<PAGE>

                    U. S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                  FORM 10-QSB/A
                         AMENDMENT NO. 1 TO 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, 1998

                                       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: (651) 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 12, 1998, the Company had outstanding 5,607,736 shares of 
Common Stock, $.05 par value, and 444,445 shares of Class A Stock, $.05 par 
value. Each share of Class A Stock is convertible into 3.375 shares of Common 
Stock.

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,
                                                                                      1998   
                                                                                  (AS RESTATED       DECEMBER 31,
                                                                                   SEE NOTE 6)           1997
<S>                                                                               <C>                <C>
ASSETS
   CURRENT ASSETS
     Cash and cash equivalents                                                                                 $387
     Accounts receivable, net of allowance for doubtful
       accounts of $143 and $164                                                         $ 4,157              3,890
     Inventories:
       Purchased components and work in process                                            3,586              3,164
       Finished goods                                                                      1,677              1,636
                                                                                  --------------    ---------------
                                                                                           5,263              4,800
     Prepaid expenses                                                                        194                272
                                                                                  --------------    ---------------
       Total Current Assets                                                                9,614              9,349
                                                                                  --------------    ---------------
   EQUIPMENT AND FIXTURES                                                                  4,095              4,072
     LESS ACCUMULATED DEPRECIATION                                                         3,560              3,110
                                                                                  --------------    ---------------
                                                                                             535                962
   SOFTWARE PRODUCTION COSTS, NET OF ACCUMULATED
     AMORTIZATION OF $1,023 AND $855                                                         594                602
   OTHER ASSETS                                                                                8                 13
                                                                                  --------------    ---------------
                                                                                         $10,751            $10,926
                                                                                  --------------    ---------------
                                                                                  --------------    ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
   CURRENT LIABILITIES
     Accounts payable                                                                     $2,570             $2,261
     Accounts payable financed with vendors - current                                        833              1,145
     Line of credit                                                                        2,513              2,254
     Employee compensation                                                                   529                786
     Deferred service contract revenue                                                       888                896
     Warranty reserve                                                                        374                414
     Other liabilities and accrued expenses                                                  576                675
                                                                                  --------------    ---------------
       Total Current Liabilities                                                           8,283              8,431
   COMMITMENTS AND CONTINGENCIES
   LONG-TERM ACCOUNTS PAYABLE FINANCED WITH VENDORS                                          210                807
   SHAREHOLDERS' EQUITY
     Class A stock; liquidation preference of $3.375 per share                                22                 22
     Common stock                                                                            196                148
     Additional paid-in capital                                                           15,848             13,727
     Retained deficit                                                                    (13,808)           (12,209)
                                                                                  --------------    ---------------
                                                                                           2,258              1,688
                                                                                  --------------    ---------------
                                                                                         $10,751            $10,926
                                                                                  --------------    ---------------
                                                                                  --------------    ---------------

</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,
                                                        ----------------------------   ----------------------------
                                                              1998          1997           1998            1997
                                                                        (AS RESTATED   (AS RESTATED    (AS RESTATED
                                                                         SEE NOTE 6)    SEE NOTE 6)     SEE NOTE 6)
<S>                                                         <C>          <C>             <C>             <C>
REVENUES:
   Equipment sales                                             $3,193        $ 3,062        $11,002        $10,458
   Service and supplies revenues                                1,295          1,169          3,678          3,543
                                                        -------------   ------------   ------------     ----------
       Total revenues                                           4,488          4,231         14,680         14,001

COST OF REVENUES                                                2,762          2,654          9,015          8,958
                                                        -------------   ------------   ------------     ----------
   Gross margin                                                 1,726          1,577          5,665          5,043

OPERATING EXPENSES:
   Selling and marketing                                        1,346          1,511          4,275          4,581
   General and administrative                                     443            586          1,470          1,758
   Research and development                                       351            528          1,207          1,587
   Nonrecurring charges                                                           49                         1,407
                                                        -------------   ------------   ------------     ----------
                                                                2,140          2,674          6,952          9,333
                                                        -------------   ------------   ------------     ----------
LOSS FROM OPERATIONS                                             (414)        (1,097)        (1,287)        (4,290)

   Interest expense                                              (115)           (90)          (312)          (238)
                                                        -------------   ------------   ------------     ----------
LOSS BEFORE INCOME TAXES                                         (529)        (1,187)        (1,599)        (4,528)

   Income tax benefit                                               0              0              0              0
                                                        -------------   ------------   ------------     ----------

NET LOSS                                                         (529)        (1,187)        (1,599)        (4,528)
                                                        -------------   ------------   ------------     ----------
                                                        -------------   ------------   ------------     ----------

NET LOSS PER WEIGHTED AVERAGE SHARE
   Basic                                                       $(0.09)       $ (0.26)       $ (0.28)       $ (1.05)
   Diluted                                                     $(0.09)       $ (0.26)       $ (0.28)       $ (1.05)
                                                        -------------   ------------   ------------     ----------
                                                        -------------   ------------   ------------     ----------
WEIGHTED AVERAGE SHARES OUTSTANDING
   Basic                                                        5,739          4,575          5,646          4,311
   Diluted                                                      5,739          4,575          5,646          4,311
</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,
                                                                                -----------------------------------
                                                                                      1998               1997
                                                                                  (AS RESTATED       (AS RESTATED
                                                                                   SEE NOTE 6)        SEE NOTE 6)
<S>                                                                             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                                              $(1,599)           $(4,528)
   Adjustments to reconcile net loss to net cash provided
       (used) in operating activities:
     Issuance of common stock warrants                                                                          608
     Depreciation                                                                            450                456
     Amortization                                                                            264                208
     Changes in operating assets and liabilities
       Accounts receivable                                                                  (267)             1,549
       Inventory                                                                            (463)             1,677
       Prepaid expenses and other assets                                                      83                (29)
       Accounts payable and accrued expenses                                                (359)              (346)
       Warranty reserve                                                                      (40)               157
       Deferred service contract revenue                                                      (8)              (106)
                                                                                  --------------    ---------------
              Net cash used in operating activities                                       (1,939)              (374)
                                                                                  --------------    ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
   Software production costs                                                                (256)              (125)
   Capital expenditures                                                                      (23)              (107)
                                                                                  --------------    ---------------
              Net cash used in investing activities                                         (279)              (232)
                                                                                  --------------    ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Net borrowings (payments) on bank line of credit                                          259               (843)
   Payments on long-term accounts payable financed with vendors                             (597)              (377)
   Net proceeds from issuances of common stock                                             2,169              1,532
                                                                                  --------------    ---------------
              Net cash provided by financing activities                                    1,831                312
                                                                                  --------------    ---------------
NET DECREASE IN CASH                                                                        (387)              (294)
CASH AT BEGINNING OF PERIOD                                                                  387                545
                                                                                  --------------    ---------------
CASH AT END OF PERIOD                                                                         $0            $   251
                                                                                  --------------    ---------------
                                                                                  --------------    ---------------
CASH PAID FOR INTEREST EXPENSE                                                           $   292            $   225
                                                                                  --------------    ---------------
                                                                                  --------------    ---------------
</TABLE>

See accompanying notes to financial statements.

                                       4
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1998
                                   (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, 1997 was derived from the audited financial 
statements as of that date. Operating results for the three and nine month 
periods ended September 30, 1998 are not necessarily indicative of the 
results that may be expected for the year ended December 31, 1998. For 
further information, refer to the financial statements and notes thereto 
included in the Company's Annual Report on Form 10-KSB/A for the fiscal year 
ended December 31, 1997.

2.   RECLASSIFICATIONS

Certain amounts in the Company's Form 10-QSB for the three and nine month 
periods ended September 30, 1997 have been reclassified to conform to the 
1998 presentation. These reclassifications had no effect on net loss or 
shareholders' equity as previously reported.

3.   NON-RECURRING EXPENSES

During the quarter ended March 31, 1997, the Company implemented certain cost 
control strategies which included the termination of certain employees and 
the renegotiation of the Company's bank line of credit. A total of $1,407,000 
in non-recurring expenses were recorded during the nine months ended 
September 30, 1997 related to severance, legal, consulting and accounting 
expenses.

4.   AMENDMENT TO BANK LINE OF CREDIT

The Company amended its line of credit agreement in March, August and 
September 1998.

5.   NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive 
Income", which was adopted by the Company beginning January 1, 1998. SFAS No. 
130 requires the disclosure of comprehensive income and its components in the 
general-purpose financial statements. The adoption by the Company of SFAS No. 
130 did not have a material effect on the Company's financial statements for 
the three months ended September 30, 1998 or 1997. Total comprehensive loss 
for the three months ended September 30, 1998 and 1997 was $529,000 and 
$1,187,000, respectively. Total comprehensive loss for the nine months ended 
September 30, 1998 and 1997 was $1,599,000 and $4,528,000, respectively.

Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosure 
about Segments on an Enterprise and Related Information". SFAS No. 131 
redefines how operating segments are determined and requires disclosures of 
certain financial and descriptive information about a Company's operating 
segments. This statement does not have a material impact on results reported 
in the financial statements.


                                       5
<PAGE>

6.   RESTATEMENT

Subsequent to the issuance of the September 30, 1998 Quarterly Report on Form 
10-QSB, the Company determined that inventory write-downs recorded in 1996 
were overstated and that certain restructured charges recorded in 1996 and 
the nine months ended September 30, 1997 were misclassified and/or recorded 
in the wrong period. As a result, the balance sheet at September 30, 1998 has 
been restated to increase inventory and the statements of operations for the 
three and nine months ended September 30, 1998 and 1997 have been restated to 
properly classify charges previously recorded as restructuring, to record 
charges previously recorded in 1996 in the first quarter of 1997, and to 
eliminate the reversal of certain inventory provisions during the first 
quarter of 1998. The effects of these adjustments on the financial statements 
at September 30, 1998 and for the three and nine months ended September 30, 
1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                                              Three Months
                                                                                                  Ended
                                                                                           September 30, 1997
                                                                                         -----------------------
                                                                                           As
                                                                                       Previously           As
                                                                                        Reported         Restated
<S>                                                                                    <C>              <C>
General and administrative                                                               $  574           $  586
Nonrecurring                                                                                 61               49

</TABLE>

<TABLE>
<CAPTION>
                                                                       Nine Months Ended September 30
                                                          ------------------------------------------------------
                                                                     1998                          1997
                                                          ------------------------      ------------------------
                                                              As                             As
                                                          Previously         As          Previously        As
                                                           Reported       Restated        Reported      Restated
<S>                                                       <C>             <C>            <C>           <C>
Cost of goods sold                                        $  8,889        $  9,015
Selling and marketing                                        4,076           4,275
General and administrative                                                               $  1,458      $  1,758
Non-recurring                                                                                   0         1,407
Restructuring charges                                                                       1,557             0
Net (loss)                                                  (1,274)         (1,599)        (4,378)       (4,528)
Net income (loss) per share                                  (0.23)          (0.28)         (1.02)        (1.05)

<CAPTION>
                                                                     As of           
                                                              September 30, 1998     
                                                        ---------------------------- 
                                                              As                     
                                                          Previously         As      
                                                           Reported       Restated   
<S>                                                       <C>             <C>        
Inventories                                               $  5,028        $  5,263   
Retained deficit                                           (14,043)        (13,808)  
</TABLE>

                                       6
<PAGE>


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

FORWARD LOOKING STATEMENTS

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 $1,599,000 for the nine 
months ended September 30, 1998, and losses of $5,112,000, $8,361,000 and 
$1,731,000 for the fiscal years ended December 31, 1997, 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 its product 
software systems to a Windows-R- environment; and (vi) the Company's ability 
tO develop future products which are technologically advanced and accepted by 
the marketplace.

In addition, the Company's statement regarding the Year 2000 issue contained 
in the Section, "Year 2000", includes statements regarding the timetable for 
Year 2000 compliance, the Company's related costs and capital expenditures, 
the success of the Company's efforts and others' efforts to achieve 
compliance, and the effects of the Year 2000 issue on the Company's future 
financial condition and results of operations. The following important 
factors, among others, could affect the accuracy of those statements: (i) the 
inherent uncertainty of the costs and timing of achieving compliance on the 
wide variety of systems used by the Company; (ii) the reliance on the efforts 
of vendors, customers, government agencies and other third parties to achieve 
adequate compliance and avoid disruption of the Company's business in early 
2000; and (iii) the uncertainty of the ultimate costs and consequences of any 
unanticipated disruption in the Company's business resulting from the failure 
of one of the Company's applications or of a third party's systems.

For an additional description of these and other factors, see "Management's 
Discussion and Analysis of Financial Condition or Plan of Operations, 
Forward-Looking Statements," contained in Item 6, Part II, of the Company's 
1997 Form 10-KSB/A. In addition, the foregoing list is not exhaustive, and 
the Company disclaims any obligation subsequently to revise any 
forward-looking statements to reflect events or circumstances after the date 
of such statements or to reflect the occurrence of anticipated or 
unanticipated events.

RESULTS OF OPERATIONS

Subsequent to the issuance of the September 30, 1998 Quarterly Report on Form 
10-QSB, the Company determined that inventory write-downs recorded in 1996 
were overstated and that certain restructured charges recorded in 1996 and 
the nine months ended September 30, 1997 were misclassified and/or recorded 
in the wrong period. As a result, the balance sheet at September 30, 1998 has 
been restated to increase inventory and the statements of operations for the 
three and nine months ended September 30, 1998 and 1997 have been restated to 
properly classify charges previously recorded as restructuring, to record 
charges previously recorded in 1996 in the first quarter of 1997, and to 
eliminate the reversal of certain inventory provisions during the first 
quarter of 1998. The effects of these adjustments on the financial statement 
at September 30, 1998 and for the three and nine months ended September 30, 
1998 and 1997 are reflected in footnote 6 to the financial statements.

The Company recorded net losses of $529,000 and $1,187,000 for the three 
months ended September 30, 1998 and 1997, respectively. Included in the 1997 
loss was $49,000 of non-recurring expenses. For the nine months ended 
September 30, the Company recorded net losses of $1,599,000 and $4,528,000 
for 1998 and 1997, respectively. The nine month loss for 1997 included 
$1,407,000 of non-recurring expenses.

                                       7
<PAGE>


REVENUES

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

Third quarter revenues increased 6.1% to $4,488,000 in 1998 compared to 
$4,231,000 in 1997. Domestic revenue increased 17.8% to $2,659,000 in 1998 
compared to $2,258,000 in 1997. The increase in 1998 domestic revenue was 
primarily due to sales of sleep diagnostic systems, which were introduced in 
September, 1997. International revenue decreased 33.5% to $534,000 in 1998 
from $804,000 in 1997. The strong U. S. Dollar, aggressive competition in 
Europe and economic difficulties being experienced by Asian Pacific countries 
all contributed to a decline in international revenue. Third quarter service 
and supply revenue increased 10.8% to $1,295,000 in 1998 from $1,169,000 in 
1997 due to increases in both non-warranty service revenue and supply 
revenue, offset by decreased revenue from warranty service contracts.

For the nine months ended September 30, revenues increased 4.9% to 
$14,680,000 in 1998 from $14,001,000 in 1997. Year to date domestic revenues 
increased 17.9% to $9,044,000 in 1998 from $7,672,000 in 1997 on the strength 
of sleep diagnostic systems which were introduced in September, 1997. 
Internationally, revenues decreased 29.7% to $1,958,000 in 1998 from 
$2,786,000 in 1997 due to a strong U. S. Dollar and aggressive European 
competition. Year to date service and supply revenue increased 3.8% to 
$3,678,000 in 1998 from $3,543,000 in 1997 reflecting increased non-warranty 
service revenue offset by decreases in revenue from warranty service 
contracts and supplies.

GROSS MARGIN

Gross margin percentage increased to 38.5% of revenue for the three months 
ended September 30, 1998 from 37.3% in 1997. For the nine months ended 
September 30, gross margin percentage increased to 38.6% in 1998 from 36.0% 
in 1997. The increase for both the three and nine month periods reflects the 
Company's ongoing efforts to decrease costs of manufacturing through 
increased efficiencies, partially offset by sales of lower margin distributed 
sleep diagnostic systems as well as lower pricing associated with 
introduction of those new products. In addition, year to date margins were 
positively affected by improved average selling prices for pulmonary and gas 
exchange systems.

SELLING AND MARKETING

Selling and marketing expenses for the three months ended September 30, 1998 
decreased by 10.9% to $1,346,000 in 1998 from $1,511,000 in 1997. Year to 
date selling and marketing expenses decreased 6.7% to $4,275,000 in 1998 from 
$4,581,000 in 1997. Both the three month and nine month periods reflect 
increased commissions on higher domestic revenue and expenses associated with 
expanding the Company's domestic sales force. However, these third quarter 
increases were offset by savings related to less travel and other cost 
containment actions. Year to date selling and marketing increases were also 
offset by $299,000 in savings associated with the Company's 1997 decision to 
sell its asthma business unit and reduce focus on the sports medicine market.

                                       8
<PAGE>


GENERAL AND ADMINISTRATIVE

General and administrative expenses decreased 24.4% to $443,000 in the third 
quarter of 1998 from $586,000 in 1997. Year to date general and 
administrative expenses decreased by 16.4% to $1,470,000 in 1998 from 
$1,758,000 in 1997. The third quarter decrease is attributed to lower 
consulting expenses and lower allowances for doubtful accounts receivable. 
The third quarter and year to date decreases are due to lower consulting 
expenses associated with 1997 cost reduction activities and lower allowances 
for doubtful accounts receivable.

RESEARCH AND DEVELOPMENT

Research and development expenses decreased 33.5% to $351,000 in the third 
quarter of 1998 from $528,000 in 1997. For the nine months ended September 
30, research and development expenses decreased 23.9% to $1,207,000 in 1998 
from $1,587,000 in 1997. These decreases reflect the Company's 1997 
restructuring decision to use in-house software engineers rather than 
independent software contractors as part of the Company's transition of its 
product software to a Windows95-R- platform. The third quarter decrease also 
reflects lower costs due to an increasing proficiency of Company employees 
developing product software upgrades.

NON-RECURRING EXPENSES

Non-recurring expenses for the three and nine months ended September 30, 1997 
were $49,000 and $1,407,000, respectively. They included severance, legal, 
accounting and consulting expenses associated with the cost reduction 
strategies implemented during 1997.

LIQUIDITY AND FINANCIAL RESOURCES

At September 30, 1998, the Company balance sheet reflected no cash because 
the normal amount of outstanding checks offset cash balances deposited in the 
company's cash accounts. The Company had working capital of $1,331,000. In 
addition, the Company had a balance outstanding under its bank line of credit 
of $2,513,000 and additional availability of $608,000.

During the nine months ended September 30, 1998, the Company used $1,939,000 
of cash in operating activities, primarily resulting from a net loss of 
$1,599,000, increases of $267,000 in accounts receivable and $463,000 in 
inventory and a decrease of $359,000 in accounts payable and accrued 
expenses. The Company used $279,000 for investing activities, consisting of 
software production costs of $256,000 and capital expenditures of $23,000. 
The Company generated $1,831,000 from financing activities, primarily from 
$2,169,000 in net proceeds from the private placement of its common stock and 
net borrowings of $259,000 under its line of credit, offset by a decrease of 
$597,000 in long-term accounts payable with vendors.

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 
$4,528,000 and a decrease of $346,000 in accounts payable and accrued 
expenses, which were partially offset by noncash charges totaling $1,272,000, 
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 $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,

                                       9
<PAGE>


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, 1998 the Company had no material commitments for capital 
expenditures.

The Company believes that cash generated from operations, together with cash 
and borrowings available under its line of credit facility will be adequate 
to satisfy its liquidity and capital resource needs for the next twelve 
months.

YEAR 2000

The Year 2000 issue is the result of computer programs being written using 
two digits rather than four to define the applicable year. The Company's 
computer equipment, software, devices and products with imbedded technology 
that are time-sensitive may recognize a date using "00" as the year 1900 
rather than the year 2000. This could result in a system failure or 
miscalculations causing disruptions of operations, including, among other 
things, a temporary inability to process transactions, send invoices or 
engage in similar normal business activities.

STATE OF READINESS

In late 1997, the Audit Committee of the Board of Directors of the Company 
directed the Company's management to initiate a Year 2000 compliance plan. By 
March 1998, management implemented a formal program to address the Company's 
Year 2000 compliance by forming a Year 2000 staff consisting of personnel 
from cross-functional areas of the Company, including information systems, 
marketing, research and development, technical support, quality assurance and 
regulatory affairs and administration (the "Y2K Project Team"). A Project 
Manager, who reports to the Audit Committee of the Board, leads the Y2K 
Project Team to ensure that it meets time deadlines, objectives and documents 
remedial action.

As part of its compliance plan, the Company's Y2K Project Team is taking 
inventory of the Company's operations and dividing areas for assessment into 
three categories:

-        VITAL - computer-controlled systems, programs, equipment and products
         that the Company needs to function day-to-day;

-        CRITICAL - those systems which must be repaired or replaced prior to
         the millennium but are not necessary for the Company's day-to-day
         operations; and

-        MARGINAL - those systems for which repair and replacement are not
         material to the Company's operations.

The Y2K Project Team has also identified five areas covering the entire scope 
of the Company's business and has committed to completing an 8-step program 
for each area. The diagram below identifies the five areas as well as the 
current and projected schedule of the 8-step program for each area.

                                       10
<PAGE>


<TABLE>
<CAPTION>
                      ------------------ ------------------ ------------------ ------------------ ------------------
                      Company Products   OEM Products       Internal           Business           Vendors &
                                                            Programming        Information        Suppliers
                                                                               Systems
--------------------------------------------------------------------------------------------------------------------
<S>                   <C>                <C>                <C>                <C>                <C>
Team Formation &      Completed          Completed          Completed          Completed          Completed
Assignment
--------------------------------------------------------------------------------------------------------------------
Inventory Assessment  Completed          80%                Completed          90%                35%
--------------------------------------------------------------------------------------------------------------------
Compliance            Completed          80%                Completed          90%                35%
Assessment
--------------------------------------------------------------------------------------------------------------------
Risk Assessment       Completed          Completed          Completed          90%                0%
--------------------------------------------------------------------------------------------------------------------
Resolution &          Completed          80%                Completed          30%                0%
Remediation
--------------------------------------------------------------------------------------------------------------------
Validation            Completed          80%                Completed          30%                0%
--------------------------------------------------------------------------------------------------------------------
Contingency Plans     Completed          Completed          Completed          30%                0%
--------------------------------------------------------------------------------------------------------------------
Certification &       Completed          10%                10%                20%                5%
Sign-off
--------------------------------------------------------------------------------------------------------------------
</TABLE>

With respect to the Company's relationships with third parties, the Company 
relies both domestically and internationally upon various vendors, 
governmental agencies, utility companies, telecommunications service 
companies, delivery service companies and other service providers. Although 
these service providers are outside of the Company's control, the Company has 
mailed letters to those with whom it believes its relationships are material 
and has verbally communicated with some of its strategic business partners to 
determine the extent to which electronic interfaces with such entities are 
vulnerable to Year 2000 issues and whether products and services purchased 
from or by such entities are Year 2000 ready. As of November 1, 1998, the 
Company had received responses from 5% of such third parties, and all of the 
companies that have responded have provided written assurances indicating 
that their Year 2000 issues will be addressed on a timely basis. The Company 
intends to complete follow-up activities, including but not limited to phone 
surveys and mailings, with significant vendors and service providers as part 
of completing validation of these parties' compliance.

COSTS TO ADDRESS YEAR 2000 ISSUES

To date, the Company has not incurred any material expenditures in connection 
with identifying or evaluating Year 2000 compliance issues. The Company has 
incurred the majority of its costs from the recent installation of updated 
internal computer systems as well as the labor cost and opportunity cost of 
time spent by employees of the Company evaluating Year 2000 compliance 
matters generally. Because the Company upgraded its internal computer systems 
as part of its regularly planned software and hardware upgrade efforts, it 
does not consider the costs related thereto to be charges for Year 2000 
compliance. The Company presently estimates the labor costs of its Year 2000 
compliance efforts to date to be approximately $50,000. With respect to 
future costs, the Company estimates it will spend approximately $25,000 for 
remediation and validation of products and programs which the Company 
presently knows are not compliant and another $50,000 for future staff time 
for such remediation. In addition, the Company estimates 

                                       11
<PAGE>

that it may spend no more than another $100,000 on remediation and validation 
of products and programs which have not yet been assessed. The Company 
believes that these estimates are reasonable and presently expects such to be 
within the Company's fiscal 1999 budget. At this time, the Company does not 
possess information necessary to estimate the overall potential financial 
impact of Year 2000 compliance issues relating to its Year 2000 compliance 
program. Such impact, including the effect of a Year 2000 business 
disruption, could have a material adverse impact on the Company's financial 
condition and results of operations.

RISKS OF YEAR 2000 ISSUES

Because the Company is still in the discovery and evaluation phase of 
assessing its overall Year 2000 exposure, it cannot at this time state with 
certainty that the Year 2000 issues will not have a material adverse impact 
on its financial condition, results of operations and liquidity. Although the 
Company considers them unlikely, the Company believes that the following 
several situations, not in any particular order, make up the Company's "most 
reasonably likely worst case Year 2000 scenarios:"

1.  CUSTOMER LITIGATION.

The Company has developed a program to advise all customers of Year 2000 
compliance of its products and has identified upgrade and replacement 
products for its customers affected by Year 2000 compliance issues. These 
efforts pertain not only to the Company's internally developed products but 
also to externally acquired products. Although the Company believes that its 
efforts will ensure no disruption in the business or operations of its 
customers, the possibility exists that some customers may experience problems 
that may motivate such customers to commence litigation against the Company 
for restitution and damages that may be related to such problems.

2.  DISRUPTION OF SUPPLY MATERIALS.

Several months ago, the Company began an ongoing process of surveying its 
vendors with regard to their Year 2000 readiness and is now in the process of 
assessing and cataloging the first responses to the survey. The Company is 
hopeful of receiving adequate responses from critical vendors and many 
non-critical vendors by January 31, 1999. The Company presently expects to 
work with vendors that show a need for assistance or that provide inadequate 
responses, and in many cases expects that survey results will be refined 
significantly by such work. Where ultimate survey results show that the need 
arises, the Company will arrange for back-up vendors before the changeover 
date.

3. DISRUPTION OF THE COMPANY'S INTERNAL COMPUTER SYSTEMS.

The Company has completed a scheduled upgrade of its current hardware and 
software systems and such process has required Year 2000 compliance in all 
areas. Year 2000 testing occurred as the upgrade process proceeded and, in 
addition, will continue to occur prior to the changeover date. For this 
reason, the Company considers that disruption of its internal computer 
systems is unlikely.

4. DISRUPTION OF THE COMPANY'S NON-COMPUTER SYSTEMS.

The Company is currently conducting a comprehensive assessment of all 
non-computer systems, including utility, telecommunications, delivery and 
other services. Although the Company intends to work with any third party 
providers of such services to ensure that there will be no disruption in the 
Company's operations, the Company believes that if any disruptions do occur, 
such will be dealt with promptly and will be no more severe with respect to 
correction or impact than would be an unexpected breakdown of such services 
and related equipment.

                                       12
<PAGE>

CONTINGENCY PLANS

While the Company recognizes the need for contingency planning, it has not 
yet developed any specific contingency plans for potential Year 2000 
disruptions. The aforementioned 8-step program, however, does include 
contingency planning by the Y2K Project Team and such plans, as developed, 
will be carefully reviewed by the Company. The Company believes that details 
of such plans will depend on the Company's final assessment of the problem as 
well as the evaluation and success of its remediation efforts. Future 
disclosures will include contingency plans as they become available.

                                       13
<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.  CHANGES IN SECURITIES AND USE OF PROCEEDS

In September 1998, the Company closed on a private offering with FAMCO II 
LLC, (FAMCO) a private institutional investor, and Compumedics Sleep Pty Ltd, 
(Compumedics) an Australian manufacturer of sleep diagnostic products and a 
supplier to the Company. In the offering, the Company sold 550,000 shares of 
Common Stock at a price of $1.00 per share. FAMCO purchased 300,000 shares 
for $300,000 in cash and Compumedics purchased 250,000 shares through 
conversion of $250,000 of accounts payable by the Company to Compumedics. The 
Company believes that the sales were exempt pursuant to Section 4(2) of the 
Securities Act of 1933, as amended, and Regulation D, promulgated thereunder.

The Company's Class A Stock issued to FAMCO in March and April 1997 contained 
anti-dilution provisions. As a result of the September 1998 offering, FAMCO's 
444,445 shares of Class A Stock are now convertible into 1,500,000 shares of 
Common Stock.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

        (a)      Exhibits List

        Exhibit 10.1       Fourth Amendment to Credit and Security Agreement
                           dated August 14, 1998 between the Company and Norwest
                           Business Credit, Inc.

        Exhibit 10.2       Fifth Amendment to Credit and Security Agreement
                           dated September 10, 1998 between the Company and
                           Norwest Business Credit, Inc.

        Exhibit 27         Financial Data Schedule

(b)     Reports on Form 8-K

        There were no Reports on Form 8-K filed during the quarter ended
September 30, 1998.

                                       14
<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  April 15, 1999                  /s/ Richard E. Jahnke
    ------------------------          ------------------------------------------
                                      Richard E. Jahnke, President and Chief
                                      Executive Officer (Principal Executive
                                      Officer)


Date  April 15, 1999                  /s/ Dale H. Johnson
    ------------------------          ------------------------------------------
                                      Dale H. Johnson, Chief Financial Officer
                                     (Chief Accounting Officer)

                                       15
<PAGE>



                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number        Description
------        -----------
<S>           <C>
10.1          Fourth Amendment to Credit and Security Agreement dated August
              14, 1998 between the Company and Norwest Business Credit, Inc.

10.2          Fifth Amendment to Credit and Security Agreement dated
              September 10, 1998 between the Company and Norwest Business
              Credit, Inc.

27            Financial Data Schedule.
</TABLE>

                                       16