<PAGE>

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                       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 JUNE 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; 6,313,797 shares outstanding;
                             as of August 12, 1998

------------------------------------------------------------------------------
<PAGE>

                                MIDISOFT CORPORATION
                                INDEX TO FORM 10-QSB

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>                                                                     <C>
                                       PART I

                               FINANCIAL INFORMATION

Item 1.    Financial Statements .......................................    3

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

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

           c)   Statements of Cash Flows - For the Six Months Ended
                June 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............................................   13

Item 6.    Exhibits and Reports on Form 8-K ............................   13


SIGNATURE  .............................................................   14
</TABLE>

                                       2
<PAGE>


ITEM 1.                      MIDISOFT CORPORATION
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                     ASSETS
                                                           (Unaudited)        (Audited)
                                                           At June 30,     At December 31,
                                                               1998             1997
                                                         -------------     ---------------
<S>                                                      <C>               <C>
Current assets:
     Cash and cash equivalents                           $    176,000       $     90,000
     Accounts receivable - net of allowances of 
      $323,000 in 1998 and $493,000 in 1997                   294,000            574,000
     Inventories                                              258,000            222,000
     Prepaid expenses and other receivable                     87,000             82,000
                                                         -------------     ---------------
          Total current assets                                815,000            968,000
Long-term receivables                                         195,000            195,000
Property & equipment, net                                     163,000            239,000
Other assets                                                   96,000             50,000
                                                         -------------     ---------------
          Total assets                                   $  1,269,000       $  1,452,000
                                                         -------------     ---------------
                                                         -------------     ---------------


                          LIABILITIES & SHAREHOLDERS' EQUITY

Current liabilities:
     Trade accounts payable                              $  1,174,000       $    969,000
     Current portion of long-term debt                        250,000            250,000
     Accrued wages & payroll taxes                            116,000            100,000
     Other accrued expenses                                   314,000            329,000
     Deferred revenue                                          26,000             30,000
                                                         -------------     ---------------
          Total current liabilities                         1,880,000          1,678,000
                                                         -------------     ---------------
Long-term debt, net of discount                             1,689,000            802,000
                                                         -------------     ---------------
Warrant obligations                                            81,000             81,000
                                                         -------------     ---------------
Shareholders' equity 
     Common stock, no par value; 10,000,000 shares 
      authorized, 6,478,000 issued and outstanding 
      in 1998 and 6,359,000 issued and outstanding 
      in 1997                                              20,165,000       $ 20,165,000
     Additional paid-in capital                             2,245,000          1,245,000
     Notes receivable from shareholders                      (191,000)          (191,000)
     Retained deficit                                     (24,600,000)       (22,328,000)
                                                         -------------     ---------------
          Total shareholders' equity                       (2,381,000)        (1,109,000)
                                                         -------------     ---------------
          Total liabilities and shareholders' equity     $  1,269,000       $  1,452,000
                                                         -------------     ---------------
                                                         -------------     ---------------
</TABLE>

                  See accompanying notes to financial statements.

                                       3
<PAGE>

                             MIDISOFT CORPORATION
                           STATEMENTS OF OPERATIONS
                                 (Unaudited)

<TABLE>
<CAPTION>
                                                           Three Months Ended            Six Months Ended
                                                                June 30,                     June 30,
                                                      ---------------------------  ----------------------------
                                                          1998           1997          1998           1997
                                                      ------------   ------------  -------------  -------------
<S>                                                   <C>            <C>           <C>            <C>
Revenues                                              $   389,000    $   819,000   $    754,000   $  1,356,000
Cost of revenues                                          167,000        344,000        307,000        672,000
                                                      ------------   ------------  -------------  -------------
Gross profit                                              222,000        475,000        447,000        684,000
Operating expenses:
     Sales and marketing                                  365,000        428,000        674,000        966,000
     General and administrative                           410,000        420,000        789,000        790,000
     Research and development                             197,000        255,000        422,000        521,000
                                                      ------------   ------------  -------------  -------------
          Total operating expenses                        972,000      1,103,000      1,885,000      2,277,000
                                                      ------------   ------------  -------------  -------------
Operating loss                                           (750,000)      (628,000)    (1,438,000)    (1,593,000)
Interest and other income/(expense)                       (60,000)       (25,000)      (836,000)       (32,000)
                                                      ------------   ------------  -------------  -------------
Net loss                                              $  (810,000)   $  (653,000)  $ (2,274,000)  $ (1,625,000)
                                                      ------------   ------------  -------------  -------------
                                                      ------------   ------------  -------------  -------------

Net loss per share (basic)                            $     (0.13)   $     (0.11)  $      (0.36)  $      (0.28)
                                                      ------------   ------------  -------------  -------------
                                                      ------------   ------------  -------------  -------------

Net loss per share (fully diluted)*                   $     (0.13)   $     (0.11)  $      (0.36)  $      (0.28)
                                                      ------------   ------------  -------------  -------------
                                                      ------------   ------------  -------------  -------------
* Common stock equivalents not included, as it 
  would be anti-dilutive

Weighted average shares outstanding                     6,297,130      5,890,000      6,297,542      5,863,000
                                                      ------------   ------------  -------------  -------------
                                                      ------------   ------------  -------------  -------------
</TABLE>

                  See accompanying notes to financial statements.

                                       4
<PAGE>

                             MIDISOFT CORPORATION
                           STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                          Six Months Ended
                                                                              June 30,
                                                                    ----------------------------
                                                                        1998            1997
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
Cash flows from operations:
     Net loss                                                       $(2,274,000)    $(1,625,000)
                                                                    ------------    ------------
     Adjustments to reconcile net loss to net cash
      provided by operating activities:
          Depreciation & amortization                                    83,000         408,000
          Non-cash interest expense to APIC                             722,000          36,000
          (INCREASE) DECREASE IN ASSETS:
              Accounts receivable, net                                  280,000         677,000
              Inventories                                               (36,000)        165,000
              Prepaid expenses                                           (5,000)        (69,000)
              Other Assets                                              (46,000)              -
          INCREASE (DECREASE) IN LIABILITIES:
              Trade accounts payable                                    205,000          73,000
              Accrued wages & payroll taxes                              16,000         (46,000)
              Other accrued expenses                                    (15,000)              -
              Deferred revenue                                           (4,000)       (619,000)
                                                                    ------------    ------------
                   Total adjustments                                  1,200,000         625,000
                                                                    ------------    ------------
                   Net cash used for operations                      (1,074,000)     (1,000,000)
                                                                    ------------    ------------
Cash from/(used for) investments:
     Additions to plant & equipment                                      (5,000)         (3,000)
                                                                    ------------    ------------
                   Net cash used for investments                         (5,000)         (3,000)
                                                                    ------------    ------------
Cash flows from financing:
     Proceeds from issuance of long-term debt and warrants,
      net of debt issue costs                                         1,165,000               -
                                                                    ------------    ------------
                   Net cash provided by financing                     1,165,000               -
                                                                    ------------    ------------
Net change in cash and cash equivalents                                  86,000      (1,003,000)
Cash and cash equivalents, beginning of year                             90,000         709,000
                                                                    ------------    ------------
Cash and cash equivalents, end of period                             $  176,000     $  (294,000)
                                                                    ------------    ------------
                                                                    ------------    ------------

Supplemental cash flow information:
     Common stock issued in payment of interest                      $        -     $    36,000
</TABLE>

                  See accompanying notes to financial statements.

                                       5
<PAGE>

                              MIDISOFT CORPORATION

                    NOTES TO UNAUDITED FINANCIAL STATEMENTS

           FOR THE THREE AND SIX MONTHS ENDED JUNE 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 six months ended June 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>
                                                    June 30,     December 31,
                                                      1998           1997
                                                   ----------    ------------
<S>                                                <C>           <C>
     OEM                                           $  120,000     $  137,000
     Resellers and other                              497,000        930,000
                                                   ----------    ------------
       Subtotal                                       617,000      1,067,000
     Less:  Allowance for doubtful accounts          (196,000)      (260,000)
            Allowance for sales returns              (127,000)      (233,000)
                                                   ----------    ------------
     Total accounts receivable                     $  294,000     $  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 June 
30, 1998, OEM accounts receivable amounts not yet due were $0, compared to 
$16,000, equal to 12% of accounts receivable at December 31, 1997.  Reseller 
payment terms typically are standardized and similar to those given software 
distributors.  At June 30, 1998, reseller accounts receivable amounts not yet 
due were $284,000, equal to 57% 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 $501,000 of accounts receivable at June 30, 1998, compared to 
$1,054,000 at December 31, 1997.  Foreign customers comprised $116,000 of 
accounts receivable at June 30, 1998 compared to $13,000 at December 31, 
1997.

INCOME TAXES

     No income taxes are payable at June 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 

                                       6
<PAGE>

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 $2,000,000 in 
principal amount of convertible debentures and associated warrants 
outstanding, has the right to purchase an additional $1,000,000 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>
                                                    JUNE 30,     DECEMBER 31,
                                                      1998           1997
                                                   ----------    ------------
<S>                                                <C>           <C>
Raw Materials                                      $   93,000     $  212,000
Finished Goods                                        200,000         75,000
Less:  Allowance for obsolescence                     (35,000)       (65,000)
                                                   ----------    ------------
     Total Inventories                             $  258,000     $  222,000
                                                   ----------    ------------
                                                   ----------    ------------
</TABLE>

                                       7
<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 76% and 77% of revenues in the three and six months ended 
June 30, 1998, and OEM sales represented 24% and 23% during the same periods. 
International sales accounted for 5% and 4% of the Company's revenues during 
the three and six months ended June 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 June 30, 1998, two 
different software distributors individually accounted for at least 10% of 
the Company's revenues, collectively accounting for 39%.  During the six 
months ended June 30, 1998, three software distributors individually 
accounted for at least 10% of the Company's revenues and together represented 
39% 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.

                                       8
<PAGE>

ACQUISITIONS

     On January 28, 1998, the Company announced it had signed a letter of 
intent to acquire Passport Designs, Inc., a privately held company in Foster 
City, California.  Subsequently, the parties discontinued negotiations and 
the Company ceased activity related to the acquisition of Passport Designs, 
Inc.

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 
on-line 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 on-line 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  Although initially planned for release in 
Q2, the 2.0 version of Desktop Sheet Music is currently scheduled for release 
at the end of Q3 to enable the inclusion of significant additional 
functionality as 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 RECORDING SESSION  Midisoft SRS 2.0 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 
SRS 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 SRS.  It also has 
been rescheduled for release at the end of Q3 in an effort to include 
functionality requested by early users of the beta release.

                                       9
<PAGE>

COMPARISON OF THREE AND SIX MONTHS ENDED JUNE 30, 1998 TO 1997

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

<TABLE>
<CAPTION>
                                      Three months ending June 30,    Six months ending June 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                                 57%          58%              59%            50%
Research & Development                       51%          31%              56%            38%
Sales & Marketing Expense                    94%          52%              89%            71%
General & Administrative Expense            105%          51%             105%            58%
Total Operating Expenses                    250%         135%             250%           168%
Net Operating Income (Loss)                (193%)        (77%)           (191%)         (117%)
Other (Income) Expense                      (15%)         (3%)           (111%)           (2%)
Net Income (Loss)                          (208%)        (80%)           (302%)         (120%)
</TABLE>

     Revenues for the three months ended June 30, 1998 were $389,000, a 
decrease of $430,000, or 53%, compared to $819,000 for the same period in 
1997.  Revenues for the first six months of 1998 were $754,000, a decrease of 
$602,000, or 44%, compared to $1,356,000 for the same period in 1997.  Sales 
to software distributors and resellers, together with direct sales were 
$296,000 and $583,000, representing 76% and 77% of revenues in the three and 
six months ended June 30, 1998, compared to $558,000 and $827,000 which 
represented 68% and 61% of revenues for the same period in 1997. OEM and 
strategic product sales of $93,000 and $171,000 represented 24% and 23% in 
the three and six months ended June 30, 1998, respectively.  OEM and 
strategic product sales of $261,000 and $529,000 represented 32% and 39% in 
the three and six months ended June 30, 1997, respectively. International 
sales accounted for 5% and 4% of the Company's revenues for the three and six 
months ended June 30, 1998 and accounted for 9% and 22% 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 six 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 and second quarters of 1998.

     Gross profit for the three months ended June 30, 1998 was $222,000, a 
decrease of $253,000, or 53%, compared to $475,000 for the same period the 
prior year. Gross profit for the six months ended June 30, 1998 was $447,000, 
a decrease of $237,000, or 35%, compared to $684,000 for the same period the 
prior year.  As a percentage of revenues, gross profit decreased to 57% in 
the three months ended June 30, 1998 from 58% in 1997. As a percentage of 
revenues, gross profit increased to 59% in the six months ended June 30, 1998 
from 50% 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 second quarter of 1998 
compared with the same quarter last year due primarily to the absence of 
software amortization costs. Software amortization costs for the three and 
six months ended June 30, 1997 were $150,000 and $308,000, respectively.  
These assets were fully amortized in 1997.  Without amortization expense, 
cost of revenues for the three and six months ended June 30, 1997 would have 
been 27% and 27%, as compared with 43% and 41% for the same periods in 1998, 
increases of 16% and 14%, respectively. Contributing to gross margin 
reduction was a higher level of returns and a change in sales mix, reflecting 
lower OEM sales, through the first half of 1998 compared to the first half of 
1997.  Also, increased cost of goods sold resulted in part from recording 
reserves for potentially excess or obsolete items.

     Sales and marketing expenses for the three months ended June 30, 1998 
were $365,000, a reduction of $63,000, compared to $428,000 for the same 
period in the prior year. Sales and marketing expenses for the six months 
ended June 30, 1998 were $674,000, a reduction of $292,000, compared to 
$966,000 for the same period in the prior year. As a percentage of revenues, 
sales and marketing expenses increased to 94% in the three months ended June 
30, 1998 from 52% for the same period in 1997. As a percentage of revenues, 
sales and marketing expenses increased to 89% in the six months ended June 
30, 1998 from 71% for the same period in 1997.  The 

                                       10
<PAGE>
reduction in expenses reflects the Company's increasing emphasis on cost 
controls and targeting marketing and sales efforts into direct sales 
channels.  The increase in these costs as a percentage of sales results from 
lower revenues.

     General and administrative expenses for the three months ended June 30, 
1998 were $410,000, a decrease of $10,000, compared to $420,000 for the same 
period of the prior year. General and administrative expenses for the six 
months ended June 30, 1998 were $789,000, a decrease of $1,000, compared to 
$790,000 for the same period of the prior year. Although these expenses 
remained flat for the comparison periods, as a percentage of revenues, these 
expenses for the three months ended June 30, 1998 increased to 105% from 51% 
for the same period in 1997 and for the six months ended June 30, 1998 
increased to 105% from 58% for the same period in 1997.Again, these increases 
as a percent of sales were due to lower revenues in the first half 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 June 30, 
1998 were $197,000, a decrease of $58,000, compared to $255,000 for the same 
period the prior year.  As a percentage of revenues, research and development 
expenses increased to 51% in the three months ended June 30, 1998 from 31% 
for the same period in 1997. Research and development expenses for the six 
months ended June 30, 1998 were $422,000, a decrease of $99,000, compared to 
$521,000 for the same period the prior year. As a percentage of revenues, 
research and development expenses increased to 56% in the six months ended 
June 30, 1998 from 38% 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 June 30, 1998 was 
$3,350 compared to $500 for the same period the prior year.  Interest and 
other income for the six months ended June 30, 1998 was $10,000 compared to 
$7,000 for the same period the prior year.  Interest expense for the three 
months ended June 30, 1998 was $63,000 compared to $25,000 for the same 
period in 1997. Interest expense for the six month period ending June 30, 
1998 was $816,000 compared to $39,000 for the same period the prior year, an 
increase of $777,000. $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. The remaining increase in interest expense 
results from increased borrowing in the current year.

     No income taxes are payable at June 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 June 30, 1998, the Company's principal sources of liquidity 
included cash and cash equivalents of $176,000 and net accounts receivable of 
$294,000. 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 June 30, 1998 were $1,880,000 
compared to $1,678,000 at December 31, 1997.  As of June 30, 1998, working 
capital totaled a negative $1,065,000.

     The Company's operating activities used cash of $1,074,000 for the six 
month period ended June 30, 1998, reflecting an increase of $74,000 compared 
with the same period in 1997.  During the second quarter of 1997, the 
Company's net operating activities used cash of $295,000, a decrease of 
$59,000, 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.  On May 14, 
1998 the debenture 

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<PAGE>

holder and the Company agreed to continue discussion regarding the Company's 
capital resource needs. In this respect, the Company granted to the debenture 
holder a waiver of the Company's right to 30 day notice for funding or not 
funding the June 1998 traunch. In July 1998 the Company and the 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 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.  These shares have not yet 
been issued.

     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 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 June 30, 1998, the Company had $352,000 of accounts payable that 
were current, $98,000 extended to between 31 and 60 days and $724,000 
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 
$491,000. Eight of these vendors have initiated litigation for claims 
totaling $93,000 and three of these have received judgments totaling 
approximately $36,000.  The Company has reached settlement agreements with 
five of these eight vendors and is negotiating with the remaining three.  
Some vendors have stopped making sales to the Company and others have 
required cash on delivery terms. The Company has not yet failed to meet 
delivery commitments due to supply problems from its vendors.

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.

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<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 Company has denied the allegations and has asserted 
          counterclaims. The jurisdiction of arbitration is now uncertain.  
          The parties are pursuing a negotiated settlement. The ultimate 
          outcome of this matter cannot be determined at this time; however, 
          the Company believes it has defenses and intends to defend the 
          matter vigorously, if a settlement cannot be achieved.

          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 $491,000. Eight of these vendors have initiated 
          litigation for claims totaling $93,000 and three of these have 
          received judgments totaling approximately $36,000.  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

          The Company is in technical default of certain provisions of 
          $2,000,000 of debentures. The Lender has granted forbearance of 
          this default through December 31, 1998. Under the Securities 
          Purchase Agreement the Company is required to maintain sufficient 
          authorized and unissued shares as may be reasonably necessary to 
          effect the conversion of the debentures, including the $2 million 
          of debentures the Lender has a right to purchase in June, 1998 and 
          June, 1999. The Company does not currently have sufficient 
          authorized and unissued shares to satisfy this requirement. The 
          Company's Board of Directors has approved an increase in the number 
          of authorized shares from 10 million to 25 million shares of Common 
          Stock, subject to shareholder approval at the next annual meeting.

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.

          EXHIBITS

          No. 4.8 - Form of amendment to the Securities Purchase Agreement 
          dated June 15, 1998

          No. 27  - Financial Data Schedule

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<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: August 14, 1997



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






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