<PAGE>

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

                         SECURITIES AND EXCHANGE COMMISSION
                                          
                               WASHINGTON, D.C. 20549
                                          
                                    FORM 10-QSB

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 000-22172
                                          
                                MIDISOFT CORPORATION
         (Exact name of small business issuer as specified in its charter)
                                          
                                          
                   Washington                           91-1345532
            (State of incorporation)       (I.R.S. Employer Identification No.)
                                          
                                          
                          1605 NW Sammamish Rd., Suite 205
                             Issaquah, Washington 98027
                      (Address of principal executive offices)
                                          
                                   (425) 391-3610
                            (Issuer's telephone number)
                                          
                                          
                                          
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

                                    Yes  X     No
                                        ---       ---

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
              Common stock, no par value; 6,387,954 shares outstanding;
                               as of October 30, 1998 

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

<PAGE>

                                MIDISOFT CORPORATION
                                INDEX TO FORM 10-QSB

<TABLE>
<CAPTION>

                                                                                       PAGE
                                                                                       ----
                                       PART I
                                          
                               FINANCIAL INFORMATION

<C>       <S>                                                                          <C>
Item 1.   Financial Statements .......................................................   3

          a)   Balance Sheets - September 30, 1998 and December 31, 1997

          b)   Statements of Operations - For the Three and Nine Months Ended  
               September 30, 1998 and 1997    

          c)   Statements of Cash Flows - For the Nine Months Ended
               September 30, 1998 and 1997

          d)   Notes to Unaudited Financial Statements 

Item 2.   Management's Discussion and Analysis of Financial Condition or 
          Plan of Operation ..........................................................   8


                                      PART II
                                          
                                 OTHER INFORMATION


Item 1.   Legal Proceedings .........................................................   13

Item 2.   Changes in Securities .....................................................   13

Item 3.   Defaults Upon Senior Securities ...........................................   13

Item 4.   Submission of Matters to a Vote of Security Holders  ......................   13

Item 5.   Other Information..........................................................   14

Item 6.   Exhibits and Reports on Form 8-K ..........................................   14


SIGNATURE ...........................................................................   15
</TABLE>

<PAGE>

ITEM 1.   FINANCIAL STATEMENTS

                                 MIDISOFT CORPORATION
                                    BALANCE SHEETS

                                        ASSETS

<TABLE>
<CAPTION>

                                                            (Unaudited)         (Audited)
                                                          At September 30,    At December 31,
                                                               1998                1997
                                                          ----------------    ---------------
<S>                                                       <C>                 <C>
Current assets:
     Cash and cash equivalents                            $     87,000        $     90,000
     Accounts receivable - net of allowances of
      $252,000 in 1998 and $493,000 in 1997                    358,000             574,000
     Inventories                                               149,000             222,000
     Prepaid expenses and other receivable                      85,000              82,000
                                                          ------------        ------------
        Total current assets                                   679,000             968,000
Long-term receivables                                          195,000             195,000
Property & equipment, net                                      137,000             239,000
Other assets                                                    78,000              50,000
                                                          ------------        ------------
        Total assets                                      $  1,089,000        $  1,452,000
                                                          ------------        ------------
                                                          ------------        ------------

                      LIABILITIES & SHAREHOLDERS' EQUITY

Current liabilities:
     Trade accounts payable                               $  1,088,000        $    969,000
     Current portion of long-term debt                         250,000             250,000
     Accrued wages & payroll taxes                             104,000             100,000
     Other accrued expenses                                    339,000             329,000
     Deferred revenue                                           25,000              30,000
                                                          ------------        ------------
        Total current liabilities                            1,806,000           1,678,000
                                                          ------------        ------------
Long-term debt, net of discount                              2,067,000             802,000
                                                          ------------        ------------
Warrant obligations                                             81,000              81,000
                                                          ------------        ------------
Shareholders' equity                                                  
     Common stock, no par value; 10,000,000 shares 
     authorized, 6,468,000 issued and outstanding in
     1998 and 6,359,000 issued and outstanding in 1997      20,167,000        $ 20,165,000
     Additional paid-in capital                              2,745,000           1,245,000
     Notes receivable from shareholders                       (191,000)           (191,000)
     Retained deficit                                      (25,586,000)        (22,328,000)
                                                          ------------        ------------
        Total shareholders' equity                          (2,865,000)         (1,109,000)
                                                          ------------        ------------
        Total liabilities and shareholders' equity        $  1,089,000        $  1,452,000
                                                          ------------        ------------
                                                          ------------        ------------
</TABLE>

                  See accompanying notes to financial statements.

<PAGE>

                                 MIDISOFT CORPORATION
                               STATEMENTS OF OPERATIONS
                                     (Unaudited)

<TABLE>
<CAPTION>

                                                                  Three Months Ended          Nine Months Ended
                                                                     September 30,              September 30,
                                                             ------------------------    --------------------------
                                                                1998           1997          1998           1997   
                                                             ---------     ----------    -----------    -----------
<S>                                                          <C>           <C>           <C>            <C>
Revenues                                                     $ 582,000     $  767,000    $ 1,336,000    $ 2,123,000
Cost of revenues                                               244,000        302,000        551,000        974,000
                                                             ---------     ----------    -----------    -----------
Gross profit                                                   338,000        465,000        785,000      1,149,000
Operating expenses:
     Sales and marketing                                       322,000        334,000        996,000      1,300,000
     General and administrative                                400,000        539,000      1,188,000      1,329,000
     Research and development                                  112,000        223,000        535,000        744,000
                                                             ---------     ----------    -----------    -----------
          Total operating expenses                             834,000      1,096,000      2,719,000      3,373,000
                                                             ---------     ----------    -----------    -----------
Operating loss                                                (496,000)      (631,000)    (1,934,000)    (2,224,000)
Interest and other income/(expense)                           (489,000)       (14,000)    (1,325,000)       (46,000)
                                                             ---------     ----------    -----------    -----------
Net loss                                                     $(985,000)    $ (645,000)   $(3,259,000)   $(2,270,000)
                                                             ---------     ----------    -----------    -----------
                                                             ---------     ----------    -----------    -----------

Net loss per share (basic)                                   $   (0.16)    $    (0.10)   $     (0.52)   $     (0.37)
                                                             ---------     ----------    -----------    -----------
                                                             ---------     ----------    -----------    -----------

Net loss per share (fully diluted)*                          $   (0.16)    $    (0.10)   $     (0.52)   $     (0.37)
                                                             ---------     ----------    -----------    -----------
                                                             ---------     ----------    -----------    -----------
* Common stock equivalents not included, as it 
would be anti-dilutive

Weighted average shares outstanding                          6,329,000      6,257,000      6,308,000      6,205,000
                                                             ---------     ----------    -----------    -----------
</TABLE>

                  See accompanying notes to financial statements.

<PAGE>

                                 MIDISOFT CORPORATION
                               STATEMENTS OF CASH FLOWS
                                     (Unaudited)

<TABLE>
<CAPTION>

                                                                 Nine Months Ended
                                                                   September 30,
                                                           ---------------------------
                                                               1998           1997
                                                           ------------   ------------
<S>                                                        <C>            <C>
Cash flows from operations:
     Net loss                                              $(3,259,000)   $(2,270,000)
                                                           -----------    -----------
     Adjustments to reconcile net loss to net cash
       provided by operating activities:
          Depreciation & amortization                          123,000        570,000
          Non-cash interest expense to APIC                  1,500,000         41,000
          (Increase) decrease in Assets:
          Accounts receivable, net                             216,000        515,000
          Inventories                                           73,000        362,000
          Prepaid expenses                                      (3,000)       (84,000)
          Other Assets, excluding $17,000 Accum. Amort.        (45,000)             -
     Increase (decrease) in Liabilities:
            Trade accounts payable                             119,000        312,000
            Accrued wages & payroll taxes                        4,000        (72,000)
            Other accrued expenses                              10,000         (5,000)
            Deferred revenue                                    (4,000)      (726,000)
                                                           -----------    -----------
               Total adjustments                             1,993,000        913,000
                                                           -----------    -----------
               Net cash used for operations                 (1,266,000)    (1,357,000)
                                                           -----------    -----------
Cash from/(used for) investments:
     Additions to plant & equipment                             (4,000)        (8,000)
                                                           -----------    -----------
               Net cash used for investments                    (4,000)        (8,000)
                                                           -----------    -----------
Cash flows from financing:
     Proceeds from issuance of long-term debt and warrants,
     net of debt issue costs                                 1,265,000        250,000
     Common stock issued                                         2,000        100,000
                                                           -----------    -----------
               Net cash provided by financing                1,267,000        350,000
                                                           -----------    -----------
Net change in cash and cash equivalents                         (3,000)    (1,015,000)
Cash and cash equivalents, beginning of year                    90,000        709,000
                                                           -----------    -----------
Cash and cash equivalents, end of period                   $    87,000    $  (306,000)
                                                           -----------    -----------
                                                           -----------    -----------
Supplemental cash flow information:
     Common stock issued in payment of interest            $         -    $    41,000
</TABLE>

                   See accompanying notes to financial statements.

<PAGE>

                                 MIDISOFT CORPORATION

                       NOTES TO UNAUDITED FINANCIAL STATEMENTS

           FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

INTERIM FINANCIAL INFORMATION

     The condensed financial statements included herein have been prepared by
Midisoft Corporation (the "Company") without audit, according to the rules and
regulations of the Securities and Exchange Commission.  Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations.  However, in the opinion of management,
the accompanying unaudited financial statements contain all adjustments
(consisting of only normal recurring accruals) considered necessary to present
fairly the results for the interim periods presented.  The accompanying
condensed financial statements and related notes should be read in conjunction
with the Company's 1997 audited financial statements included in its Annual
Report on Form 10-KSB filed April 15, 1998.

     The results of operations for the three and nine months ended September 30,
1998 are not necessarily indicative of the results to be expected for the full
calendar year.

ACCOUNTS RECEIVABLE AND MAJOR CUSTOMER INFORMATION

     Accounts receivable from Original Equipment Manufacturers (OEM) and other
resellers are summarized as follows:

<TABLE>
<CAPTION>

                                        September 30,  December 31,
                                            1998           1997
<S>                                     <C>            <C>
OEM                                      $  15,000     $  137,000
Resellers and other                        595,000        930,000
                                         ---------     ----------
   Subtotal                                610,000      1,067,000
Less:  Allowance for doubtful accounts    (103,000)      (260,000)
       Allowance for sales returns        (149,000)      (233,000)
                                         ---------     ----------
Total accounts receivable                $ 358,000     $  574,000
                                         ---------     ----------
                                         ---------     ----------
</TABLE>

     Accounts receivable consist principally of amounts due from OEMs and
reseller customers for licensing fees, royalties and direct sales of products. 
OEM customer payment terms typically are one year in duration and require
payments to be made in monthly or quarterly installments.  At September 30,
1998, OEM accounts receivable amounts not yet due were $0, compared to $16,000,
equal to 12% of OEM accounts receivable at December 31, 1997.  Reseller payment
terms typically are standardized and similar to those given software
distributors.  At September 30, 1998, reseller accounts receivable amounts not
yet due were $334,000, equal to 56% of total reseller receivables compared to
$425,000, equal to 46% at December 31, 1997.

     The Company's primary credit concentrations involve domestic and foreign
OEM and reseller customers. Foreign customers are primarily located in Western
Europe, Taiwan, Singapore, Korea and Japan.  Domestic customers comprised
$588,000 of accounts receivable at September 30, 1998, compared to $1,054,000 at
December 31, 1997.  Foreign customers comprised $21,000 of accounts receivable
at September 30, 1998 compared to $13,000 at December 31, 1997.

<PAGE>

INCOME TAXES

     No income taxes are payable at September 30, 1998, as a result of the
Company's year-to-date loss and the result of Federal net operating losses at
December 31, 1997 of approximately $22.7 million that will reduce taxes due in
future periods and expire beginning in 2008.  In certain circumstances, as
specified in the Internal Revenue Code, a 50% or more ownership change by
certain combination of the Company's stockholders during any three-year period
would result in limitations on the Company's ability to utilize its net
operating loss carry-forward. An investor who owns $2,500,000 in principal
amount of convertible debentures and associated warrants outstanding, has the
right to purchase an additional $500,000 of convertible debentures in 1998 and
an additional $1,000,000 of convertible debentures in June, 1999. If the
debenture holder were to exercise all its warrants and convert all the debt it
holds and has a right to acquire, a change in control of the Company could
result.

INVENTORIES

Inventories are summarized as follows:

<TABLE>
<CAPTION>

                                        September 30,  December 31,
                                            1998           1997  
<S>                                      <C>            <C>
Raw Materials                            $  19,000      $ 212,000
Finished Goods                             157,000         75,000
Less:  Allowance for obsolescence          (27,000)       (65,000)
                                         ---------      ---------
     Total Inventories                   $ 149,000      $ 222,000
                                         ---------      ---------
                                         ---------      ---------

</TABLE>

<PAGE>

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

     THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS FORM 10-QSB.
GENERAL

     Midisoft is a leading provider of innovative applications and utilities for
the control and use of sound on personal computers.  The Company was founded in
1986 and has developed award-winning audio software products since that time. 
Over the past 12 years the total available market for these types of products
has expanded dramatically from a very small segment of PCs used mainly by
computer hobbyists into virtually each computer that ships from every system
manufacturer. Sound on the PC has changed from a differentiating feature into a
standard component on all hardware platforms and product lines. The emergence of
the Internet has amplified this expansion and created the backbone with which
sounds, voice messages and music can now be sent globally to enhance
communication world-wide. As new technologies evolve, the Company believes it
can continue to be a premiere provider of audio control expertise.  The Company
markets its products on a worldwide basis to (i) original equipment
manufacturers (OEMs), which "bundle" one or more of Midisoft's products with
their own products, (ii) distributors and resellers, which directly supply the
retail distribution channel, (iii) end users, catalog companies, and businesses
and (iv) on-line Internet sales.

     Sales to software distributors and resellers, together with direct sales,
represented 79% and 78% of revenues in the three and nine months ended September
30, 1998, and OEM sales represented 21% and 22% during the same periods. 
International sales accounted for 14% and 8% of the Company's revenues during
the three and nine months ended September 30, 1998.  Midisoft's customer base
tends to vary from period to period as it establishes new relationships in each
of its customer segments.  During the three months ended September 30, 1998, two
different software distributors individually accounted for at least 10% of the
Company's revenues, collectively accounting for 31%.  During the nine months
ended September 30, 1998, three software distributors individually accounted for
at least 10% of the Company's revenues and together represented 33% of net
revenues for the period.

     The Company's revenues include sales of software, software licenses and
services, less returns.  Cost of revenues includes the costs of manuals,
diskettes and duplication, packaging materials, assembly, paper goods, shipping
costs, amortization of purchased software technology and amortization of
capitalized software development costs.  Cost of revenues as a percentage of
sales is lower for OEM sales than for distributor and direct sales because few
direct costs are involved.  Sales and marketing expenses consist primarily of
salaries of sales and marketing personnel, customer service and technical
support costs and advertising and promotion expenses. General and administrative
expenses consist of salaries of administrative personnel, legal and accounting
costs and general operating expenses including rent and insurance.  Research and
development expenses consist primarily of personnel and equipment costs required
to conduct the Company's development efforts.  Software development costs are
expensed as incurred, until technological feasibility is established, after
which any additional costs may be capitalized until the software is ready for
release.  Amortization of capitalized software development costs begins when the
related product is available for release to customers.  The Company has
determined that the dynamic nature of software technology precludes it from
capitalizing software development in the future.

     Revenues from sales to distributors and resellers and direct sales are
recognized when products are shipped.  The Company's software sales agreements
generally do not involve significant obligations to customers subsequent to
product delivery.  Revenues from products licensed to OEMs, consisting of
one-time license fees, are recognized at the time the software master is
delivered and when the criteria for fixed fee revenue recognition under
Statement of Position No. 97-2 "Software Revenue Recognition" are satisfied. The
Company recognizes additional royalty use or unit copy royalty fees, pursuant to
license agreements, when the Company receives payments from OEM customers.

<PAGE>

SEASONALITY

     Sales to distributors tend to be greater in the third and fourth quarter as
consumers buy software to supplement their holiday computer hardware purchases. 
OEM sales are concentrated in a small number of large customer contracts and
tend to occur sporadically.  Sales generally increase when software upgrades
become available.

NEW PRODUCTS

     MEDIAWORKS 98  In late June 1998, the Company released MediaWorks-TM- 98
v1.0, a next-generation multimedia playback application for Windows 95/98 and
NT. MediaWorks 98 provides end-users with an easy to use and extensible
audio/video player that supports most popular file types found on today's PC.
The product features an intuitive user interface with a single set of transport
controls, as well as an integrated database engine called the MediaFinder-TM-
which significantly simplifies the task of locating and managing the large
volume of media files on the typical users local system.

     The Company is marketing MediaWorks 98 to its traditional OEM customers and
prospects as a logical replacement for the Audio Pro stereo rack utility. In
addition, the Company is aggressively marketing MediaWorks 98 on its web site
(http://www.midisoft.com/html/catalog/mw98/default.htm) and on popular online
software download sites such as BuyDirect.com, ZDNet, download.com, and others. 
New versions of MediaWorks 98 are planned which take advantage of the modular,
"plug-in" architecture. The plug-in architecture allows new feature enhancements
and player modules that support additional file formats to be developed and
"registered" with  the main application.

     INTERNET MEDIA PLAYER  In July 1998, the Company formally released Internet
Media Player-TM- v3.0, a streaming media player with full support for Microsoft
Corporation's recently released NetShow v3.0.  The player provides an easy and
fast way for Internet users to find, save, organize and directly access links to
their favorite streaming content such as live radio and TV broadcasts, concert
"webcasts", on-line news and entertainment.

     Internet Media Player was a featured NetShow Partner third-party product on
Microsoft's web site and was included on two Microsoft NetShow Tools CDs
distributed to more than 50,000 commercial and corporate software developers. 
Internet Media Player is being sold and distributed to end-users online via the
Company's Web site and targeted ad banner advertising on streaming-specific web
sites.  Of particular interest to third-party customers is the ability to
"brand" Internet Media Player with corporate logos, advertising and streaming
content links, as well as the ability to automatically refresh advertising and
content via the Internet.

     MIDISOFT DESKTOP SHEET MUSIC Desktop Sheet Music 2.0 was released at the 
end of Q3 and includes significant additional functionality suggested by 
early beta users of the product.  Desktop Sheet Music provides a powerful 
tool by which users can create and publish professional sheet music using a 
personal computer.  Standard MIDI files can be imported into DSM and 
converted into high-quality music notation.

     MIDISOFT STUDIO 6.0  Midisoft Studio 6.0 is a computerized music sequencer
and the latest version of the product and category that was pioneered by
Midisoft in 1986.  It gives the user a means by which to create music, edit the
music in many ways and subsequently print it out.  Midisoft Studio
6.0 differentiates itself from other music sequencers on the market by including
the sheet music engine that powers Midisoft Desktop Sheet Music.  Competing
products from other developers in this category cannot produce the quality of
printed output that is available from Midisoft Studio 6.0.  It also was released
at the end of Q3 and includes functionality requested by early users of the beta
release.

COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 TO 1997

     This table provides comparative results of the quarters ending September
30, 1998 and 1997. A general discussion of these results follow.

<PAGE>

<TABLE>
<CAPTION>

                                       Three months ending September 30,   Nine months ending September 30,
                                              1998           1997                1998           1997
                                         % of Revenue    % of Revenue        % of Revenue   % of Revenue
<S>                                    <C>               <C>               <C>              <C>
Net Sales Revenue                             100%           100%                100%           100%
Gross Profit                                   58%            61%                 59%            54%
Sales & Marketing Expense                      55%            44%                 75%            61%
General & Administrative Expense               69%            70%                 89%            63%
Research & Development                         19%            29%                 40%            35%
Total Operating Expenses                      143%           143%                204%           159%
Net Operating Income (Loss)                   -85%           -82%               -145%          -105%
Other (Income) Expense                        -84%            -2%                -99%            -2%
Net Income (Loss)                            -169%           -84%               -244%          -107%
</TABLE>

     Revenues for the three months ended September 30, 1998 were $582,000, a
decrease of $185,000, or 24%, compared to $767,000 for the same period in 1997. 
Revenues for the first nine months of 1998 were $1,336,000, a decrease of
$787,000, or 37%, compared to $2,123,000 for the same period in 1997.  Sales to
software distributors and resellers, together with direct sales were $460,000
and $1,043,000, representing 79% and 78% of revenues in the three and nine
months ended September 30, 1998, compared to $491,000 and $1,317,000 which
represented 64% and 62% of revenues for the same period in 1997. OEM and
strategic product sales of $122,000 and $293,000 represented 21% and 22% in the
three and nine months ended September 30, 1998, respectively.  OEM and strategic
product sales of $276,000 and $806,000 represented 36% and 38% in the three and
nine months ended September 30, 1997, respectively. International sales
accounted for 14% and 8% of the Company's revenues for the three and nine months
ended September 30, 1998 and accounted for 7% and 18% for the same periods in
1997.  Sales to distributors and resellers were lower in part from higher
returns in the second quarter and lower units sales in the first nine months of
1998.  The Company believes that the decline in OEM sales is substantially
related to significant industry-wide reductions in PC prices which began in the
fourth quarter of 1997. It appears that these pricing pressures increased during
the first quarter of 1998 as a result of excess industry-wide PC inventories.
Subsequent actions by the Company's OEM customers to reduce their costs and
number of suppliers appears to have adversely affected the Company's OEM sales
during the first three quarters of 1998.  The Company has repositioned its OEM
products to work in partnership with internet providers and content aggregators.

     Gross profit for the three months ended September 30, 1998 was $338,000, a
decrease of $127,000, or 27%, compared to $465,000 for the same period the prior
year. Gross profit for the nine months ended September 30, 1998 was $785,000, a
decrease of $364,000, or 32%, compared to $1,149,000 for the same period the
prior year.  As a percentage of revenues, gross profit decreased to 58% in the
three months ended September 30, 1998 from 61% in 1997. As a percentage of
revenues, gross profit increased to 59% in the nine months ended September 30,
1998 from 54% in 1997.  Gross profits, in general, are affected by the mix of
OEM licensing revenue versus application products revenue as well as the mix
within application products.  Costs were lower in the first three quarters of
1998 compared with the same period last year due primarily to the absence of
software amortization costs.  Software amortization costs for the three and nine
months ended September 30, 1997 were $113,000 and $417,000, respectively.  These
assets were fully amortized in 1997.  Without amortization expense, cost of
revenues for the three and nine months ended September 30, 1997 would have been
25% and 26%, as compared with 42% and 41% for the same periods in 1998,
increases of 17% and 15%, respectively. Contributing to gross margin reduction
was a higher level of returns and a change in sales mix, reflecting lower OEM
sales, through the nine months of 1998 compared to the first nine months of
1997.  Also, increased cost of goods sold resulted in part from higher unit
costs on lower volumes.

     Sales and marketing expenses for the three months ended September 30, 1998
were $322,000, a reduction of $12,000, compared to $334,000 for the same period
in the prior year. Sales and marketing expenses for the nine months ended
September 30, 1998 were $996,000, a reduction of $304,000, compared to
$1,300,000 for the same period in the prior year. As a percentage of revenues,
sales and marketing expenses increased to 55% in the three months ended
September 30, 1998 from 44% for the same period in 1997. As a percentage of
revenues, sales and marketing expenses increased to 75% in the nine months ended
September 30, 1998 from 61% for the same period in 1997. The increase in these
costs as a percentage of sales resulted from lower revenues. The reduction in

<PAGE>

expenses reflects the Company's increasing emphasis on cost controls and
targeting marketing and sales efforts into direct sales channels.

     General and administrative expenses for the three months ended September
30, 1998 were $400,000, a decrease of $139,000, compared to $539,000 for the
same period of the prior year. General and administrative expenses for the nine
months ended September 30, 1998 were $1,188,000, a decrease of $141,000,
compared to $1,329,000 for the same period of the prior year. Reductions of
legal, insurance and depreciation expenses account for most of the change in the
third quarter. As a percentage of revenues, expenses for the three months ended
September 30, 1998 decreased to 69% from 70% for the same period in 1997 and for
the nine months ended September 30, 1998 increased to 89% from 63% for the same
period in 1997. The increase as a percent of sales in the first three quarters
is due to lower revenues in the first nine months of 1998. G&A expense is
comprised mainly of fixed obligations and the Company is endeavoring to reduce
these costs by restructuring certain lease agreements, reducing insurance and
other costs.

     Research and development expenses for the three months ended September 30,
1998 were $112,000, a decrease of $111,000, compared to $223,000 for the same
period the prior year.  As a percentage of revenues, research and development
expenses increased to 19% in the three months ended September 30, 1998 from 29%
for the same period in 1997. Research and development expenses for the nine
months ended September 30, 1998 were $535,000, a decrease of $209,000, compared
to $744,000 for the same period the prior year. As a percentage of revenues,
research and development expenses increased to 40% in the nine months ended
September 30, 1998 from 35% for the same period in 1997.  The Company's
continued investment in product development reflects commitments to continually
introduce new or improved products.

     Interest and other income for the three months ended September 30, 1998 was
$4,000 compared to $0 for the same period the prior year.  Interest and other
income for the nine months ended September 30, 1998 was $14,000 compared to
$7,000 for the same period the prior year.  Interest expense for the three
months ended September 30, 1998 was $495,000 compared to $14,000 for the same
period in 1997.  Interest expense for the nine month period ending September 30,
1998 was $1,312,000 compared to $53,000 for the same period the prior year, an
increase of $1,259,000.  $722,000 of this increase was a one time non-cash
charge relating to the amortization of the $1,000,000 of convertible debentures
issued in January 1998.  $432,000 of this increase was a one time non-cash
charge relating to the amortization of the $500,000 of convertible debentures
issued in July 1998.  The remaining increase in interest expense resulted from
increased borrowing in the current year.

     No income taxes are payable at September 30, 1998, the result of the
Company's year-to-date loss and the result of Federal net operating losses at
December 31, 1997 of approximately $22,676,000.  The net operating losses will
reduce taxes due in future periods and begin to expire in 2008, subject to the
change in control criteria and NOL use  limitations as specified in Internal
Revenue Code Section 382 and related code sections.

LIQUIDITY AND CAPITAL RESOURCES

     As of September 30, 1998, the Company's principal sources of liquidity
included cash and cash equivalents of $87,000 and net accounts receivable of
$358,000.  This compares to cash, cash equivalents and short term investments of
$90,000 and net accounts receivable of $574,000 at December 31, 1997.  The
decline in liquidity and capital resources is the result of negative cash flow
from operations.

     The Company's current liabilities at September 30, 1998 were $1,806,000
compared to $1,678,000 at December 31, 1997.  As of September 30, 1998, working
capital totaled a negative $1,181,000.

     The Company's operating activities used cash of $1,499,000 for the nine
month period ended September 30, 1998, reflecting an increase of $142,000
compared with the same period in 1997.  During the third quarter of 1998, the
Company's net operating activities used cash of $425,000, an increase of
$73,000, compared with the same period the prior year.

     The Company sold $500,000 of debentures on each of January 9, 1998 and
January 28, 1998, in accordance with the Securities Purchase Agreement discussed
in the Company's 10-KSB/A2 filed with the SEC on April 30, 1998. The debentures
bear interest at the rate of 1% per annum payable in cash or, at the Company's
option, in shares of common stock. Additionally, the debenture holder has the
right to purchase an additional $1,000,000 of convertible debentures in June,
1998 and again in June, 1999. In July 1998 the Company and the 

<PAGE>

debenture holder amended the Securities Purchase Agreement, with respect to 
the proposed June 15, 1998 sale of $1,000,000 of convertible debentures, to 
provide for the sale of up to $1,000,000 of Senior Convertible Secured Notes 
through December 31, 1998.  The first $500,000 of these notes are for five 
years and bear interest at the rate of one percent (1%) per annum, payable in 
cash annually on the anniversary date of the notes.  These notes are 
convertible into 2,500,000 shares of the Company's common stock.  The note 
holder will also receive five year warrants to purchase 500,000 shares of the 
Company's common stock at an exercise price of $0.75 per share.  The notes 
will be secured by first, prior and perfected interests in all intellectual 
property rights, fixed assets and contracts for product delivery.  The note 
holder has the option to purchase an additional $500,000 of notes with terms 
and conditions similar to those referenced above, prior to December 31, 1998, 
with a conversion price equal to forty-seven percent (47%) of the value of 
each share of common stock for the ten trading days prior to exercise of the 
conversion option.

     The Company sold common stock to three accredited investors for a total 
of $100,000 under stock subscription agreements in 1997.  These agreements 
originally provided for the stock purchase price to be $1.60 per share.  This 
purchase price was subsequently changed to $0.65 per share in 1998.  This 
repricing increased the number of shares to be purchased for the $100,000 
from 62,500 to 153,846 shares of common stock.

     To date, the Company has financed its operations principally through net 
proceeds from two public offerings and private placements of debt and equity. 
Cash on hand, along with cash generated from the sale of products and 
collections of accounts receivable, is not expected to be sufficient to meet 
the Company's requirements for the next 3 months. The Company's ability to 
fund continued operations depends on raising additional capital. Should the 
Company be unable to raise additional capital, the Company will be required 
to significantly reduce operations, reduce expenses, and may find it 
necessary to file for protection under the bankruptcy code. Such steps would 
likely have a material adverse effect on the Company's ability to establish 
profitable operations in the future. The Company will continue to pursue 
other financing arrangements to increase its cash reserves. There can be no 
assurance the Company will be capable of raising additional capital or that 
the terms upon which such capital will be available to the Company will be 
acceptable.

TRADE DEBT AND OTHER MATTERS

     As of September 30, 1998, the Company had $89,000 of accounts payable 
that were current, $33,000 extended to between 31 and 60 days and $853,000 
extended over 60 days. The level of extended accounts payable results from 
the Company's negative operating cash. The Company has entered into plans to 
extend payments beyond due dates in the original purchase orders. While the 
Company believes that  payment plans will continue to be accepted, there is 
no certainty that the Company will be able to continue to meet extended 
payment terms. The Company has received demand letters from certain vendors 
requesting immediate payment of amounts owing them totaling approximately 
$374,000. Ten of these vendors have initiated litigation for claims totaling 
$114,000 and seven of these have received judgments totaling approximately 
$92,000.  The Company has reached settlement agreements with some vendors and 
is negotiating with the remainder.  Some vendors have stopped making sales to 
the Company and others have required cash on delivery terms.

YEAR 2000

     The Company has identified two systems that it relies upon for its 
operations that are not currently year 2000 compliant.  Both of these 
systems' developers have made year 2000 compliant upgrades readily available. 
 The Company believes that all other systems used in its operations are year 
2000 compliant and plans to be fully compliant well before any necessary 
deadlines are approached.  The cost of the upgrades will have an immaterial 
impact on the cost of operations.  The Company is in the process of 
determining the year 2000 compliance of its critical vendors and, if 
necessary will make changes to assure an uninterrupted flow of product.

SAFE HARBOR STATEMENT:

STATEMENTS IN THIS REPORT THAT ARE NOT STRICTLY HISTORICAL ARE 
"FORWARD-LOOKING" STATEMENTS WHICH SHOULD BE CONSIDERED AS SUBJECT TO THE 
MANY UNCERTAINTIES THAT EXIST IN THE COMPANY'S OPERATIONS AND BUSINESS 
ENVIRONMENT.  THESE UNCERTAINTIES, WHICH INCLUDE ECONOMIC AND CURRENCY 
CONDITIONS, MARKET DEMAND AND PRICING, COMPETITIVE AND COST FACTORS, AND THE 
LIKE, ARE SET FORTH IN THE MIDISOFT CORPORATION FORM 10-K REPORT FOR 1997 
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

<PAGE>

                                       PART II
                                 OTHER INFORMATION
ITEM 1.   LEGAL PROCEEDINGS -

          In 1997, an entity which sold substantially all of its assets to 
          the Company in 1995 demanded that the Company arbitrate certain 
          claims arising from the sale. The claims aggregate in excess of $1 
          million. The parties reached an agreement in July 1998 outside of 
          arbitration. In exchange for the mutual release of all claims and 
          counterclaims, the Company agreed to provide consideration of 
          $420,000, $25,000 of which is cash and the remainder comprised of 
          forgiveness of $112,000 in debt and issuance of approximately 
          630,000 Midisoft common shares. The debt had been fully reserved as 
          of December 31, 1997. Midisoft agreed to file a registration 
          statement for these shares within 30 days after authorization and 
          to remove restrictive legends on 166,667 of previously issued 
          shares.

          On April 3, 1997 the Company began arbitration proceedings against a
          former customer. On September 24, 1997, the Company was awarded
          $194,983.37 against the former customer. The amount of the award
          represents the sum of 1) $160,000.00, the unpaid portion of the base
          annual license royalty under the Company's OEM License Agreement and
          2) $34,983.37, representing interest on the unpaid installments from
          their respective due dates through the date of the award computed at
          12% per annum. The Company obtained a judgment in January, 1998 and is
          awaiting the results of an appeal.

          The Company has received demand letters from certain vendors
          requesting immediate payment of amounts owing them totaling
          approximately $374,000. Ten of these vendors have initiated 
          litigation  for claims totaling $114,000 and seven of these have 
          received judgments totaling approximately $92,000.  The Company has 
          entered into payment plans with some of these vendors and is pursuing
          payment plans with others.  However, if the Company is unable to 
          arrange payment plans satisfactory to the vendors, or meet it 
          obligations under the plans arranged, further litigation may ensue.

ITEM 2.   CHANGES IN SECURITIES - None

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES - None

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

          The annual meeting of shareholders was held on October 30, 1998 near
          the Company's headquarters in Issaquah, Washington.  Matters submitted
          to the shareholders for a vote were as follows:

          ELECTION OF DIRECTORS - Mr. Larry Foster and Ms. Marsha Murry were
          reelected as directors of the Company.  Their three year terms expire
          at the 2001 annual meeting of shareholders.  Mr. Foster's nomination
          received 5,345,267 votes FOR, 295,824 votes were withheld and there
          were 186,751 broker non-votes.  Ms. Murry's nomination received
          5,337,598 votes FOR, 303,493 votes were withheld and there were
          186,751 broker non-votes.

          SELECTION OF INDEPENDENT ACCOUNTS - The selection of
          PricewaterhouseCoopers LLP as the Company's independent accounts was
          ratified.  The results of the vote were 5,593,913 FOR and 33,898
          AGAINST with 13,280 abstentions and 186,751 broker non-votes.

          PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO INCREASE THE
          AUTHORIZED COMMON SHARES TO 25 MILLION - This increase of 15 million
          shares in the authorized common shares was approved by the
          shareholders.  The results of the vote were 5,196,653 FOR and 410,788
          AGAINST with 33,650 abstentions and 186,751 broker non-votes.

          PROPOSAL TO RESERVE AN ADDITIONAL 500,000 SHARES UNDER THE 1989 STOCK
          OPTION PLAN - This proposal was defeated.  The shareholder votes were
          1,470,063 FOR and 529,468 AGAINST with 

<PAGE>

          83,509 abstentions and 3,744,802 broker non-votes.  Although the
          measure received a majority of the votes cast, a majority of the total
          outstanding shares was required for passage.

ITEM 5.   OTHER INFORMATION. - None

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

          EXHIBITS

          No. 27  - Financial Data Schedule

<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.


                                          MIDISOFT CORPORATION
                                                 (Registrant)


                                          Date: November 13, 1998

                                          BY:  \s\ Gary M. Cully
                                               ------------------------------
                                          Gary  M. Cully, Vice President of
                                          Finance and Chief Financial Officer