<PAGE>


                       U. S. SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549 
                                           
                                     FORM 10-QSB
    
(X)   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 For the quarterly period ended September 30, 1997

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

                 For the transition period from        to           
                                                ------    ------

                      Commission file number  0-9899            
                                           



                             MEDICAL GRAPHICS CORPORATION
          (Exact name of small business issuer as specified in its charter) 

              MINNESOTA                                 41-1316712           
(State of other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                      Identification No.)


             350 OAK GROVE PARKWAY, SAINT PAUL, MINNESOTA  55127-8599
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (612) 484-4874
                                           


Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
     Yes   X       No         
         -----        ----- 
As of November 5, 1997, the Company had outstanding 2,605,475 shares of Common
Stock, $.05 par value, and 444,445 shares of Class A Stock, $.05 par value. 

Transitional Small Business Disclosure Format: Yes        No   X    
                                                   -----     -----
<PAGE>


                            PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
                                           
                            MEDICAL GRAPHICS CORPORATION
                                   BALANCE SHEETS
                                    (unaudited)
                                   (in thousands)

<TABLE>
<CAPTION>
                                                     September 30, 1997   December 31, 1996
                                                     ------------------   -----------------
<S>                                                  <C>                  <C>
ASSETS                                                     
CURRENT ASSETS:                                            
   Cash                                                   $    251           $   545 
   Accounts receivable, net of allowance for 
      doubtful accounts of $198 and $496                     3,265             4,814 
   Inventories:
      Purchased components and work in process               2,951             4,433 
      Finished goods                                         2,005             2,200 
                                                          --------           -------
                                                             4,956             6,633 
   Prepaid expenses                                            227               193 
                                                          --------           -------
      Total Current Assets                                   8,699            12,185 

EQUIPMENT AND FIXTURES                                       3,964             3,857 
   Less accumulated depreciation                             2,967             2,531 
                                                          --------           -------
                                                               997             1,326 

SOFTWARE PRODUCTION COSTS, net of 
   accumulated amortization of $776 and $569                   389               472 

OTHER ASSETS                                                    15                20 
                                                          --------           -------
                                                          $ 10,100           $14,003 
                                                          --------           -------
                                                          --------           -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                                       $  1,591           $   921 
   Accounts payable financed with vendors - current          1,179             1,742      
   Bank line of credit                                       2,557             3,400 
   Employee compensation                                       646               978 
   Deferred service contract revenue                           882               988 
   Warranty reserve                                            720               563 
   Other liabilities and accrued expenses                      858             1,130 
                                                          --------           -------
      Total Current Liabilities                              8,433             9,722 

 COMMITMENTS AND CONTINGENCIES

 LONG-TERM ACCOUNTS PAYABLE
    FINANCED WITH VENDORS                                    1,359             1,736 

 SHAREHOLDERS' EQUITY
    Class A stock; liquidation preference 
         of $3.375 per share                                    22                -- 
    Common stock                                               131               128 
    Additional paid-in capital                              12,340            10,224 
    Retained deficit                                       (12,185)           (7,807)
                                                          --------           -------
                                                               308             2,545 
                                                          --------           -------
                                                          $ 10,100           $14,003 
                                                          --------           -------
                                                          --------           -------
</TABLE>

See accompanying notes to financial statements.

                                      2
<PAGE>

                             MEDICAL GRAPHICS CORPORATION
                              STATEMENTS OF OPERATIONS 
                                           
                                     (unaudited)

                        (in thousands, except per share data)   

<TABLE>
<CAPTION>

                                                                           
                                                 Three Months Ended             Nine Months Ended    
                                                    September 30,                 September 30,     
                                               ----------------------        ----------------------
                                                 1997           1996           1997           1996 
                                               -------        -------        -------        -------
<S>                                             <C>            <C>           <C>            <C>
REVENUES:
  Equipment sales                              $ 3,062         $4,632        $10,458        $12,662
  Service and supplies revenues                  1,169          1,378          3,543          3,751
                                               -------         ------        -------        -------
   Total revenues                                4,231          6,010         14,001         16,413

COST OF REVENUES                                 2,654          3,760          8,958          9,913
                                               -------         ------        -------        -------
  Gross margin                                   1,577          2,250          5,043          6,500

OPERATING EXPENSES:
  Selling and marketing                          1,511          1,997          4,581          5,502
  General and administrative                       574            753          1,458          2,388
  Research and development                         528            695          1,587          1,716
  Provision for restructuring                       61             --          1,557          ---  
                                               -------         ------        -------        -------
                                                 2,674          3,445          9,183          9,606
                                               -------         ------        -------        -------

LOSS FROM OPERATIONS                            (1,097)        (1,195)        (4,140)        (3,106)
                                                      
NONOPERATING INCOME (EXPENSE)                         
  SensorMedics settlement income                    --          1,317             --          1,438
  Interest expense                                 (90)           (49)          (238)          (113)
                                               -------         ------        -------        -------
LOSS BEFORE INCOME TAXES                        (1,187)            73         (4,378)        (1,781)

INCOME TAX BENEFIT                                  --             --             --            (60)
                                               -------         ------        -------        -------

NET (LOSS) INCOME                              $(1,187)        $   73        $(4,378)       $(1,721)
                                               -------         ------        -------        -------
                                               -------         ------        -------        -------
NET (LOSS) INCOME PER SHARE
   OF COMMON STOCK                             $ (0.39)        $ 0.03        $ (1.52)       $ (0.68)
                                               -------         ------        -------        -------
                                               -------         ------        -------        -------
WEIGHTED AVERAGE 
  COMMON SHARES OUTSTANDING                      3,050          2,556          2,874          2,539 
                                               -------         ------        -------        -------
                                               -------         ------        -------        -------
</TABLE>

See accompanying notes to financial statements.

                                       3
<PAGE>


                             MEDICAL GRAPHICS CORPORATION
                              STATEMENTS OF CASH FLOWS 
                                           
                                     (unaudited)

                                    (in thousands)
                                           
<TABLE>
<CAPTION>
                                                                Nine  Months Ended 
                                                                   September  30,    
                                                              ----------------------
                                                                1997           1996   
                                                              -------        -------
<S>                                                           <C>            <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                 $(4,378)       $(1,721)
     Adjustments to reconcile net loss to
        net cash provided by (used in) operating activities:
        Issuance of common stock warrants                         608             -- 
        Depreciation                                              436            349
        Amortization                                              208            195
        Changes in operating assets and liabilities:
            Accounts receivable                                 1,549          1,405
            Inventory                                           1,677         (1,645)
            Prepaid expenses and other assets                     (29)             8
            Accounts payable and accrued expenses                (496)           812
            Warranty reserve                                      157            190
            Income taxes                                           --            443
            Deferred service contract revenue                    (106)           (64
                                                              -------        -------
              Net cash used in operating activities              (374)           (28)
                                                              -------        -------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Software production costs                                   (125)          (190)
     Capital expenditures                                        (107)          (621)
                                                              -------        -------
              Net cash used in investing activities              (232)          (811)
                                                              -------        -------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net borrowings (payment) on bank line of credit           (3,400)           875
     Net borrowings on new bank line of credit                  2,557            ---
     Payments on long-term accounts payable financed 
        with vendors                                             (377)           ---
     Net proceeds from issuances of stock                       1,532            306
                                                              -------        -------
              Net cash provided by financing activities           312          1,181
                                                              -------        -------
NET (DECREASE) INCREASE IN CASH                                  (294)           342
  
CASH AT BEGINNING OF PERIOD                                       545             31
                                                              -------        -------
CASH AT END OF PERIOD                                         $   251        $   373
                                                              -------        -------
                                                              -------        -------
</TABLE>

See accompanying notes to financial statements.

                                      4
<PAGE>


                            NOTES TO FINANCIAL STATEMENTS
                                  September 30, 1997
                                     (Unaudited)
                                           
1.  BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with 
generally accepted accounting principles for interim financial information 
and with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. 
Accordingly, they do not include all of the information and notes required by 
generally accepted accounting principles for complete financial statements.  
In the opinion of management, all adjustments considered necessary for a fair 
presentation of results have been included.  The balance sheet at December 
31, 1996 was derived from the audited financial statements as of that date. 
Operating results for the three- and nine-month periods ended September 30, 
1997 are not necessarily indicative of the results that may be expected for 
the year ended December 31, 1997.  For further information, refer to the 
financial statements and notes thereto included in the Company's Annual 
Report on Form 10-KSB for the fiscal year ended December 31, 1996.

2.  RECLASSIFICATIONS
Certain amounts in the Company's Form 10-QSB for the three- and nine-month 
periods ended September 30, 1996 have been reclassified to conform to 1997 
presentation.  These reclassifications had no effect on net loss or 
shareholders' equity as previously reported.

3.  PROVISION FOR RESTRUCTURING
During the quarter ended March 31, 1997, the Company implemented a restructuring
plan which included the termination of certain employees and the renegotiation
of the Company's bank line of credit. Expenses incurred during the nine months
ended September 30, 1997 associated with this restructuring were related to
severance, legal, consulting and accounting expenses and totaled $1,557,000.

4.  ISSUANCE OF CLASS A CONVERTIBLE STOCK AND COMMON STOCK
On March 31, 1997, FAMCO II LLC ("FAMCO"), a Minnesota limited liability
corporation, agreed to purchase 444,445 shares of the Company's Class A Stock
for $1,500,000 at a price of $3.375 per share.  FAMCO purchased 148,148 shares
for $500,000 on March 31, 1997 and the remaining 296,297 shares for $1,000,000
on April 15, 1997. FAMCO is managed by Family Financial Strategies, Inc.

On November 10, 1997, Special Situations Fund III, L.P. agreed to purchase up to
484,848 shares of the Company's common stock for $2,000,000 and FAMCO II LLC
agreed to purchase up to 242,424 shares of the Company's common stock for
$1,000,000 at a price of $4.125 per share.  These investors purchased 242,424
shares for $1,000,000 and 121,212 shares for $500,000 on November 10, 1997,
respectively.  Under terms of the Agreement, each investor has the right to
purchase and Company has the right to require the investor to purchase such
additional shares at a purchase price of $4.125 per share, subject to certain
conditions, on or before February 23, 1998.  

The Company believes that each of the foregoing transactions was exempt under
Section 4(2) of the Securities Act of 1933 and Rule 506 under Regulation D under
the Securities Act of 1933.

                                      5
<PAGE>


5.  AMENDMENT TO BANK LINE OF CREDIT
In June and November 1997, the Company amended its line of credit agreement.  As
of September 30, 1997, the Company was in compliance with all covenants pursuant
to the amended line of credit agreement.

6.  NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share," which is
effective for periods ending after December 15, 1997.  SFAS 128 revises the
standards for computing and presenting earnings per share (EPS).  The Company
will continue to apply APB Opinion No. 15 to compute the EPS through the
effective date.  EPS for the three and nine months ended September 30, 1997
computed under SFAS 128 is not expected to be materially different from EPS
computed under APB Opinion No. 15. 



                                      6
<PAGE>


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

FORWARD LOOKING STATEMENT

Statements included in this Quarterly Report on Form 10-QSB that are not 
historical or current facts are "forward-looking statements" made pursuant to 
the safe harbor provision of the Private Securities Litigation Reform Act of 
1995 and are subject to certain risks and uncertainties that could cause 
actual results to differ materially.  Among these risks and uncertainties 
are (i) the fact that the Company has incurred losses of $4,378,000 for the 
nine months ended September 30, 1997;  and losses of $9,071,000  and 
$1,731,000 for the fiscal years ended December 31, 1996 and 1995, 
respectively;  (ii) the ability of the Company's distributors to 
successfully market and sell the Company's product in markets outside the 
United States; (iii) the Company's ability to successfully market its 
product in the United States at a favorable margin considering significant 
price competition in the industry; (iv) the extent to which physicians and 
health plan administrators are motivated to use non-invasive diagnostic 
testing to detect early signs of disease; (v) the Company's ability to 
successfully upgrade the Company's product software systems to a 
Windows-Registered Trademark- environment; and (vi) the Company's ability 
to develop future products which are technologically advanced and accepted by 
the marketplace.

RESULTS OF OPERATIONS

For the three months ended September 30, 1997, the Company recorded a net loss
of $1,187,000, compared to a net loss of $1,244,000, excluding a significant
one-time lawsuit settlement gain of $1,317,000 for the same period in 1996. 
Including the lawsuit settlement, the Company recognized net income of $73,000
for the third quarter in 1996.  For the nine months ended September 30, 1997,
the Company incurred a net loss of $4,378,000, which includes restructuring
charges of $1,557,000, compared to a net loss of $1,721,000 in 1996.

REVENUES

Revenues consist of equipment sales and service and supplies revenues. 
Equipment sales reflect revenues from the Company's pulmonary function analysis
systems, gas exchange testing systems and sleep diagnostic systems.  Service and
supplies revenues reflect contract revenues from extended warranties, revenues
from non-warranty service visits, and aftermarket sales of peripherals and
supplies.

Third quarter revenues decreased 29.6% to $4,231,000 in 1997 from $6,010,000 in
1996.  The lower revenue was primarily caused by disruptions to the Company's
business cycle occurring earlier in 1997 and six month lead times normally
associated with products sold in this segment of the medical device industry. 
Domestic revenue decreased 26.9% while international revenue, which was also
adversely effected by closing of the Company's German office on December 31,
1996, declined 47.9%.  Revenue for the first nine months of 1997 decreased 14.7%
to $14,001,000 from $16,413,000 in 1996, which included a 5.5% decrease in
domestic revenue and a 38.7% decrease in international revenue. 

The Company's international sales for the three and nine months ended September
30, 1997 were $803,000 and $2,786,000, respectively, compared to $1,542,000 and
$4,545,000, respectively, in 1996.


                                      7
<PAGE>


GROSS MARGIN

Gross margins of 37.3% for the three months ended September 30, 1997 were
consistent with those achieved for the same period in 1996.  While gross margins
are slightly lower for the nine months ended September 30, 1997 compared to
1996, gross margin trends continued to improve compared to the first quarter of
1997 and the year ended December 31, 1996. Gross margin for the first nine
months was 36.0% in 1997 compared to 39.6% in 1996, compared to 27.8% in all of
1996 and 32.4% in the first quarter of 1997.  These favorable trends are due to
improvements in inventory management, reductions in manufacturing overhead and
steady average selling prices.

SELLING AND MARKETING

Selling and marketing expenses for the three months ended September 30 decreased
24.3% to $1,511,000 in 1997 from $1,997,000 in 1996. Year-to-date selling and
marketing expenses decreased 16.7% to $4,581,000 in 1997 from $5,502,000 in
1996. This decrease was the result of cost containment measures implemented
during the first quarter of 1997.

GENERAL AND ADMINISTRATIVE

General and administrative expenses decreased 23.8% to $574,000 in the third
quarter of 1997 from $753,000 in 1996. Year-to-date general and administrative
expenses decreased 38.9% to $1,458,000 in 1997 from $2,388,000 in 1996. These
decreases were primarily the result of cost containment and restructuring
measures implemented in the first quarter of 1997.

RESEARCH AND DEVELOPMENT

Research and development expenses decreased 24.0% to $528,000 in the third
quarter of 1997 from $695,000 in 1996, and for the first nine months of 1997
decreased 7.5% to $1,587,000 from $1,716,000 in 1996.  The decrease in third
quarter 1997 represents decreased reliance on outside consultants.  

PROVISION FOR RESTRUCTURING

Restructuring expenses of $1,557,000 for the nine months ended September 30,
1997 included severance, legal, accounting and consulting expenses associated
with the restructuring implemented in the first quarter of 1997.

LIQUIDITY AND FINANCIAL RESOURCES

At September 30, 1997, the Company had cash of $251,000 and working capital 
of $266,000. In addition, the Company had a balance outstanding under its 
bank line of credit of $2,557,000 and additional availability of $450,000.

During the nine months ended September 30, 1997, the Company used $374,000 of
cash in operating activities, primarily resulting from a net loss of $4,378,000
and a decrease of $496,000 in accounts payable and accrued expenses, which were
partially offset by noncash charges totaling $1,252,000, a decrease of
$1,677,000 in inventory and a decrease of $1,549,000 in accounts receivable. 
The Company used $232,000 for investing activities, consisting of capital
expenditures of $107,000 and software production costs of $125,000.  The Company
generated 

                                      8
<PAGE>


$312,000 from financing activities, primarily from $1,500,000 in proceeds 
from the private placement of its Class A Stock and net borrowings of 
$2,557,000 under its new line of credit, partially offset by a $3,400,000 
payoff of its former bank line of credit and a decrease of $377,000 in 
long-term accounts payable with vendors.

At September 30, 1997 the Company had no material commitments for capital
expenditures.

The Company believes that its revenues from operations, together with cash and
borrowings available under its new credit facility and proceeds from the
November, 1997 sale of its common stock will be adequate to satisfy its
liquidity and capital resources needs through 1997.  See Item 2 of Part II of
this Form 10-QSB.


                                      9
<PAGE>


                         PART II - OTHER INFORMATION
                                           
ITEM 1.  LEGAL PROCEEDINGS 

The Company is a defendant in various claims and litigation which are incidental
to its business. Management is of the opinion that ultimate settlement of these
matters will not have a material impact on its financial statements.

ITEM 2. CHANGE IN SECURITIES

On November 10, 1997, Special Situations Fund III, L.P. agreed to purchase up to
484,848 shares of the Company's common stock for $2,000,000 and FAMCO II LLC
agreed to purchase up to 242,424 shares of the Company's common stock for
$1,000,000 at a price of $4.125 per share.  These investors purchased 242,424
shares for $1,000,000 and 121,212 shares for $500,000 on November 12, 1997,
respectively.  Under terms of the Agreement, each investor has the right to
purchase and Company has the right to require the investor to purchase such
additional shares at a purchase price of $4.125 per share, subject to certain
conditions, on or before February 23, 1998.  The Company believes that each of
the foregoing transactions was exempt under Section 4(2) of the Securities Act
of 1933 and Rule 506 under Regulation D under the Securities Act of 1933.

ITEM 5.  OTHER MATTERS

Under the Rules of the Nasdaq Small Cap Market, the Company must maintain net
tangible assets (assets, excluding goodwill, less liabilities) of at least
$1,000,000.  On September 30, 1997, the Company had net tangible assets of
$308,000, which is less than the minimum net tangible asset requirement.  After
giving effect to the sale of 363,636 shares of the Company's common stock for
$1,500,000 on November 12, 1997, the Company was in compliance with the minimum
net tangible asset requirement.  See item 2 above.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits List

    Exhibit 27          Financial Data Schedule

    Exhibit 99.1        Proforma Balance Sheet as of September 30, 1997
                        reflecting November, 1997 investment.

(b) Reports on Form 8-K

    There were no Reports on Form 8-K filed during the quarter ended 
      September 30, 1997.


                                      10
<PAGE>


                                  SIGNATURES
                                           
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


Medical Graphics Corporation    
------------------------------
      (Registrant)            



Date November 14, 1997                    /s/ Glenn D. Taylor 
    --------------------                  -------------------------------------
                                          Glenn D. Taylor, President and Chief 
                                          Executive Officer (Principal Executive
                                          Officer)   

Date November 14, 1997                    /s/ Dale H. Johnson          
    --------------------                  -------------------------------------
                                          Dale H. Johnson, Chief Financial 
                                          Officer (Chief Accounting Officer)   

                                      11
<PAGE>


                                  INDEX TO EXHIBITS

Exhibit       
Number     Description              
-------    -----------
27         Financial Data Schedule.

99.1       Proforma Balance Sheet as of September 30, 1997 reflecting 
           November, 1997 investment.


                                      12