders. Directors need not be shareholders. The directors shall
be divided into three classes, as nearly equal in number as reasonably possible,
with the term of office of the first class to expire at the 1997 annual meeting
of shareholders, the term of office of the second class to expire at the 1998
annual meeting of shareholders and the term of office of the third class to
expire at the 1999 annual meeting of shareholders. At each annual meeting of
shareholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected to hold
office for a term of three consecutive years. Each director of the corporation
shall serve until such director's successor shall have been elected and shall
qualify, or until the earlier death, resignation, removal or disqualification of
such director.
Section 3.03. BOARD MEETINGS. Meetings of the Board of Directors may
be held from time to time at such time and place within or without the State of
Minnesota as may be designated in the notice of such meeting.
Section 3.04. CALLING MEETINGS - NOTICE. Meetings of the Board of
Directors may be called by the Chairman of the Board by giving at least
twenty-four hours' notice, or by any other director by giving at least five
days' notice, of the date, time and place thereof to each director by mail,
telephone, telegram or in person. If the day or date, time and place of a
meeting of the Board of Directors has been announced at a previous meeting of
the Board, no notice is required. Notice of an adjourned meeting of the Board
of Directors need not be given other than by announcement at the meeting at
which adjournment is taken.
Section 3.05. WAIVER OF NOTICE. Notice of any meeting of the Board
of Directors may be waived by any director either before, at, or after such
meeting orally or in a writing signed by such director. A director, by his or
her attendance at any meeting of the Board of Directors, shall be deemed to have
waived notice of such meeting, except where the director objects at the
beginning of the meeting to the transaction of business because the meeting is
not lawfully called or convened and does not participate thereafter in the
meeting.
Section 3.06. QUORUM. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting.
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<PAGE>
Section 3.07. ABSENT DIRECTORS. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the Board of
Directors. If such director is not present at the meeting, consent or
opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted on
at the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected.
Section 3.08. CONFERENCE COMMUNICATIONS. Any or all directors may
participate in any meeting of the Board of Directors, or of any duly constituted
committee thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this Section 3.08 shall be deemed present in person at
the meeting, and the place of the meeting shall be the place of origination of
the conference communication.
Section 3.09. VACANCIES; NEWLY CREATED DIRECTORSHIPS. Vacancies in
the Board of Directors of this corporation occurring by reason of death,
resignation, removal or disqualification shall be filled for the unexpired term
by a majority of the remaining directors of the Board although less than a
quorum; newly created directorships resulting from an increase in the authorized
number of directors by action of the Board of Directors as permitted by Section
3.02 may be filled by a two-thirds vote of the directors serving at the time of
such increase; and each director elected pursuant to this Section 3.09 shall be
a director until such director's successor is elected by the shareholders at
their next regular or special meeting.
Section 3.10. REMOVAL. Any director may be removed from office, but
only for cause, by the affirmative vote of the shareholders holding a majority
of the shares entitled to vote at an election of directors. In the event that a
director is so removed, a new director shall be elected at the same meeting. A
director named by the Board of Directors to fill a vacancy may be removed from
office at any time, with or without cause, by the affirmative vote of the
remaining directors if the shareholders have not elected directors in the
interim between the time of the appointment to fill such vacancy and the time of
the removal. In the event that the entire Board or any one or more directors be
so removed, new directors shall be elected at the same meeting.
Section 3.11. COMMITTEES. A resolution approved by the affirmative
vote of a majority of the Board of Directors may establish committees having the
authority of the Board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the Board of
Directors.
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A majority of the members of the committee present at a meeting is a
quorum for the transaction of business, unless a larger or smaller proportion or
number is provided in a resolution approved by the affirmative vote of a
majority of the directors present.
Section 3.12. WRITTEN ACTION. Any action which might be taken at a
meeting of the Board of Directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by a majority of
the directors or committee members, unless the Articles provide otherwise and
the action need not be approved by the shareholders.
Section 3.13. COMPENSATION. Directors who are not salaried officers
of this corporation shall receive such fixed sum per meeting attended, such
fixed annual sum and any such other compensation as shall be determined, from
time to time, by resolution of the Board of Directors. The Board of Directors
may, by resolution, provide that all directors shall receive their expenses, if
any, of attendance at meetings of the Board of Directors or any committee
thereof. Nothing herein contained shall be construed to preclude any director
from serving this corporation in any other capacity and receiving proper
compensation therefor.
ARTICLE IV.
OFFICERS
Section 4.01. NUMBER. The officers of the corporation shall consist
of a Chairman of the Board (if one is elected by the Board), a Chief Executive
Officer, Chief Financial Officer, a Secretary (if one is elected by the Board)
and such other officers and agents as may, from time to time, be elected or
appointed by the Board of Directors. Any number of offices may be held by the
same person.
Section 4.02. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Board
of Directors shall elect or appoint, by resolution approved by the affirmative
vote of a majority of the directors present, from within or without their
number, the Chief Executive Officer, Chief Financial Officer and such other
officers as may be deemed advisable, each of whom shall have the powers, rights,
duties, responsibilities, and terms in office provided for in these Bylaws or a
resolution of the Board of Directors not inconsistent therewith. The Chief
Executive Officer, the Chief Financial Officer and all other officers who may be
directors shall continue to hold office until the election and qualification of
their successors, notwithstanding an earlier termination of their directorship.
Section 4.03. REMOVAL AND VACANCIES. Any officer may be removed from
his or her office by the Board of Directors at any time, with or without cause.
Such removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
Section 4.04. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
one is elected, shall preside at all meetings of the shareholders and directors
and shall have such other duties as may be prescribed, from time to time, by the
Board of Directors.
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Section 4.05. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall be the chief executive officer and shall have general active management of
the business of the corporation. In the absence of the Chairman of the Board,
he or she shall preside at all meetings of the shareholders and directors. He
or she shall see that all orders and resolutions of the Board of Directors are
carried into effect. He or she shall execute and deliver, in the name of the
corporation, any deeds, mortgages, bonds, contracts or other instruments
pertaining to the business of the corporation unless the authority to execute
and deliver is required by law to be exercised by another person or is expressly
delegated by the Articles or Bylaws or by the Board of Directors to some other
officer or agent of the corporation. He or she shall maintain records of and,
whenever necessary, certify all proceedings of the Board of Directors and the
shareholders, and in general, shall perform all duties usually incident to the
office of the Chief Executive Officer. He or she shall have such other duties
as may, from time to time, be prescribed by the Board of Directors.
Section 4.06. PRESIDENT. The President, if one is elected, shall
have such powers and shall perform such duties as may be prescribed by the Board
of Directors or by the Chief Executive Officer.
Section 4.07. VICE PRESIDENT. Each Vice President, if one or more
are elected, shall have such powers and shall perform such duties as may be
specified in the Bylaws or prescribed by the Board of Directors or by the Chief
Executive Officer. In the event of the absence or disability of the Chief
Executive Officer or the President, Vice Presidents shall succeed to their
powers and duties in the order designated by the Board of Directors.
Section 4.08. SECRETARY. The Secretary, if one is elected, shall be
secretary of and shall attend all meetings of the shareholders and Board of
Directors and shall record all proceedings of such meetings in the minute book
of the corporation. He or she shall give proper notice of meetings of
shareholders and directors. He or she shall perform such other duties as may,
from time to time, be prescribed by the Board of Directors or by the Chief
Executive Officer.
Section 4.09. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall be the chief financial officer and shall keep accurate financial records
for the corporation. He or she shall deposit all moneys, drafts and checks in
the name of, and to the credit of, the corporation in such banks and
depositaries as the Board of Directors shall, from time to time, designate. He
or she shall have power to endorse, for deposit, all notes, checks and drafts
received by the corporation. He or she shall disburse the funds of the
corporation, as ordered by the Board of Directors, making proper vouchers
therefor. He or she shall render to the Chief Executive Officer and the
directors, whenever requested, an account of all his or her transactions as
Chief Financial Officer and of the financial condition of the corporation, and
shall perform such other duties as may, from time to time, be prescribed by the
Board of Directors or by the Chief Executive Officer.
-7-
<PAGE>
Section 4.10. TREASURER. The Treasurer, if one is elected, shall be
responsible for the treasury operations of the corporation and shall be perform
such other duties as may be prescribed by the Board of Directors, the Chief
Executive Officer and the Chief Financial Officer.
Section 4.11. COMPENSATION. The officers of this corporation shall
receive such compensation for their services as may be determined, from time to
time, by resolution of the Board of Directors.
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. CERTIFICATES FOR SHARES. All shares of the corporation
shall be certificated shares. Every owner of shares of the corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
Board of Directors, certifying the number of shares of the corporation owned by
such shareholder. The certificates for such shares shall be numbered in the
order in which they shall be issued and shall be signed, in the name of the
corporation, by the Chief Executive Officer and by the Secretary or an Assistant
Secretary or by such officers as the Board of Directors may designate. If the
certificate is signed by a transfer agent or registrar, such signatures of the
corporate officers may be by facsimile if authorized by the Board of Directors.
Every certificate surrendered to the corporation for exchange or transfer shall
be canceled, and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in Section 5.04.
Section 5.02. ISSUANCE OF SHARES. The Board of Directors is
authorized to cause to be issued shares of the corporation up to the full amount
authorized by the Articles of Incorporation in such amounts as may be determined
by the Board of Directors and as may be permitted by law. No shares shall be
allotted except in consideration of cash or other property, tangible or
intangible, received or to be received by the corporation under a written
agreement, of services rendered or to be rendered to the corporation under a
written agreement, or of an amount transferred from surplus to stated capital
upon a share dividend. At the time of such allotment of shares, the Board of
Directors making such allotments shall state, by resolution, their determination
of the fair value to the corporation in monetary terms of any consideration
other than cash for which shares are allotted.
Section 5.03. TRANSFER OF SHARES. Transfer of shares on the books of
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares. The corporation may treat as the absolute owner
of shares of the corporation, the person or persons in whose name shares are
registered on the books of the corporation.
Section 5.04. LOSS OF CERTIFICATES. Except as otherwise provided by
Minnesota Statutes Section 302A.419, any shareholder claiming a certificate for
shares to be lost, stolen or
-8-
<PAGE>
destroyed shall make an affidavit or that fact in such form as the Board of
Directors shall require and shall, if the Board of Directors so requires, give
the corporation a bond of indemnity in form, in an amount, and with one or more
sureties satisfactory to the Board of Directors, to indemnify the corporation
against any claim which may be made against it on account of the reissue of such
certificate, whereupon a new certificate may be issued in the same tenor and for
the same number of shares as the one alleged to have been lost, stolen or
destroyed.
ARTICLE VI.
DIVIDENDS, RECORD DATE
Section 6.01. DIVIDENDS. Subject to the provisions of the Articles
of Incorporation, of these Bylaws, and of law, the Board of Directors may
declare dividends whenever, and in such amounts as, in its opinion, are deemed
advisable.
Section 6.02. RECORD DATE. Subject to any provisions of the Articles
of Incorporation, the Board of Directors may fix a date not exceeding 120 days
preceding the date fixed for the payment of any dividend as the record date for
the determination of the shareholders entitled to receive payment of the
dividend and, in such case, only shareholders of record on the date so fixed
shall be entitled to receive payment of such dividend notwithstanding any
transfer of shares on the books of the corporation after the record date. The
Board of Directors may close the books of the corporation against the transfer
of shares during the whole or any part of such period.
ARTICLE VII.
BOOKS AND RECORDS, FISCAL YEAR
Section 7.01. SHARE REGISTER. The Board of Directors of the
corporation shall cause to be kept at its principal executive office, or at
another place or places within the United States determined by the Board:
(1) a share register not more than one year old, containing the names
and addresses of the shareholders and the number and classes of
shares held by each shareholder; and
(2) a record of the dates on which certificates or transaction
statements representing shares were issued.
Section 7.02. OTHER BOOKS AND RECORDS. The Board of Directors shall
cause to be kept at its principal executive office, or, if its principal
executive office is not in Minnesota, shall make available at its registered
office within ten days after receipt by an officer of the corporation of a
written demand for them made by a shareholder or other person authorized by
Minnesota Statutes Section 302A.461, originals or copies of:
(1) records of all proceedings of shareholders for the last three
years;
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<PAGE>
(2) records of all proceedings of the Board for the last three years;
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by Minnesota Statutes Section
302A.463 and the financial statement for the most recent interim
period prepared in the course of the operation of the corporation
for distribution to the shareholders or to a governmental agency
as a matter of public record;
(6) reports made to shareholders generally within the last three
years;
(7) a statement of the names and usual business addresses of its
directors and principal officers;
(8) any shareholder voting or control agreements of which the
corporation is aware; and
(9) such other records and books of account as shall be necessary and
appropriate to the conduct of the corporate business.
Section 7.03. FISCAL YEAR. The fiscal year of the corporation shall
be determined by the Board of Directors.
ARTICLE VIII.
LOANS, GUARANTEES, SURETYSHIP
The corporation may lend money to, guarantee an obligation of, become
a surety for, or otherwise financially assist a natural or legal person if the
transaction, or a class of transactions to which the transaction belongs, is
approved by the affirmative vote of a majority of the directors present and:
(1) is in the usual and regular course of business of the
corporation;
(2) is with, or for the benefit of, a related corporation, an
organization in which the corporation has a financial interest,
an organization with which the corporation has a business
relationship, or an organization to which the corporation has the
power to make donations;
(3) is with, or for the benefit of, an officer or other employee of
the corporation or a subsidiary, including an officer or employee
who is a director of the corporation or a subsidiary, and may
reasonably be expected, in the judgment of the Board, to benefit
the corporation; or
-10-
<PAGE>
(4) has been approved by the affirmative vote of the holders of
two-thirds of the outstanding shares.
The loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured, or may be secured in the manner as a
majority of the directors approve, including, without limitation, a pledge of or
other security interest in shares of the corporation. Nothing in this section
shall be deemed to deny, limit, or restrict the powers of guaranty or warranty
of the corporation at common law or under a statute of the State of Minnesota.
ARTICLE IX.
INDEMNIFICATION OF CERTAIN PERSONS
The corporation shall indemnify such persons, for such expenses and
liabilities, in such manner, under such circumstances, and to such extent as
permitted by Minnesota Statutes Section 302A.521, as now enacted or hereafter
amended.
ARTICLE X.
AMENDMENTS
These Bylaws may be amended or altered by a vote of the majority of
the whole Board of Directors at any meeting provided that notice of such
proposed amendment shall have been given in the notice given to the directors of
such meeting. Such authority in the Board of Directors is subject to the power
of the shareholders to change or repeal such Bylaws by a majority vote of the
shareholders present or represented at any regular or special meeting of
shareholders called for such purpose, and the Board of Directors shall not make
or alter any Bylaws fixing a quorum for meetings of shareholders, prescribing
procedures or removing directors or filling vacancies in the Board of Directors,
or fixing the number of directors or their classifications, qualifications, or
terms of office, except that the Board of Directors may adopt or amend any Bylaw
to increase their number.
ARTICLE XI.
SECURITIES OF OTHER CORPORATIONS
Section 11.01. VOTING SECURITIES HELD BY THE CORPORATION. Unless
otherwise ordered by the Board of Directors, the Chief Executive Officer shall
have full power and authority on behalf of the corporation (a) to attend any
meeting of security holders of other corporations in which the corporation may
hold securities and to vote such securities on behalf of this corporation; (b)
to execute any proxy for such meeting on behalf of the corporation; or (c) to
execute a written action in lieu of a meeting of such other corporation on
behalf of this corporation. At such meeting, the Chief Executive Officer shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities that the corporation possesses. The Board of Directors may,
from time to time, grant such power and authority to one or more other persons
and may remove such power and authority from the Chief Executive Officer upon
any other person or persons.
-11-
<PAGE>
Section 11.02. PURCHASE AND SALE OF SECURITIES. Unless otherwise
ordered by the Board of Directors, the Chief Executive Officer shall have full
power and authority on behalf of the corporation to purchase, sell, transfer or
encumber any and all securities of any other corporation owned by the
corporation, and may execute and deliver such documents as may be necessary to
effectuate such purchase, sale, transfer or encumbrance. The Board of Directors
may, from time to time, confer like powers upon any other person or persons.
-12-
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<PAGE>
Exhibit 99.1
GREAT PLAINS SOFTWARE, INC.
Quarterly Report on Form 10-Q
November 30, 1998
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
The Private Securities Litigation Reform Act of 1995 provides public
companies with a "safe harbor" from liability for forward-looking statements
if those statements are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those contained in the forward-looking statements. The
Company hereby identifies the following important factors which could cause
the Company's actual results to differ materially from those contained in any
forward-looking statement made by the Company from time to time in any
report, proxy statement, registration statement or other written
communication or in oral forward-looking statements made from time to time by
the Company's offices or agents.
RELIANCE ON PARTNER DISTRIBUTION CHANNEL
We do not maintain a direct sales force; rather, we rely exclusively on our
Partner network to sell our solutions. We cannot assure you that our Partners
will aggressively market our products and services or will maintain their
relationship with us. Our failure to maintain these relationships and to develop
new Partner relationships in the future could have a material adverse effect on
our business.
Our ability to achieve significant future revenue growth will depend in
large part on adding new Partners, leveraging our relationships with existing
Partners and our Partners' ability to implement their growth plans. We cannot
assure you that either we or our Partners will be able to achieve these goals.
Our inability or our Partners' inability to do so could have a material adverse
effect on our business, results of operations and financial condition.
RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE
Our markets are characterized by rapidly changing technologies, evolving
industry standards, frequent new product and service introductions, and changing
customer and Partner demands. Our future success will depend on our ability to
adapt to these rapidly changing technologies, to enhance our existing solutions,
and to introduce new solutions to address our customers' and Partners' changing
demands. We may experience difficulties that could delay or prevent the
successful design, development, introduction or marketing of new solutions. In
addition, these new solutions and enhancements must meet the requirements of our
current and prospective customers and must achieve significant market
acceptance.
RELIANCE ON MICROSOFT TECHNOLOGY
Our software products are designed for Microsoft technologies, including
Windows NT and SQL Server. In addition, our products utilize other Microsoft
technologies, including Visual Basic for Applications and Site Server. Although
we believe that Microsoft technologies will continue to be widely utilized by
Midmarket businesses, we cannot assure you that Midmarket businesses will adopt
such technologies as anticipated or will not in the future migrate to other
computing platforms or technologies that we do not currently support. Moreover,
our strategy requires that our products and technologies continue to be
compatible with new developments in Microsoft's technologies.
THE NEED TO MANAGE GROWTH
Our growth has resulted in increased responsibilities placed upon our
management and has placed added pressures on our internal systems. Continued
growth will require us to implement additional systems and controls and to
expand, train and manage a larger workforce. We cannot assure you that the
systems and management skills currently in place will be adequate if we continue
to grow. In addition, from time to time we may acquire businesses, products,
services and technologies that are
<PAGE>
complementary to ours, or that allow us to enter into new markets. Such
acquisitions would place additional demands upon our management. See "Business
- -- Employees" and "Management -- Executive Officers and Directors."
COMPETITION
The market for business management solution software is highly competitive.
We expect this competition to intensify, particularly in the Midmarket.
In the United States, Dynamics C/S+ (our product for larger Midmarket
businesses) competes with products from Platinum Software and other companies,
and Dynamics (our product for smaller Midmarket businesses) competes with
products from Solomon Software, Sage (State of the Art), Macola and other
companies. In Canada, we face competition in the Midmarket from these companies
and from others including Computer Associates International. Outside North
America, we face a number of competitors, several of which have significant
market share in their home markets. We also face competition from providers of
industry-specific applications as well as indirect competition from in-house,
customer-developed financial management applications.
In the manufacturing market, we face a number of North American competitors,
including Symix, Fourth Shift, Platinum/Dataworks, QAD and J. D. Edwards.
Outside North America, we face these and other competitors, several of which
have extensive market share in their home markets.
In the human resources/payroll market, we face competition in North America
from Best Software, Opus Software, Ultimate Software, Spectrum Software and from
outsourced service providers such as ADP, Ceridian, PayChex and Powerpay.
In the field service and depot repair market, we face competition in North
America from Astea, Clarify and Vantive.
In addition, SAP, PeopleSoft, Baan, Oracle and J.D. Edwards, which generally
focus on companies with revenue above our target market, have announced
Midmarket strategies. Competition from these businesses will likely intensify in
the future.
Many of our competitors have greater financial, marketing and technical
resources than we do. We cannot assure you that we will continue to compete
successfully against these companies.
RELIANCE ON THIRD-PARTY SUPPLIERS
Some of our products utilize software licensed to us by independent,
third-party software developers. For example, we rely on third parties for our
primary reporting tool, for our Integration Manager, and for our Service
Management Series. Although we believe that there are alternatives for most of
these products, any significant interruption in the supply of such third-party
software could have a material adverse impact on our sales unless and until we
can replace the functionality provided by key third-party products. In addition,
we depend on these third parties to enhance their current products, to develop
new products on a timely and cost-effective basis, and to respond to emerging
industry standards and rapid technological change. We cannot assure you that we
would be able to replace the functionality provided by third-party software if
that software becomes obsolete or incompatible with future versions of our
products, or otherwise is not adequately maintained or updated. Any failure of
key third-party solutions could have a material adverse effect on our business,
results of operations and financial condition.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OR INVESTMENTS
We may acquire or make investments in complementary businesses, products,
services or technologies. We cannot assure you that we will be able to identify
suitable acquisitions or investment
<PAGE>
candidates. Even if we identify suitable candidates, we cannot assure you that
we will be able to make such acquisitions or investments on commercially
acceptable terms. If we acquire a company, we may have difficulty assimilating
its personnel and operations into our operations. In addition, its key personnel
may decide not to work for us. We may also have difficulty in assimilating
acquired businesses, products, services and technologies into our operations.
These difficulties could disrupt our ongoing business, distract our management
and workforce, increase our expenses and adversely affect our results of
operations. Furthermore, we may incur significant debt or be required to issue
equity securities to pay for future acquisitions or investments. The issuance of
equity securities could be dilutive to our shareholders.
QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATION
Our quarterly revenue and operating results have varied in the past and can
be expected to vary in the future. Most of our quarterly revenue results from
orders booked in that quarter. We establish expenditure levels based on our
expectation for future revenue. If revenue levels are below expectation,
expenses could be disproportionately high. As a result, a drop in near term
demand could significantly affect both revenue and profits in any quarter. In
the future, our operating results may fluctuate for this reason or as a result
of a number of other factors, including:
- increased expenses
- timing of product releases
- increased competition
- variations in the mix of sales
- announcements of new products by us or by our competitors
- capital spending patterns of our Partners and customers
As a result, we cannot assure you that we will be able to maintain profitability
on an annual or quarterly basis.
Our business has experienced and may continue to experience seasonality.
Specifically, we have traditionally recognized a greater percentage of our
revenue and operating income in the fourth fiscal quarter than in any of the
first three fiscal quarters and historically, to a lesser extent, reduced
license revenue in the first fiscal quarter. Although we have taken significant
steps to reduce revenue fluctuations, we expect some seasonality to continue.
We believe that period-to-period comparisons of our results of operations
are not necessarily meaningful and should not be relied upon as significant
indicators of future performance. It is possible that in some future quarters
our operating results will fall below our expectations or those of market
analysts and investors. In such event, the price of our Common Stock would
likely decrease.
DEPENDENCE ON KEY PERSONNEL
Our future success depends to a significant extent on our executive officers
and certain technical, managerial, sales, service and marketing personnel. The
loss of the services of any of these individuals or group of individuals could
have a material adverse effect on our business, results of operations and
financial condition.
Competition for qualified personnel in the software industry remains
intense. Our future success will depend in large part on our ability to attract
and retain qualified employees. We cannot assure you that we will be able to do
so.
<PAGE>
CONTINUING DECLINE IN SALES OF DOS- AND MACINTOSH-BASED PRODUCTS
We have shifted our product focus from a DOS, Macintosh and local area
network (LAN) product, Great Plains Accounting, to our Dynamics C/S+ and
Dynamics products which are based on Windows NT and client/server technologies.
As a result of this shift and the decrease in general market demand for DOS- and
Macintosh-based solutions, our revenues from our Great Plains Accounting product
have declined and are expected to decline in the future. We cannot assure you
that the decline in revenues from sales of Great Plains Accounting will not have
a material adverse effect on the results of our operations and our financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS AND RISK OF INFRINGEMENT
We rely on a combination of trade secret, copyright and trademark laws,
nondisclosure agreements and other contractual provisions to protect our
intellectual property rights. We cannot assure you that these protections will
be adequate to prevent our competitors from copying or reverse-engineering our
products, or that our competitors will not independently develop technologies
that are substantially equivalent or superior to ours.
We have no patents. Existing copyright and trademark laws afford only
limited protection for our intellectual property rights and will not protect
such rights if competitors independently develop similar products. While we
license the Dynamics C/S+ product under signed license agreements, Dynamics and
Great Plains Accounting are licensed under "shrink wrap" licenses not signed by
the licensees. These shrink wrap licenses may be unenforceable under the laws of
certain jurisdictions. In addition, the laws of certain countries where we sell
products do not protect our products and intellectual property rights to the
same extent as the laws of the United States.
Although we have never been the subject of a material intellectual property
dispute, we cannot assure you that a third party will not assert that our
technology violates its intellectual property rights. As the number of software
products in our target markets increases and the functionality of these products
further overlap, we believe that all software developers may become increasingly
subject to infringement claims. Any such claims, whether with or without merit,
can be time consuming and expensive to defend. We cannot assure you that third
parties will not assert infringement claims against us in the future with
respect to our current or future products or that any such assertions will not
require us to enter into royalty arrangements that could be costly.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
We have operations in a number of international markets. We intend to
continue to expand our international operations and our international sales and
marketing efforts.
Currently, we operate subsidiaries in Canada, the United Kingdom,
Scandinavia, South Africa, Singapore and Australia. We also maintain exclusive
distribution agreements with international distribution Partners in Germany,
Poland, the Czech Republic, the Benelux Countries, Portugal, Latin America and
the Middle East. As a result of the royalty structure for our international
Partner network, our gross margin on international sales through our
international distribution Partners is generally lower than our gross margin on
sales in the United States.
Our international business remains subject to many risks, including:
- local economic and market conditions
- political and economic instability
- difficulties in enforcing intellectual property and contract rights
- difficulties in tailoring our products to fit local accounting principles,
rules, regulations, language, tax codes and customs
<PAGE>
- fluctuations in currency exchange rates
- difficulties and costs of staffing and managing foreign operations
- the need for compliance with a wide variety of foreign and United States
export regulations
These risks may materially and adversely affect our business, results of
operations or financial condition.
YEAR 2000 RISKS
Many currently installed computer systems and software are coded to accept
only two-digit entries in the date code fields. These date code fields will need
to accept four-digit entries to distinguish 21st century dates from 20th century
dates. As a result, computer systems and software used by many businesses and
government agencies will need to be upgraded or replaced in order to comply with
Year 2000 requirements or risk system failure or miscalculations causing
disruptions of normal business activities.
Our current products are Year 2000 compliant. Even though our current
products are Year 2000 compliant, we cannot assure you that Midmarket businesses
will have sufficient resources available to acquire new systems such as ours
because they may be diverting resources to assess and fix internal systems that
may not be Year 2000 compliant.
We have reviewed our own information technology and other technology systems
to assess and remediate any Year 2000 problems. While the amount of remediation
work required to address Year 2000 problems is not expected to be extensive and
while we have received assurances from our major suppliers that they are
addressing the Year 2000 issue, we cannot assure you our internal systems will
function properly in the Year 2000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000."
VOLATILITY OF STOCK PRICE
The market price of our Common Stock has fluctuated in the past and is
likely to continue to be volatile and could be subject to wide fluctuation. The
stock market in general has experienced price and volume fluctuations and this
has been especially true of the technology sector. Investors may be unable to
sell their shares of our Common Stock at or above the offering price. In the
past, companies that have experienced volatility in the market price of their
stock have been the object of securities class action litigation. If we were
sued, we could incur substantial costs and our management's attention and
resources could be diverted. See "Price Range of Common Stock."
SUBSTANTIAL INFLUENCE BY OFFICERS AND DIRECTORS
We anticipate that the executive officers, directors and entities affiliated
with them will, in the aggregate, beneficially own approximately 33% of our
outstanding Common Stock following the completion of this offering. These
shareholders may be able to exercise substantial influence over all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of Great Plains.
See "Management" and "Principal and Selling Shareholders."
BROAD DISCRETION IN USE OF PROCEEDS
Our management can spend or invest the proceeds from this offering in ways
with which the shareholders may not agree. See "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS
Provisions of our articles of incorporation, amended by-laws and Minnesota
law could make it more difficult for a third-party to acquire us, even if doing
so would be beneficial to our shareholders.
