MIDISOFT CORPORATION, SB-2, 1996-12-24

MIDISOFT CORPORATION
SB-2, 1996-12-24
PREPACKAGED SOFTWARE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER __, 1996.
REGISTRATION NO. .
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MIDISOFT CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

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WASHINGTON 3679 91-1345532
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE) (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
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1605 N.W. SAMMAMISH ROAD, SUITE 205
ISSAQUAH, WASHINGTON 98027
TELEPHONE: 206/391-3610
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)

MELINDA A. BRYDEN, CHIEF FINANCIAL OFFICER
1605 N.W. SAMMAMISH ROAD, SUITE 205
ISSAQUAH, WASHINGTON 98027
TELEPHONE: 206/391-3610
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

COPY TO:

DAVID C. ROOS, ESQ.
BERLINER ZISSER WALTER & GALLEGOS, P.C.
SUITE 4700
1700 LINCOLN STREET
DENVER, COLORADO 80203
TELEPHONE: 303/830-1700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.

IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(b) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING
BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]

IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(c)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES
ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION
STATEMENT FOR THE SAME OFFERING. [ ]

IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]

CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) FEE
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COMMON STOCK(2) . . . . . . . . . . . . . . . . . . . 675,000 $2.50 $1,687,500 $511.37
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(1) ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE
PURSUANT TO RULE 457(c).
(2) TO BE OFFERED BY CERTAIN SELLING SHAREHOLDERS.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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MIDISOFT CORPORATION

CROSS REFERENCE SHEET BETWEEN ITEMS OF FORM SB-2
AND PROSPECTUS

ITEM IN FORM SB-2 LOCATION IN PROSPECTUS
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1. Front of Registration Statement and Outside
Front Cover of Prospectus. . . . . . . . . . . . . . . . . . Facing Page; Cross Reference Sheet;
Outside Front Cover Page.
2. Inside Front and Outside Back
Cover Pages of Prospectus. . . . . . . . . . . . . . . . . . Inside Front Cover Page; Outside
Back Cover Page.
3. Summary Information and Risk Factors . . . . . . . . . . . . Prospectus Summary; Risk Factors.
4. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Use of Proceeds.
5. Determination of Offering Price. . . . . . . . . . . . . . . Not Applicable.
6. Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable.
7. Selling Security Holders . . . . . . . . . . . . . . . . . . Selling Shareholders; Plan of Distribution.
8. Plan of Distribution . . . . . . . . . . . . . . . . . . . . Inside Front Cover Page; Plan of Distribution
9. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . Business - Litigation.
10. Directors, Executive Officers, Promoters
and Control Persons. . . . . . . . . . . . . . . . . . . . . Management.
11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . . Principal Shareholders.
12. Description of Securities. . . . . . . . . . . . . . . . . . Outside Front Cover Page; Capitalization;
Description of Securities.

13. Interest of Named Experts and Counsel. . . . . . . . . . . . Legal Matters; Experts.
14. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities. . . . . . . . . . . . . . . . . . . . . . . Management - Limitation of Liability and Indemnification.
15. Organization Within Last Five Years. . . . . . . . . . . . . Business; Certain Transactions.
16. Description of Business. . . . . . . . . . . . . . . . . . . Prospectus Summary; Business.
17. Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . . . . . . . . . . . . Management's Discussion and Analysis of
Financial Condition and Results of Operations.

18. Description of Property. . . . . . . . . . . . . . . . . . . Business - Facilities.
19. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . . Certain Transactions.
20. Market For Common Equity and
Related Shareholder Matters. . . . . . . . . . . . . . . . . Risk Factors.

21. Executive Compensation . . . . . . . . . . . . . . . . . . . Management - Executive Compensation.

22. Financial Statements . . . . . . . . . . . . . . . . . . . . Financial Statements.

23. Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . Not Applicable.

</TABLE>
<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

<PAGE>

SUBJECT TO COMPLETION, DATED DECEMBER __, 1996

675,000 SHARES

MIDISOFT CORPORATION

COMMON STOCK

Midisoft Corporation (the "Company") is issuing 650,000 shares of Common
Stock in connection with the settlement of a class action lawsuit (the "Class
Action") instituted against the Company and certain individual defendants by
certain purchasers of the Company's Common Stock (the "Class Members").
In addition, Raymond Bily, the Company's former Chairman and an individual
defendant in the Class Action, is transferring 25,000 shares of Common Stock
in connection with settlement of the Class Action. The 675,000 shares of
Common Stock are being issued or transferred, as the case may be, to Steve W.
Berman (the "Custodian") in his capacity as custodian for the Class Members
and their legal counsel. (Class Members and their legal counsel are sometimes
referred to herein as the "Selling Shareholders.")

The Custodian will distribute the 675,000 shares of Common Stock
to the Selling Shareholders as soon as practicable following the date
of this Prospectus. Thereafter, Selling Shareholders may offer the shares of
Common Stock distributed to them for sale as principals for their own
accounts at any time, and from time to time, in the over-the-counter market
at prices prevailing at the time of sale, commencing on the date of this
Prospectus. The Company has undertaken to keep the registration statement of
which this Prospectus forms a part current for a period of __ days from the
date hereof. The registration statement of which this Prospectus forms a
part must be current at any time during which a Selling Shareholder sells
shares of Common Stock, and a current Prospectus must be delivered to a
purchaser of the Common Stock when a Selling Shareholder sells such
securities. See "Selling Shareholders," "Description of Securities" and "Plan
of Distribution."

The Company will not receive any of the proceeds from the sale of shares
by the Selling Shareholders. The Company has agreed to pay the expenses of
registering the shares of Common Stock offered hereby. See "Selling
Shareholders."

On December 18, 1996, the closing bid price of the Common Stock was $2.50
per share. See "Price Range of Common Stock." The Company's Common Stock is
traded on the Nasdaq National Market under the symbol "MIDI".

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SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF MATERIAL RISKS WHICH
PROSPECTIVE INVESTORS SHOULD CONSIDER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1997

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS" FOR
INFORMATION PROSPECTIVE INVESTORS SHOULD CONSIDER.

THE COMPANY

Midisoft Corporation (the "Company") is a leading provider of innovative
applications for the use of sound on the personal computer (PC). The Company
was incorporated in Washington in 1986 and introduced its first product,
METATRAK, the precursor to Studio, in that year. The Company has focused its
product lines to include music learning and creativity and the integration of
sound and media in today's PC environment. The Company divides these product
lines into two development categories, music products and strategic products.
The Company's music products enable users to enjoy, explore, learn, create and
share music. The Company pioneered the development of MIDI technology,
including the ability of users to instantly view musical notation of sounds
played through a piano keyboard, or other MIDI-equipped instrument, linked to a
PC. Midisoft's strategic products promote the convergence of sound with other
technologies into the personal computer desktop. The products allow users to
enhance their computing experience, and to communicate more effectively with and
through computers. 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, and (iii) end users,
catalog companies, and businesses.

THE OFFERING

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Common Stock offered by the Selling Shareholders. . . . . . 675,000 shares
Common Stock to be outstanding after this offering. . . . . 5,345,425 shares
Use of proceeds . . . . . . . . . . . . . . . . . . . . . . The shares of Common Stock are being offered by the Selling
Shareholders. The Company will not receive any of the proceeds
from the sale of the shares of Common Stock offered hereby.
Nasdaq National Market symbol . . . . . . . . . . . . . . . MIDI
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
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1995 1994 1993 1996 1995
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Revenues . . . . . . . . . . . . . . . . . . $ 5,420 $ 4,989 $ 2,536 $ 2,161 $ 4,461
Gross profit . . . . . . . . . . . . . . . . 2,930 3,907 2,018 761 2,761
Operating income (loss) . . . . . . . . . . (12,511) (12) 165 (4,072) (6,532)
Net income (loss). . . . . . . . . . . . . . (12,132) 118 175 (3,977) (6,193)
Net income (loss) per share . . . . . . . . $ (2.60) $ .03 $ .07 $ ( .85) $ (1.37)
Weighted average shares outstanding. . . . . 4,665 3,850 2,591 4,677 4,512

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DECEMBER 31, SEPTEMBER 30,
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1995 1996
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(UNAUDITED)
BALANCE SHEET DATA:
Working capital . . . . . . . $ 3,472 $ 300
Total assets. . . . . . . . . 8,564 4,280
Shareholders' equity. . . . . 5,264 1,359
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The Company was incorporated in Washington in September 1986. Its
principal executive offices are located at 1605 North West Sammamish Road, Suite
205, Issaquah, Washington, and its telephone number is (206) 391-3610. Unless
the context otherwise requires, references in this Prospectus to the "Company"
and "Midisoft" refer to Midisoft Corporation.

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RISK FACTORS

IN EVALUATING THE COMPANY'S BUSINESS, PROSPECTIVE INVESTORS SHOULD CONSIDER
CAREFULLY THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION
PRESENTED IN THIS PROSPECTUS.

VOLATILITY OF STOCK PRICE; RESTATEMENT OF FINANCIAL STATEMENTS

Since commencing trading on July 19, 1993, the Company's Common Stock has
experienced significant price fluctuations from a high closing bid price, as
reported by Nasdaq, of $17.50 during the fourth quarter of 1994 to a low closing
bid price of $1.625 during the first quarter of 1996. The Company believes that
the decline in the price of the Common Stock reflects the public's reaction to
recent losses and, in part, the Company's announcement on July 24, 1995 that it
would restate its financial statements for fiscal year 1994 and the first
quarter of 1995. The major component of the restatement was the reversal of
revenue recognized for products shipped to resellers and distributors during
1994. Such revenues related to retail products returned by distributors during
1995 and also to retail products held at freight forwarders for shipment to
distributors subsequent to December 31, 1994. After giving effect to the
restatement, the Company had revenues of $4,989,000 and net income of $118,000,
or $.03 per share, for 1994, compared to revenues of $5,800,000 and net income
of $536,000, or $.14 per share, as previously reported. Announcements
concerning the development or distribution of new products by the Company may
also be a factor that causes price fluctuations. Other factors that may cause
the market price of the Common Stock to fluctuate include quarterly fluctuations
in results of operations, market conditions specific to the interactive
multimedia industry and market conditions in general. In addition, in recent
years the stock market in general has experienced significant price and volume
fluctuations. These fluctuations, which are often unrelated to the operating
performance of specific companies, have had a substantial effect on the market
price for many technology and small capitalization companies such as the
Company. Factors such as those cited above, as well as other factors that may
be unrelated to the operating performance of the Company, may adversely affect
the price of the Common Stock. See "Price Range of Common Stock."

RECENT LOSSES; VARIABILITY IN QUARTERLY OPERATING RESULTS

Although the Company generated net income of $48,000, $175,000 and $118,000
in 1992, 1993 and 1994, respectively, operating losses of $12,000, $12,511,000
and $4,072,000 were incurred during 1994, 1995 and the nine months ended
September 30, 1996, respectively. The Company believes that these recent losses
are attributable to delays in completing new products, an inability to market
the expanded product line, decreased orders of the Company's products by certain
distributors, increased amortization expenses associated with the capitalization
of its software and increased legal and accounting fees arising out of the
defense of a shareholder lawsuit filed against the Company in March of 1995.
See "Litigation." The Company has substantially reorganized its operations and
has refocused its resources upon the Company's core competence in sound and
music. In September 1995, the Company reduced its work force to decrease costs
as its initial step in reorganization. During the third and fourth quarter of
1995, the Company recorded charges of $2.4 million and $1.5 million,
respectively, for restructuring associated with the Company's determination that
certain software assets were not compatible with the reorganized product
strategy. The Company has taken significant steps to reduce the negative cash
flow from operations by decreasing total personnel by approximately 40%,
subleasing a portion of its facility, eliminating outside contractors and
reducing its product lines to allow maximum effectiveness of sales personnel and
marketing expenditures. There can be no assurance that the Company's
profitability will be restored or that, if restored, such profitability will be
maintained.

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The Company experiences significant fluctuations in quarterly operating
results due to a number of factors, including, among others, the size and timing
of customer orders, delays in product enhancements and new product introductions
by the Company or its competitors, quality control difficulties, market
acceptance of new products, product returns, customer order deferrals in
anticipation of new products or enhancements, reduction in demand for existing
products as a result of new product introductions, seasonality in product
purchases by distributors, resellers and end users, and pricing trends in the
software industry generally and in the markets in which the Company is active.
The Company's customers generally order on an as-needed basis and the Company
does not typically have a significant order backlog at the beginning of each
quarter. Therefore, quarterly revenues are dependent on the volume and timing
of orders received during each quarter, which may be difficult to forecast. Any
significant decrease in customer orders for any reason would have an immediate
adverse impact on the Company's operating results and its ability to maintain
profitability. The Company's business is also seasonal such that its revenues
in the second and third quarters are typically lower than during the first and
fourth quarters of each year. Any of these factors could cause quarterly
operating results to vary significantly from prior periods. The Company's
operating expenses are based in part on its estimate of future revenues and,
accordingly, the Company may be unable to adjust spending in a timely manner to
compensate for a shortfall in revenues.

POSSIBLE NEED FOR ADDITIONAL CAPITAL

As of September 30, 1996, the Company had current assets of approximately
$3.2 million, including cash and cash equivalents of $928,000. Also at
September 30, 1996, the Company had current liabilities of approximately $2.9
million, $1.5 million of which will be paid in Common Stock. The Company will
be able to fund its continuing operations only if it is successful in either
raising additional capital or achieving positive cash flow from operations.
Management believes that the corporate restructuring undertaken in 1995, the
decision to refocus the Company's resources on sound and music technologies and
the recent introduction of new products, particularly the Company's enhanced
Sound Bar product, will improve the Company's operating results and enhance its
ability to secure additional capital. However, there can be no assurance that
the Company will realize cash flow from operations or secure additional capital
on terms acceptable to the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation."

RISKS ASSOCIATED WITH DISTRIBUTION STRATEGY

The Company's sales and marketing efforts are currently focused on its
three channels of distribution: distributors and resellers, OEMs and direct
sales. Gross profit percentages generated from sales of products in each of
these channels vary significantly. To the extent the Company's sales become
concentrated in one or two of the channels of distribution, such concentration
could significantly affect the Company's profitability. OEM sales generate
higher gross profit percentages than sales through other channels since there
are minimal sales and manufacturing costs associated with OEM licenses. Greater
reliance on sales to distributors and resellers or direct sales could therefore
reduce the Company's overall gross profit percentages. Licensing revenues from
OEMs accounted for approximately 39% of the Company's total revenues in 1993,
55% in 1994, 55% in 1995 and 35% in the nine months ended September 30, 1996. A
majority of the license agreements the Company currently has with OEMs are
relatively short-term (generally one year) and typically require the OEMs to
purchase a specific number of products from the Company. Should OEMs with
existing license agreements not renew such agreements or in the event the
Company is unable to expand the number of OEM licensees, the Company's revenues
and profitability would be materially adversely affected. The insolvency or
business failure of OEM licensees, or a material increase in uncollectible
receivables generated from sales to OEMs, could have a material adverse effect
on the Company's operations.

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DEPENDENCE ON EXISTING PRODUCTS

The Company's growth and profitability are dependent on, among other
things, the Company's ability to improve the performance, and expand the market
share, of its existing products. Historically, a significant portion of the
Company's revenues has been generated from sales of its MIDI-based music
software product line. The introduction of competing software products
embodying new technologies or the emergence of new industry standards could
render the Company's existing products obsolete or unmarketable. The Company's
future success will depend upon its ability to enhance its current products to
keep pace with technological developments and to respond to evolving end-user
requirements. Should market acceptance of the Company's existing products
decline, the Company could be required to significantly alter its product lines,
which could have a material adverse effect on the Company's results of
operations. The development of additional competitive products by others could
also place price and profit margin pressure on the Company if new products or
enhancements are not introduced.

TECHNOLOGICAL CHANGE; RISKS ASSOCIATED WITH DEVELOPMENT OF NEW PRODUCTS

The markets for the Company's products are characterized by rapidly
changing technology and frequent new product introductions. Accordingly, the
Company believes its future prospects depend on its ability to develop and
introduce in a timely fashion new products that achieve market acceptance.
There can be no assurance that the Company will be able to identify, design,
develop, market or support new products successfully or that the Company will be
able to respond effectively to technological changes or product announcements by
competitors. In the past, the Company occasionally experienced delays in the
introduction of new products and product enhancements. Delays in new product
introductions or product enhancements could adversely affect the Company. There
can be no assurance that new products or product enhancements developed by the
Company will achieve market acceptance.

RISKS ASSOCIATED WITH FUTURE ACQUISITIONS

During late 1994 and the first half of 1995, the Company aggressively
pursued development and acquisition of new software products with business,
education and entertainment applications which extended beyond the Company's
core expertise in sound and music. Significant resources were expended in
attempting to acquire, develop and market these new products, including the
software products acquired from AMM and KEI. The Company's investments in AMM
and KEI were written-off during 1995, and management has returned the Company's
focus to sound and music products. Although it is not management's current
strategy to aggressively pursue acquisition of other companies, should the
Company in the future again pursue growth through acquisition, there can be no
assurance that the acquired companies, technologies and product lines will
contribute to the Company's profitability. Moreover, such acquisitions could
involve a number of risks, including the diversion of management's attention to
the assimilation of the acquired entities, adverse short-term effects on the
Company's operating results and the amortization of acquired intangible assets.
Further, the Company may in whole or in part fund acquisitions through the
issuance of Common Stock or Preferred Stock. Such issuances could result in
substantial dilution of shareholders' ownership interests in the Company.

MANAGEMENT OF GROWTH

Since 1991, the Company has experienced growth that has placed significant
demands on the Company's administrative, operational and financial resources.
Managing the Company's financial controls and systems has been a particular
challenge for the Company, and the Company has had to restate its financial
statements in the past. From 1992 through the first two quarters of 1995, the
Company significantly increased its executive, marketing, technical and support
staff. However in September 1995, the Company reduced total

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personnel by 40% and took other measures calculated to maximize effectiveness of
sales and marketing personnel and decrease the Company's negative cash flow from
operations. Failure to manage any future growth and other changes in its
business could have a material adverse impact on the Company's results of
operations and financial condition.

COMPETITION

The computer software industry is intensely competitive and is
characterized by rapid technological advances, evolving industry standards and
technological obsolescence. The Company's products currently compete in the
computer audio software markets. Many of the Company's current competitors have
longer operating histories and have greater financial, technical, sales,
marketing and other resources than the Company. In addition, there exists a
number of large, well-capitalized software companies that could, should they
choose to do so, market computer audio software in direct competition with the
Company. The Company believes that the principal competitive factors in the
market for computer software include support for various multimedia standards,
integration of computer audio with other interactive media formats, ease of use,
ease of installation and reliability, as well as price, service and support, and
market presence. Although the Company believes that it competes favorably with
respect to certain of these factors, there can be no assurance that other
present or potential competitors will not develop additional products or
alternative technologies which make the Company's products obsolete. There can
be no assurance the Company will be able to compete successfully against its
competitors or that the competitive pressures faced by the Company will not
adversely affect its financial performance.

CUSTOMER CONCENTRATION

The Company's revenues and accounts receivable have historically been
attributable to a limited number of key customers, the identity of which may
vary from year to year. To the extent the Company continues to depend upon a
limited number of key customers for a material percentage of its revenues and
accounts receivable, the loss of one or more of such significant customers could
materially adversely affect the Company's results of operations. The Company
has extended favorable credit terms to its key customers in the past and may
continue to do so in the future.

DEPENDENCE ON INTERNATIONAL SALES

The Company derived approximately 32%, 29% and 17% of its total revenues
from sales to various international customers during 1993, 1994 and 1995,
respectively and 17% of total revenues from such sales during the nine months
ended September 30, 1996. The Company expects that international sales will
continue to represent a significant percentage of its total revenues. The
Company's international operations are subject to special risks, including
exposure to regulatory requirements, political and economic instability, trade
restrictions, lengthier collection cycles and greater difficulty in accounts
receivable collection and, indirectly, currency fluctuations when such
fluctuations in the value of the U.S. dollar against local currencies causes an
effective decrease in sales revenues. A weakening in the value of foreign
currencies relative to the U.S. dollar could have an adverse impact on the
effective price of the Company's products in its international markets.

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DEPENDENCE ON KEY PERSONNEL

The Company's success will depend to a significant extent on the continued
services of its executive officers, including Larry Foster, Chairman of the
Board, President and Chief Executive Officer, Jon Scherrer, Vice President of
OEM Sales and Melinda Bryden, Vice President of Finance and Chief Financial
Officer. The loss of any one of these officers could have an adverse effect on
the Company. The success of the Company is also dependent upon its ability to
attract and retain highly qualified software developers and marketing personnel.
Competition for such personnel is intense and there can be no assurance that the
Company will be able to recruit and retain such personnel.

PROTECTION OF PROPRIETARY RIGHTS

Neither the Company nor any of its directors, officers or shareholders own
any patents or patent rights respecting products developed or marketed by the
Company or any aspect of the Company's development process. The Company relies
on a combination of copyright and trade secret protection, nondisclosure
agreements and licensing agreements to establish and protect its proprietary
rights. The Company will attempt to keep the results of its research and
development program proprietary, but may not be able to prevent others from
using some or all of such information or technology with or without
compensation. Midisoft is aware that unauthorized copying occurs within the
software industry, particularly outside the United States, and if a greater
amount of unauthorized copying of the Company's products were to occur, the
Company's operating results could be adversely affected. Should any competitor
successfully copy the Company's products, or successfully introduce and market
products that perform functions identical or similar to those performed by the
Company's products, the Company may lose some or all of any competitive
advantage which it might otherwise have had.

ABILITY TO ISSUE PREFERRED STOCK

The Company's Articles of Incorporation authorize the issuance of up to
2,500,000 shares of Preferred Stock, of which 1,100 shares were issued as Series
A Convertible Preferred Stock in October 1996. The Preferred Stock may be
issued in series with the material terms of any series determined by the Board
of Directors. Such material provisions may include dividend rights, conversion
features, voting rights, redemption rights and liquidation preferences which may
be superior to those of the Common Stock. Further, the Preferred Stock may be
issued with voting, conversion or other terms determined by the Board of
Directors which could be used to delay, discourage or prevent a change in
control of the Company. Such terms could include, among other things, dividend
payment requirements, redemption provisions, preferences as to dividends and
distributions and preferential voting rights. See "Description of Securities."

ABSENCE OF DIVIDENDS

The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company intends to retain profits, if any,
to fund growth and expansion. See "Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of restricted shares of the Company's
Common Stock in the public market could adversely affect the market price of
the Common Stock. All of the 5,345,425 shares of Common Stock outstanding as
of the date of this Prospectus are either freely tradeable or are eligible
for sale in the public market subject to compliance with Rule 144 under the
Securities Act of 1933, as amended. Rule 144 generally provides that
beneficial owners

-6-
<PAGE>

of shares who have held such shares for two years may sell within a three-month
period a number of shares not exceeding the greater of 1% of the total
outstanding shares or the average trading volume of the shares during the four
calendar weeks preceding such sale. The Company expects to issue an additional
650,000 shares of Common Stock in settlement of a shareholders' class action
lawsuit filed against the Company and certain of its former officers. Such
shares are expected to be issued to members of the class in the fourth quarter
of 1996 and thereafter registered under the Act, thereby permitting sale of the
shares in the public market. The Company may issue additional shares of Common
Stock upon the conversion of its 1,100 shares of Series A Convertible Preferred
Stock. Upon issuance, the shares of Common Stock will be eligible for resale in
accordance with the Act, including the provisions of Regulation S adopted
thereunder. See "Shares Eligible for Future Sale" and "Description of
Securities."

LIMITATION OF LIABILITY

The Company's Articles of Incorporation provide that directors of the
Company shall not be personally liable for monetary damages to the Company or
its stockholders for a breach of fiduciary duty as a director, subject to
limited exceptions. Although such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission, the
presence of these provisions in the Articles of Incorporation could prevent the
recovery of monetary damages against directors of the Company. See "Management
- - Limitation of Liability and Indemnification."

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<PAGE>

USE OF PROCEEDS

The Company will not receive any of the proceeds from the sale of Common
Stock offered hereby.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock was quoted on the Nasdaq SmallCap Market from
the initial public offering on July 19, 1993 through July 26, 1994, and since
then the Common Stock has been quoted on the Nasdaq National Market under the
symbol "MIDI". The following table sets forth the range of high and low closing
bid prices, as reported by Nasdaq, from July 19, 1993 through the quarter ended
September 30, 1996. The prices set forth reflect interdealer quotations,
without retail markups, markdowns or commissions, and do not necessarily
represent actual transactions.

HIGH LOW
---- ---
1993
----
Third quarter (commencing July 19, 1993) . . . . 9 1/4 4 1/2
Fourth quarter . . . . . . . . . . . . . . . . . 16 8

1994
----
First quarter . . . . . . . . . . . . . . . . . 13 3/4 9 1/4
Second quarter . . . . . . . . . . . . . . . . . 14 1/2 9
Third quarter . . . . . . . . . . . . . . . . . 16 1/2 10 5/8
Fourth quarter . . . . . . . . . . . . . . . . . 17 1/2 7

1995
----
First quarter . . . . . . . . . . . . . . . . . 12 1/4 8
Second quarter . . . . . . . . . . . . . . . . . 9 1/4 7 3/4
Third quarter . . . . . . . . . . . . . . . . . 8 1/4 4 1/2
Fourth quarter . . . . . . . . . . . . . . . . . 5 1/2 2 1/4

1996
----
First quarter . . . . . . . . . . . . . . . . . 3 1/4 1 5/8
Second quarter . . . . . . . . . . . . . . . . . 5 1/2 3 1/4
Third quarter . . . . . . . . . . . . . . . . . 5 1/2 3 1/4

On December 18, 1996, the closing bid price of the Common Stock was $2.50
per share.

DIVIDEND POLICY

The Company has never paid any cash dividends on its Common Stock. It is
the current policy of the Company not to pay cash dividends on the Common Stock.
Any payment of cash dividends in the future will be dependent upon the Company's
financial condition, results of operations, current and anticipated cash
requirements, plans for expansion, as well as other factors that the Board of
Directors deems relevant.

Holders of the Series A Preferred Stock are entitled to an 8% cumulative
dividend payable in Common Stock at the time of conversion. The Series A
Preferred Stock is convertible at the holder's option into shares of Common
Stock at a price which is equal to the lesser of 85% of the closing bid price as
of the date of conversion or 100% of the closing bid price of the Common Stock
as of the date of issuance of the Series A Preferred Stock. The Series A
Preferred Stock is also subject to mandatory conversion two years after its date
of issuance based upon the conversion formula described above.

-8-
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the Financial Statements and related Notes thereto appearing elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected financial data at December 31, 1994 and
1995 and for the fiscal years ended December 31, 1994 and 1995 are derived from
the financial statements of the Company which have been audited by Price
Waterhouse LLP, the Company's independent accountants, as indicated in their
report included herein. The selected financial data as of September 30, 1996
and for the nine-month periods ended September 30, 1995 and 1996 have been
derived from the Company's unaudited financial statements which, in the opinion
of management, reflect all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the results for these periods
and as of this date. The selected financial data provided below is not
necessarily indicative of the future results of operations or financial
performance of the Company.

YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1995 1994 1996 1995
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues . . . . . . . . . . . . . . . . . . . . $ 5,420 $ 4,989 $ 2,161 $ 4,461
Cost of revenues . . . . . . . . . . . . . . . . 2,490 1,082 1,400 1,700
------------ ------------ ------------ ------------
Gross profit . . . . . . . . . . . . . . . . . . 2,930 3,907 761 2,761
------------ ------------ ------------ ------------
Operating expenses:
Research and development . . . . . . . . . . . 1,787 617 666 1,222
Sales and marketing. . . . . . . . . . . . . . 4,097 2,142 2,459 2,948
General and administrative . . . . . . . . . . 4,015 1,160 1,708 2,754
Restructuring charge . . . . . . . . . . . . . 3,898 -- -- 2,369
Settlement of shareholder litigation . . . . . 1,644 -- -- --
------------ ------------ ------------ ------------
Total operating expenses . . . . . . . . . . . . 15,441 3,919 4,833 9,293
------------ ------------ ------------ ------------
Operating loss . . . . . . . . . . . . . . . . . (12,511) (12) (4,072) (6,532)
Interest income, net . . . . . . . . . . . . . . 379 183 95 339
------------ ------------ ------------ ------------
Net income (loss) before taxes . . . . . . . . . (12,132) 171 (3,977) (6,193)
Provision for income taxes . . . . . . . . . . . -- (53) -- --
------------ ------------ ------------ ------------
Net income (loss). . . . . . . . . . . . . . . . $ (12,132) $ 118 $ (3,977) $ (6,193)
Net income (loss) per share. . . . . . . . . . . $ (2.60) $ .03 $ (.85) $ (1.37)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares outstanding. . . . . . . 4,665 3,850 $ 4,677 $ 4,512
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

</TABLE>

DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1995 1994 1996
---------- ---------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital . . . . . . . . $ 3,472 $ 13,176 $ 300
Total assets . . . . . . . . . . 8,564 16,764 4,280
Shareholders' equity. . . . . . 5,264 14,966 1,359

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<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company's revenues include sales of software, software licenses and
services, net of sales returns. Cost of revenues includes the costs of manuals,
diskettes and duplication, packaging materials, assembly, paper goods, shipping,
royalty payments and amortization of software development costs.

Research and development expenses consist primarily of personnel and
equipment costs required to conduct the Company's development effort. Software
development costs are expensed as incurred, until technological feasibility is
established, after which any additional costs are capitalized until the software
is available for release to customers. Capitalized software development costs
represent software product development and product enhancements consisting of
salaries and related benefits, incurred internally in developing computer
software after technological feasibility has been established. Amortization of
capitalized software development costs begins when the related product is
available for release to customers. The Company capitalized software development
costs of approximately $331,000 and $425,000 during the years ended December 31,
1995 and 1994, respectively. Based on the highly competitive nature of the
software business resulting in dynamic product life cycles, the Company expects
to see a continued reduction in the amount of development costs capitalized.
Purchased contract software technology costs represent contract software
development costs incurred by contract software engineers in developing computer
software. The Company capitalized contract software technology costs of
approximately in $1,069,000 and $1,155,000 during the years ended December 31,
1995 and 1994, respectively. The Company has eliminated contract development,
intending to focus on maintaining development expertise within the Company. No
software costs were capitalized in the nine-month period ended September 30,
1996.

Revenue from products licensed to OEMs consisting of one-time license fees
and contracts for minimum advances against future unit licenses are recognized
when the criteria for fixed fee revenue recognition under Statement of Position
No. 91-1 "Software Revenue Recognition" ("SOP 91-1") is satisfied. These
criteria include, but are not limited to, delivery of the software master, the
Company's lack of other significant obligations to the customer and a
determination that the collectibility of the amount due is probable. Contracts
that do not meet the fixed fee revenue recognition criteria in SOP 91-1 are
deferred and only recognized as revenue on the installment basis as payments are
received. Additional royalty use or unit copy royalty fees are recognized when
they are earned pursuant to the license agreements upon receipt of payment.
Revenue from sales to distributors, other resellers and end-users is recognized
when products are shipped, net of sales returns.

In September, 1995 the Company reduced its work force to decrease costs as
its initial step in reorganization. During the third and fourth quarters of
1995, the Company recorded charges of $2.4 million and $1.5 million,
respectively, for restructuring associated with the Company's determination that
certain software assets were not compatible with the reorganized product
strategy. Steps taken by the Company to reduce the negative cash flow from
operations included decreasing total personnel by 40%, subleasing a portion of
its facility, eliminating outside contractors and reducing its product line to
allow maximum effectiveness of sales personnel and marketing expenditures. The
Company's entire research and development, marketing and sales efforts have been
refocused upon the Company's core competence in sound and music.

At December 31, 1995, the Company had a Federal net operating loss
carryforward of approximately $11.3 million, which expires between 2008 and
2010. In certain circumstances, as specified in the Internal Revenue Code, a
50% or more ownership change by certain combinations of the Company's
shareholders during any three-year period would result in limitations on the
Company's ability to utilize its net operating loss carryforward. The value of
the Company's stock at the time of the ownership change is the primary factor in
determining the annual limitation on the Company's ability to utilize its net
operating loss carryforward.

-10-
<PAGE>

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO 1995

Revenues for the nine months ended September 30, 1996 were $2,161,000, a
decrease of $2,300,000 or 52%, compared to $4,461,000 for the same period in the
prior year. This decrease was due to a reorganization and retraining of the
Company's sales personnel and the mid-year introduction of four of the Company's
current products. Sales to software distributors and resellers, together with
direct sales were $1,415,000, representing 65% of revenues in the nine months
ended September 30, 1996, while such sales represented 38% of revenues for the
same period in 1995. OEM sales of $746,000 represented 35% of revenues in the
nine months ended September 30, 1996, while such sales represented 62% of
revenues for the same period in 1995. International sales accounted for 17% of
the Company's revenues for the nine months ended September 30, 1996 and
accounted for 19% for the same period in 1995. Four new products were released
by the Company at the end of July, 1996. The Company expects the release of
these products will increase domestic distributor sales. One of these products
is also expected to favorably impact OEM domestic and international revenues.

Gross profit for the nine months ended September 30, 1996 was $761,000, a
decrease of $2,000,000 as compared with the same period in the prior year. As a
percentage of revenues, gross profit decreased to 35% in the nine months ended
September 30, 1996 from 62% in 1995. The reduced gross profit percentages for
the nine month period was primarily the result of a change in the product mix to
increased sales to distributors versus higher profit margin sales to OEMs.
Software amortization costs for the nine months ended September 30, 1996
decreased to $621,000 as compared with $764,000 for the same period in the prior
year, primarily due to the write-down of capitalized software in the third and
fourth quarters of 1995.

Sales and marketing expenses for the nine months ended September 30, 1996
were $2,459,000, a decrease of $489,000 compared to $2,948,000 for the same
period in the prior year. As a percentage of revenues, sales and marketing
expenses increased to 114% in the nine months ended September 30, 1996 from 66%
for the same period in 1995 due to the decline in revenues. The sales and
marketing expenses incurred during the nine months ended September 30, 1996
represent the base level of personnel, travel and advertising expenses necessary
to sell the current product lines.

General and administrative expenses for the nine months ended September 30,
1996 were $1,708,000 a decrease of $1,046,000, compared to $2,754,000 for the
same period in the prior year. As a percentage of revenues, these expenses for
the nine months ended September 30, 1996 increased to 79% from 62% for the same
period in 1995 due to the decline in revenues. The Company believes that
expenses incurred during the nine months ended September 30, 1996 represent base
levels for the Company's general and administrative expenses.

Research and development expenses for the nine months ended September 30,
1996 were $666,000, a decrease of $556,000, compared to $1,222,000 for the same
period in the prior year. As a percentage of revenues, research and development
expenses increased to 31% in the nine months ended September 30, 1996 from 27%
for the same period in the prior year. Research and development costs in 1995
were substantially higher as the result of efforts to diversify the product line
in the second and third quarters of that year. Such expenses declined in the
nine months ended September 30, 1996 due to the decision of management to
concentrate the Company's efforts on its core competence in sound and music.

The Company incurred a restructuring charge of $2,369,000 for the nine
months ended September 30, 1995 due to a writedown of capitalized software
assets to net realizable value, again, resulting from management's decision to
refocus its efforts on sound and music products.

Interest and other income for the nine months ended September 30, 1996 was
$95,000, compared to $339,000 for the same period the prior year. The decrease
in income is the result of the reduction of investments caused by the negative
cash flow from operations of the Company.

-11-
<PAGE>

No income taxes are payable at September 30, 1996, as the Company has
sustained a year-to-date loss and has Federal net operating losses at December
31, 1995 of approximately $11,300,000. The net operating losses are available,
subject to limitation, to reduce taxes due in future periods but begin to expire
in 2008.

YEARS ENDED DECEMBER 31, 1995 AND 1994

Revenues for 1995 were $5.4 million, an increase of $400,000, or 8%
compared to $5.0 million in 1994. Sales to software distributors and resellers,
together with direct sales, and the OEM sales remained unchanged from 1994 at
45% and 55% of revenues respectively. International sales accounted for 17% of
the Company's revenues in 1995 compared to 29% of revenues in 1994. The lack of
significant revenue growth was the result of delayed new product introduction, a
defocused product mix and the complete restructure of senior management.

Gross profit for 1995 was $2.9 million, a decrease of $1.0 million, or 26%,
compared to $3.9 million for the prior year. As a percentage of revenues, gross
profit decreased to 54% in 1995 from 78% in 1994. The decrease was primarily due
to increased amortization of purchased software technology, purchased contract
software technology and capitalized software development costs and royalty
payments which totaled $1.1 million or 20% of revenue compared to $232,000, or
5% of revenue in 1994.

Research and development expenses for 1995 were $1.8 million, an increase
of $1.2 million, or 192%, compared to $617,000 for 1994. As a percentage of
revenues, research and development expenses were increased to 33% in 1995 from
12% in 1994. The dollar amount increase was primarily due to an increase in
research and development personnel to 27 by the end of the third quarter of 1995
from 17 in 1994. Additionally, the Company paid outside contractors $1.5 million
of which $600,000 was expensed in 1995 and the remainder capitalized as software
development costs. There were no significant outside contractor fees expensed in
1994.

Sales and marketing expenses for 1995 were $4.1 million, an increase of
$2.0 million, or 95%, compared to $2.1 million for 1994. As a percent of
revenues, sales and marketing expenses were increased to 76% in 1995 from 43% in
1994, primarily due to the hiring of seven salespeople in connection with
software product acquisitions completed during the first half of 1995. Neither
product was successfully integrated in the Company's product line, resulting in
negligible sales.

General and administrative expenses for 1995 were $4.0 million, an increase
of $2.8 million, or 233%, compared to $1.2 million for 1994. As a percentage of
revenues, these expenses for 1995 increased to 74% in 1995 from 23% in 1994. The
increase in 1995 was comprised substantially of $1.2 million increase in the bad
debt reserve and $863,000 in legal and other professional fees incurred in
defense of the shareholder class action lawsuit, financial statement restatement
and a separate action brought by Timothy Bosserman, a former employee of the
Company. Additionally, the Company incurred $120,000 in recruiting fees for the
build up of employees through the third quarter of 1995, $222,000 for the
settlement of the BOSSERMAN litigation and $98,000 in increased costs of the new
headquarters facility. Finally, the Company's reorganization and
reduction-in-force resulted in approximately $100,000 in severance payments.

Interest and other income for 1995 was $379,000, compared to $183,000 in
1994. Interest income for 1995 reflects increased amounts of cash invested in
money market accounts and certificates of deposits as a result of the Company's
mid-1994 public offering of Common Stock.

There were no income taxes provided in 1995, compared to $53,000 in 1994.
At December 31, 1995, the Company had federal income tax net operating losses of
approximately $11.3 million that expire beginning in 2008.

-12-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1996, the Company's principal sources of liquidity
included cash and cash equivalents of $928,000 and net accounts receivable of
$1,471,000. This compares to cash, cash equivalents and short term investments
of $3,683,000 and net accounts receivable of $2,329,000 at December 31, 1995.
The decline in liquidity and capital resources is due largely to negative cash
flow from operations as the result of unprofitable business decisions made in
1995 and the subsequent need for current management to restructure the Company
and its product lines. Management believes that the Company has established
appropriate allowances for doubtful accounts and returns. The Company's
liquidity improved subsequent to September 30, 1996 as a result of the private
placement completed in October 1996, as described below.

The Company's current liabilities at September 30, 1996 were $2,921,000
compared to $3,300,000 at December 31, 1995. The Company has had no long term
debt since inception, and has no present commitments or agreements that could
require any long-term debt to be incurred. As of September 30, 1996, working
capital totaled $1,844,000, excluding accrued expenses of $1,544,000 to be
satisfied through the issuance of common stock.

Historically, the Company has relied on external sources of liquidity and
the existing cash and cash equivalents consisting largely of proceeds remaining
from the 1994 public offering. Although the current rate of cash consumption
has decreased from the third and fourth quarters of 1995, the Company's future
viability is dependent on the success of its latest product releases or on its
ability to obtain additional financing, none of which can be assured.

The Company is dependent to a material degree on OEM sales. These sales
are concentrated in a small number of large customer contracts and tend to occur
sporadically. OEM sales were adversely affected during the quarter ended March
31, 1996 by a reorganization of the Company's sales department and in the second
quarter by the Company's anticipated release of SOUND BAR, the primary OEM
product, which was released in July, 1996. If the Company is unable to close
significant OEM contracts in the future, its results of operations and liquidity
will be materially affected.

The Company's operating activities used cash of $2,768,000 for the nine
month period ended September 30, 1996, reflecting increased cash flow needs as a
result of the introduction of new products during the third quarter. The
primary components of changes in cash flow from operations were net operating
losses of $3,977,000 and a decrease in current liabilities of $379,000 mitigated
principally by a decrease in gross receivables of $1,277,000.

Cash from investments was $1,540,000 for the nine months ended September
30, 1996, consisting of the redemption of short term investments. Cash used for
investments totaled $59,000 for the same period. These investments consisted of
additions to equipment.

In October, 1996, the Company raised $1,100,000 through the sale of 1,100
shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock").
All 1,100 shares were issued at a price of $1,000 per share in an offshore
private placement made to two investors. The Series A Preferred Stock is
convertible at the holder's option into shares of Common Stock at a price which
is equal to the lesser of 85% of the closing bid as of the date of conversion or
100% of the closing bid price of the Common Stock as of the date of issuance of
the Series A Preferred Stock. The holders have the right to convert one-third
of their shares commencing 60 days after the date of issuance; one-third of
their shares commencing 90 days after the date of issuance; and one-third of
their shares commencing 120 days after the date of issuance. The Series A
Preferred Stock is also subject to mandatory conversion two years after its date
of issuance based upon the conversion formula described above. Holders of the
Series A Preferred Stock are entitled to an 8% cumulative dividend payable in
Common Stock at the time of conversion. At the time of conversion, the Company
is also obligated to issue one warrant (the "Warrant") with respect to each
share of Common Stock which is issued. Each Warrant will entitle the holder to
purchase one share of Common Stock at a price equal to 200% of the closing bid
price of the Common Stock as of the date of issuance of the Series A Preferred
Stock. The Warrants will be exercisable for two years.

-13-
<PAGE>

SEASONALITY

The Company's business has demonstrated some seasonality in product
purchases by distributors, resellers and end users, which tends to create
fluctuations in quarterly operating results. The Company's revenues in the
second and third quarters are typically lower than during the first and fourth
quarters of each year. While the effect of this seasonality on the Company's
operating results has been obscured in the past by trends in the Company's
revenues, seasonality could cause quarterly operating results to vary from prior
periods.

INFLATION

When faced with increases in operating costs due to inflation, the Company
has implemented cost control measures intended to contain or reduce its
expenses. However, the Company cannot predict its ability to control future
cost increases. See "Business."

FORWARD-LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and such statements are subject to the safe
harbors created thereby. These forward-looking statements include the plans and
objectives of management for future operations, including plans and objectives
relating to (i) the development of new music and strategic software products,
(ii) the expansion of domestic and international marketing, sales and
distribution programs, (iii) the continued protection of proprietary
technologies and (iv) the ability to fund operations during the next 12 months
out of existing working capital. The forward-looking statements included
herein are based on current expectations that involve a number of risks and
uncertainties. These forward-looking statements are based on assumptions that
the Company will continue to develop and introduce new music and strategic
software products on a timely basis, that rapid changes in technology will not
make the Company's products obsolete or otherwise reduce their ability to
compete in the marketplace, that competitive conditions within the industry
would not change materially or adversely, that the use of multimedia PCs in
homes and small offices will continue to grow, that management's decision to
re-focus the Company's resources on music and sound products will reduce
certain expenses from the levels which were experienced in 1995, and that there
will be no material adverse change in the Company's operations or business.
Assumptions relating to the foregoing involve judgments within respect to,
among other things, future economic, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although
the Company believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate, and
there can be no assurance that the forward-looking information will prove to be
accurate. In light of the significant uncertainties inherent in the forward-
looking information included herein, the inclusion of such information should
not be regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.

-14-
<PAGE>

BUSINESS

GENERAL

Midisoft is a leading provider of innovative applications for the use of
sound on personal computers ("PCs"). The Company was incorporated in Washington
in 1986 and introduced its first product, METATRAK, the precursor to MIDISOFT
STUDIO in that year. The Company has focused its product lines to include music
learning and creativity and the integration of sound and media in today's PC
environment. The Company divides these product lines into two development
categories, strategic products and music products.

Midisoft's strategic products promote the convergence of sound with other
technologies onto the personal computer. The products allow users to enhance
their computing experience and to communicate more effectively with and through
computers. The Company believes that sound will play an increasing role in all
aspects of computer communications and the Company will continue to develop
products that expand and leverage the use of computer telephony and the
Internet. The Company's MIDISOFT MEDIAWORKS 2.0 gives Original Equipment
Manufacturers ("OEMs") increased system value with its inclusion of
communications, media integration and audio editing tool suites accessible
through an attractive and inviting graphically enhanced social interface.

Midisoft released MIDISOFT SOUNDBAR, an important new strategic product in
late July. MIDISOFT SOUNDBAR brings the user single-click control of Windows
sound and digital voice communications in a simple integrated task bar. MIDISOFT
SOUNDBAR incorporates Audio Mail-TM- and Audio Notes-TM- to attach sound to
documents or as a communication tool just like e-mail, but with the impact of
sound. With the addition of AT&T's WorldNet Service, MIDISOFT SOUNDBAR provides
value-added access to the Internet.

The Company's music products enable users to enjoy, explore, learn, create
and share music. The Company pioneered the development of MIDI technology,
including the ability of users to instantly view musical notation of sounds
played through a piano keyboard, or other MIDI-equipped instrument, linked to a
PC. The Company believes that its next generation of music tools will open the
world of music to a significantly wider group of novice users and expand the
market for its products. MIDISOFT PLAY PIANO displays features with not only one
of the most "consumer friendly" user interfaces in learning software, but also
new technology that allows it to surpass competing products. The Company's
strength as a MIDI technology leader is best illustrated by MIDISOFT PLAY
PIANO's ability to import a MIDI file and then create a custom lesson plan to
teach the song. The Company released an upgraded version, MIDISOFT PLAY PIANO
2.0 on July 31, 1996.

Another new music offering released July 31, 1996 is MIDISOFT FAMILY MUSIC
CENTER which launches the Company into a market with significant new
opportunity. The MIDISOFT FAMILY MUSIC CENTER is an all-in-one music solution,
incorporating everything the user needs to create music or learn music basics.
It includes the Company's award winning software, MIDISOFT PLAY PIANO 2.0 and
MIDISOFT STUDIO 4.0 , a how-to-video, MIDI keyboard and MIDI cable.

MARKET OVERVIEW

Early generations of personal computers had either very limited or, in many
cases, no audio capability. The multimedia computer boom of the early 1990's
brought the audio capabilities of high quality, low cost sound cards to the
average home computer. The enhanced audio capabilities of today's personal
computer make software applications informative, entertaining, interactive and
easier to use and it is clear that such audio capabilities will continue as a
standard component of all PCs in the future. The Company believes that the
following trends are important to the continued growth in the use of sound on
personal computers and the expansion of its targeted markets.

- Integration of sound chips into PC motherboards as standard
components

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<PAGE>

- Increases in the quality of wave audio with the migration of sound
card and chip resolution from 8 bit to 16 bit

- Substantial improvement in the quality and richness of MIDI playback
on sound cards with the introduction of wavetable synthesis

- Continued increases in microprocessor speeds and the introduction of
the Windows 95 multi-tasking, multi-threaded operating system which
expands the range of music and sound processing options available to
software developers

- Integration of high speed (14.4 Kbits/sec and 28.8 Kbits/sec) modems
into PCs

- Exponential growth of the Internet and the Intranet with rapid
improvement in the tools that make all forms of communication on the
Internet/Intranet possible

- Introduction of voice modems which allow the computer to be used as a
telephone

Further, OEM customers are increasingly licensing system software products
so that they can release products to market faster, increase product content and
reduce or eliminate product development risks and costs. Price competition and
time to market pressures are creating this trend by OEMs to outsource system
software to third parties. The Company believes that it may benefit from this
trend.

The significant growth of home computer usage, coupled with the fact that
there are approximately 62 million amateur musicians in the U.S., suggests that
music, a non-traditional segment of the computer industry is poised for
expansion.

INTERNET According to the Audit Bureau of Circulation, approximately 33%
of US homes have PCs and 75% of those have modems. Therefore 24% could go
online today but only 6% actually use online services. Altogether this
translates to a significant opportunity for growth. Midisoft's alliance with
AT&T will assist the Company in pursuing this market aggressively.

INTRANET According to NETGUIDE, 16% of US businesses already have
installed intranets, and another 50% are in the process of evaluating their
intranet options, if not planning to build their own intranets. Some analysts
predict the ratio will be four intranet servers for every Internet server. As
many organizations have learned, one of the most significant and noticeable
benefits to an intranet is the increased productivity that results from quick,
companywide communications and data sharing. Sharing files and exchanging
messages have been the central functions of networks since their inception, but
Web-based intranets provide a quick connection and a simple interface that no
other information-sharing system can match. This will be the initial market
focus of SOUNDBAR as an advanced communication tool.

AUDIO ENABLED PCS Mercury Research, a leading analyst for the PC audio
market, estimates that the number of PC units with audio shipped worldwide will
nearly quadruple in five years - from 45 million in 1996 to 160 million in 2000.
These existing market conditions, combined with the Company's 10 years of sound,
audio and music experience present a tremendous opportunity for the Company.

PRODUCTS AND PRODUCT DESIGN

Historically, the Company has focused on developing software to create and
manipulate sound and music in the Windows environment. The 1991 adoption of the
Multimedia Personal Computer ("MPC") standard, which established hardware and
software industry standards for multimedia computers, established MIDI as a
required component of a multimedia system. Following the adoption of the MPC
standard, the Company introduced MIDISOFT STUDIO FOR WINDOWS, a program using
MIDI components for composing, playing and editing music. In 1993, the Company
expanded its product line by providing audio command and control

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<PAGE>

software tools which it sold through its OEM and retail channels. These tools
allow users to manipulate wave audio, MIDI and CD-Audio files using the familiar
user interface of a home stereo system.

In 1995, Midisoft introduced MIDISOFT MEDIAWORKS, a product which features
a graphical social interface that resembles a home office and leverages the
integration of sound and audio with computer telephony. MIDISOFT MEDIAWORKS
simplifies the use of the computer by providing quick and useful access to the
advanced hardware utilized by OEMs such as Acer, Compaq, IBM and NEC. This new
PC platform is targeting the increasing SOHO (Small Office/Home Office) market
which requires sound and audio integrated with video and a wide range of
computer communications for business and personal use, including telephony,
speakerphone, voicemail, fax and data communications.

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The following table provides the name, a short description, the target
markets and channels of distribution for the Company's 1996 product line:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------

MARKET INT'L CHANNELS
PRODUCT DESCRIPTION OEM
CONSUMER RETAIL
BUSINESS DIRECT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STRATEGIC PRODUCTS

MUSIC PRODUCTS

- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
The first Windows 95 logo'd music application.
MIDISOFT Studio features real-time notation display of MIDI X X X X
STUDIO 4.0 input, as well as innovative software and multi-track
digital audio recording and playback. MIDISOFT STUDIO
includes six screen views to enhance the user's
ability to fine tune their music, and a professional
quality digital audio editor.
- ------------------------------------------------------------------------------------------------------------------------------------
MIDISOFT This product incorporates MIDISOFT PLAY PIANO and
FAMILY MUSIC MIDISOFT STUDIO with a high quality keyboard, MIDI X X X X
CENTER connector and a Connect and Play video to become an
JULY, 1996 all-in-one music solution.
- ------------------------------------------------------------------------------------------------------------------------------------
The MIDI Kit's universal MIDI connector and MIDI
MIDISOFT editor allow the sound card owner to transform a PC X X X X X
MIDI KIT 3.0 into a recording studio. Cables connect the PC's
JULY, 1996 sound card to a MIDI musical instrument. Recording
Session Plus provides immediate MIDI recording,
composing and editing capability, as well as digital
audio recording.
- ------------------------------------------------------------------------------------------------------------------------------------
This product features a mixture of both core Midisoft
MIDISOFT technologies and new proprietary technologies to X X X X X
PLAY PIANO 2.0 create a truly interactive learning experience.
JULY, 1996 Lessons are created in real-time, based on the
student's needs. Any MIDI file can be imported and
Play Piano's artificial intelligence agents instantly
turn it into a custom lesson for the student. The
product ships with 40 songs and over 400 activities.
- ------------------------------------------------------------------------------------------------------------------------------------
This MIDI sequencer was originally created to serve
MIDISOFT the needs of OEM customers. Its many features allow X X X X
RECORDING flexibility in editing, recording and playback using
SESSION MIDISOFT STUDIO'S proprietary auto-notation and
animated note highlighting. It is available
translated in other languages including: German,
French, Spanish and Japanese.
- ------------------------------------------------------------------------------------------------------------------------------------
MIDISOFT This product is an OEM interactive tutorial on music
MUSIC MENTOR history and fundamentals, illustrated with hundreds X X X
MAESTRO of screens and musical examples.
- ------------------------------------------------------------------------------------------------------------------------------------
This MIDI sequencer was created to serve the needs of
MIDISOFT OEM customers. Its features include the ability to X X X X
RECORDING record digital audio and place lyrics within a
SESSION PLUS musical score. It also features Midisoft's
proprietary auto-notation and animated note
highlighting.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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<PAGE>

The Company's current product line reflects certain fundamental changes in
the Company's business strategy. During late 1994 and the first half of 1995,
the Company aggressively pursued development and acquisition of new software
products with business, education and entertainment applications which extended
beyond the Company's core expertise in sound and music. Significant resources
were applied in attempting to acquire, develop and market these new products
with limited success. In particular, the Company invested $2.1 million during
1995 in acquiring software products from AskMe Multimedia, Inc. and Knowledge
Engineering, Inc. Both of these investments, and others were written-off by
year end 1995.

Current management has therefore returned the Company's focus to sound and
music products. As a result, certain products which were marketed by the
Company during all or a portion of 1995 are now being licensed to third party
publishers. This strategy is intended to allow the Company to focus on its
principal products and markets, while creating an opportunity to realize license
fees on the ancillary products without incurring sales and marketing expense.

MARKETING

The Company's integrated marketing efforts are designed to increase
awareness and end-user demand for its products in the consumer and business
marketplaces by differentiating the Company's products from those of its
competitors.

RETAIL. The Company's marketing effort is focused on communicating the
quality of its products and the growth of the music and audio segments to retail
distributors, store managers and sales personnel. Marketing activities combine
media advertising, direct mail, catalogs, public relations events and trade
shows.

CONSUMER. The Company's products are segmented into audio and music.
Marketing activities for both segments combine media advertising, direct mail,
catalogs, public relations events and trade shows. The Company will begin using
radio to promote its newly released SOUNDBAR to gain brand name recognition for
the product.

Audio Segment: SOUNDBAR is the Company's first consumer and corporate audio
product. The Company will focus on Win95 corporate users and the SOHO market,
with emphasis on the emerging Internet and Intranet user in its initial
marketing efforts. An agreement with AT&T provides the Company with joint
marketing activities including "Alliance" links to the AT&T internet home page,
tradeshow and sweepstakes participation.

Music Segment: The Company believes that music software publishers have
identified and captured only a small percentage of the total consumer population
interested in music software. To contact and expand this percentage, the
Company has created print media and direct mail that educates users about MIDI
and emphasizes the power and ease of use of Midisoft's software.

OEM. This channel requires a marketing approach customized to each
prospective OEM customer including marketing activities that combine media
advertising, catalog and flyer inserts in OEM sound card bundles, public
relations events, as well as participation in trade shows and cooperative
activities with strategic partners. Strategic partnering is expected to
continue to be a primary marketing focus.

SALES AND DISTRIBUTION

RETAIL PRODUCTS. The Company achieves broad market coverage for its
products through a variety of wholesale distribution channels. Domestically the
Company distributes its products primarily through seven U.S. wholesale
distributors. Each distributor is responsible for marketing the product to
retail outlets such as computer software stores, mass merchants, computer
superstores, consumer electronics chains, book stores and

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<PAGE>

music stores. The Company also has direct relationships with selected resellers
that have their own distribution centers. While the Company supports its dealers
with internal personnel, this distribution strategy reduces the Company's
selling expenses by largely avoiding the costs of direct sales as well as
reducing shipping costs. A similar distribution strategy is being pursued for
the Company's foreign retail music sales.

DIRECT SALES. The Company also sells both its music and strategic products
directly to end users. Direct mailings and magazine advertising have been the
main source of sales activity. To augment this, the Company has developed its
Internet web site to promote the complete product line and conduct secured
on-line transactions.

INTERNATIONAL DISTRIBUTION. The Company increased its international
retail presence in 1995 to leverage its international OEM business, providing a
worldwide distribution model. By qualifying new and existing distribution
relationships the Company was able to increase its effective coverage to include
Australia, Austria, Denmark, France, Germany, Holland, Japan, Switzerland and
the United Kingdom. These countries provide an increased presence into over
2,000 retail stores and distribution centers, and the Company considers this
global coverage to be a competitive advantage. Although currently the
international retail revenue contributes less than 10% of the Company's overall
revenue, it provides a global product and brand awareness which is a requirement
for large OEM customers such as Acer, Compaq and IBM. The Company's current
strategy is to license its international retail distributors to provide
localization (translation into the local language) of the Company's new and
existing products. The Company's cost of localization becomes insignificant,
yet still ensures that the products are developed to meet the specific region's
language and cultural requirements.

OEMS. The major channel of distributing the Company's strategic products
is through OEMs who are typically manufacturers of PCs. The Company is
establishing long-term relationships with a number of these manufacturers and
believes its OEM relationships enable it to develop state of the art system
software integrations and broader features and to gain early insight into market
trends. OEMs generally market the Company's products under their own equipment
name, with their own literature and through their own sales and technical
support networks. OEM license contracts typically have a term of one year with
minimum royalty commitments. The Company provides these sound utilities and
applications to the OEM marketplace through direct licensing contracts.

The Company's strategy to work closely with chip set partners such as SRS
Labs early in their design cycle provides the Company an opportunity to gain
early adoption by OEMs. Current OEM customers for products such as MIDISOFT
MEDIAWORKS, MIDISOFT AUDIO WORKS, MIDISOFT RECORDING SESSION PLUS and MIDISOFT
MUSIC MENTOR include Acer, Compaq, Gateway 2000, IBM, NEC Olivetti and Siemens
Nixdorf. The Company's revenue from such OEM bundles transitioned from OEM card
manufacturers to system OEMs in 1995. The Company expects that this trend will
continue as sound becomes a standardized feature set for system OEMs and the
Company's products continue to focus on providing solutions for the convergence
of sound with new technologies.

The Company's full distribution model, which includes retail and direct
sales, increases the attractiveness of the Company's products to both system and
card OEMs by providing brand awareness and pull through at the retail level. The
Company expects to leverage this complete coverage in 1996 and beyond by
developing sales and marketing campaigns targeted towards maximizing this
distribution model. Midisoft's license contracts authorize its OEMs to duplicate
and bundle one (1) copy of the selected software with one of the OEM's hardware
products. Generally these licenses bear no manufacturing or direct support costs
as it is the responsibility of the OEM to provide all software replication,
documentation, duplication and end user technical support. While royalties
received are generally lower than the revenue received by retail sales, the
Company incurs virtually no manufacturing or support costs, achieves market
penetration with quality hardware providers and increases its registered user
base for other marketing activities.

The Company anticipates that a significant portion of its revenues and
accounts receivable will be attributable to relatively few key customers, the
identity of which may vary from year to year.

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<PAGE>

The Company will continue to offer free technical support to its registered
users because it believes that this service provides both a high percentage of
end-user registration (for future sales of upgraded and related products) and a
direct link to end-user requirements and desires.

STRATEGIC PARTNERS

AT&T. AT&T is expected to be the nation's largest Internet service
provider through its WorldNet division. Midisoft is a WorldNet Partner and
bundles the WorldNet Internet access software with SOUNDBAR. This provides the
Company with incremental revenues through WorldNet sign-up bounties, as well as
joint AT&T / Midisoft marketing and press opportunities.

SRS LABS. SRS Labs has developed proprietary algorithms which provide a
richer experience of sound in environments as diverse as theaters, automobiles,
home stereos and the PC desktop. SRS Labs licenses this surround sound
technology to chip manufacturers who, in turn, sell their products to system and
sound card manufacturers. In addition, SRS Labs works with its licensees on the
implementation of its surround sound technology into their products. Midisoft
is working with SRS to provide software that these licensees can use to
demonstrate surround sound to their customers. In addition, the company has
incorporated surround control capability into SOUNDBAR. This provides Midisoft
with early exposure to customers who are implementing surround sound at the
system and sound card level, and are looking for enabling software to bundle.

RESEARCH AND DEVELOPMENT

Research, development and software acquisition activities during 1995 were
directed in large part to products and technologies with applications which were
beyond the Company's traditional focus on sound and music. The Company will
continue to invest heavily in research and development. However, management
expects that these activities will be more narrowly focused on the development
of complementary new products and the enhancement of existing products.
Although the Company will continue to evaluate opportunities to broaden its
product line, management intends to concentrate the Company's efforts on sound
and music products which utilize its technical expertise while remaining
compatible with existing sales and distribution capabilities.

MANUFACTURING

The Company prepares master software files for its user manuals and
packaging. The Company subcontracts replication of media to outside contractors.
Printing of the user manuals and packaging and the manufacture of related
materials are performed to the Company's specifications by outside sources, and
the completed packages are fabricated by assembly suppliers. Manufacturing
volume can generally be increased rapidly to respond to increases in demand. The
Company sole sources distribution of its products to capture the cost
effectiveness of shipment consolidation and quantity freight discounts. The
Company has however, qualified a second distribution supplier to provide such
services without delay should the normal source be disrupted. To date, the
Company has not encountered any material difficulties or delays in the
manufacture and assembly of its products, and has experienced low returns due to
product defects.

The Company also pursues Web sales whereby the products are downloaded
directly to the consumer, thereby eliminating manufacturing concerns for those
sales opportunities.

-21-
<PAGE>

COMPETITION

The music software market historically has been divided among many
applications with varying sizes of audiences. User loyalty is traditionally high
and users are very likely to stay with one application and upgrade to each
successive new version of that title rather than buy and learn a different
product. To achieve a crossover from one application to another requires a
product which either displays an unique feature or benefit over the former
application, or an ease of use that makes the application more productive with
which to work. The Company will continue to invest its efforts in improvement of
its user interface and in strategic additions of new features and technologies.
Management believes that this strategy has been effective for Midisoft in the
retail channel, where its average user sees him or herself as a "music" person
rather than a "computer" person. The entry of budget priced music software from
formerly professionally oriented competitors presents the Company with new
challenges. While the Company feels that ease of use is still the main
ingredient to retail success and consumer loyalty, the Company has a new
commitment to make applications which compete more favorably with professional
level applications.

The Company's strategic products are designed to simultaneously enable the
hardware of its OEM customers (sound cards and modems) and also provide tools
that consumers will use every day. Midisoft's proven success in designing and
marketing consumer audio and music software is a critical advantage relative to
many of its OEM-centric competitors. The Company has also been able to leverage
its strength in retail distribution to offer its OEM customers after-market
product upgrades and revenue sharing programs. At the same time, the OEM channel
provides broad exposure to the Company's product lines and strengthens its
retail and direct sales efforts. In this manner, Midisoft's retail and OEM
channels reinforce each other and provide a substantial, sustainable competitive
advantage. Midisoft will combine the communications and sound capabilities of
its new line of strategic products, with key third party marketing and licensing
partnerships to further extend this advantage.

PROPRIETARY RIGHTS

The Company relies primarily on trade secret, trademark and copyright laws,
treaties and contractual agreements, to protect its proprietary rights. The
Company endeavors to keep the results of its research and development programs
proprietary, as well as to protect its marketed software products against
misappropriation and infringement by third parties, but the Company may not in
all instances be able to prevent others from misappropriating or infringing upon
the Company's proprietary information and software products, without
compensation to the Company.

The Company intends to maintain the integrity of its tradename, trademarks,
copyrights and other proprietary rights against unauthorized use and to protect
against infringement and unfair competition where circumstances warrant. The
Company has recently initiated arbitration proceedings against certain licensees
of the Company's software products who are alleged to have engaged in unlicensed
replication of the Company's software products. Although the Company has learned
that certain of its products have been subjected to unauthorized duplication and
marketing, most notably in Taiwan, the Company does not believe these activities
materially affect the marketability of its products or the value of its
tradename.

Although the Company believes that its products do not infringe on any
copyright or other proprietary rights of third parties, there are currently
significant legal uncertainties relating to the application of copyright and
patent law in the field of software. The Company has no assurance that third
parties will not obtain, or do not have, patents covering features of the
Company's products, in which event the Company or its customers might be
required to obtain licenses to use such features. If a patent holder refuses to
grant a license on reasonable terms or at all, the Company may be required to
alter certain products or stop marketing them.

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<PAGE>

EMPLOYEES

The Company, as of November 10, 1996, employed 48 employees. Of these, 13
are employed in administration, 12 in product development and 23 in sales and
marketing. All of the employees are covered by confidentiality agreements, and
no current employees have employment contracts in place. None of the Company's
employees are represented by a union or other bargaining group. The Company
enjoys excellent employee relations.

DESCRIPTION OF PROPERTY

On March 9, 1995, the Company signed a lease for approximately 17,000
square feet of office space in Issaquah, Washington and moved into the new
office space on April 10, 1995. The lease expires in April 2002 and provides
for monthly rental payments of $21,200 with scheduled rent increases to occur
over the term of the lease. On March 15, 1996, the Company entered into an
agreement to sublet approximately 5,400 square feet for a period of not less
than thirteen months or more than eighteen months. The Company receives $7,200
per month under the sublease agreement.

LEGAL PROCEEDINGS

On March 24, 1995 a shareholders' class action (the "Class Action") was
filed against the Company and three of the Company's former officers. The
complaint, captioned as SMITH, ET AL. V. MIDISOFT, ET AL., was filed in the
United States District Court for the Western District of Washington. The
action, as extended, was brought on behalf of purchasers of the Company's
Common Stock during the period April 26, 1994 to August 18, 1995, excluding,
however, certain persons associated with the Company or the other defendants
(the "Class Members"). Among other things, the complaint alleged that the
defendants made various misrepresentations and/or omissions with respect to
the Company's business. On February 26, 1996 the parties entered into an
agreement pursuant to which the case was settled subject to final court
approval. Pursuant to the settlement agreement, the Company agreed to pay
$100,000 cash and to issue 650,000 shares of Common Stock to the Class
Members and their legal counsel. In addition, Raymond Bily, the Company's
former Chairman and one of the individual defendants, agreed to transfer
25,000 shares of Common Stock to the Class Members and their legal counsel.
The Company is also obligated to register the Common Stock under the
Securities Act of 1933 in order to allow Class Members and their legal counsel
to sell the stock.

The Securities and Exchange Commission has concluded its investigation into
the restatement of the Company's financial statements for the year ended
December 31, 1994. In anticipation of an administrative proceeding being
commenced by the Securities and Exchange Commission alleging violation of
certain reporting and accounting requirements, the Company has entered into a
settlement agreement with the SEC. Pursuant to the settlement agreement, the
Company, without admitting or denying any of the Securities and Exchange
Commission's findings, was ordered to cease and desist from permitting or
causing any violation of certain reporting and accounting requirements contained
in the federal securities laws. The settlement is not expected to have an
adverse effect on the Company's future operating results or financial condition.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors of the Company, and the executive officers of the Company and
its subsidiaries, are as follows:

NAME AGE POSITION
---- --- --------

Larry Foster. . . . . . . . . . . 52 Chairman of the Board, President
and Chief Executive Officer

Melinda A. Bryden . . . . . . . . 41 Vice President-Finance, Chief
Financial Officer and Secretary

Jon L. Scherrer . . . . . . . . . 32 Vice President-OEM Sales

Marsha Murry(1)(2). . . . . . . . 49 Director

A. Peter Parsons(1)(2). . . . . . 51 Director

Stephen V. Sedmak(1)(2) . . . . . 47 Director

- -----------------------
(1) Member of the Compensation and Option Committee.
(2) Member of the Audit Committee.

The Company's Articles of Incorporation provide that the members of the
Board of Directors be divided into three classes, as nearly equal as possible.
Each class is elected for a three-year term. At each annual meeting of
shareholders, one class of the Board of Directors is elected for a three-year
term and directors in the other classes remain in office until their respective
three-year terms expire. The Company's Board of Directors presently consists of
five members, with two members in Classes 1 and 2 and one member in Class 3. At
the expiration of each class' term, directors are to be elected to serve for a
term of three years or until their respective successors have been elected and
qualified.

Officers are appointed by and serve at the discretion of the Board of
Directors. All of the Company's officers devote full-time to the Company's
business and affairs.

LARRY FOSTER has served as a Director of the Company since May 1995. He
has served as the Company's President and Chief Operating Officer since
September 1995 and as the Company's Chief Executive Officer and Chairman of the
Board since March 1996. From November 1992 until July 1995, Mr. Foster served
as President and Chief Executive Office of Remote Input Solutions, Inc. Prior to
that, Mr. Foster was the founder and Chief Executive Officer of genSoft
Corporation. From February 1985 to August 1990, he was Senior Vice President of
Merchandising for Egghead Software.

MELINDA A. BRYDEN has served as the Company's Vice President of Finance and
Chief Financial Officer since October 1995. Ms. Bryden was Controller and
Assistant Secretary of NeoPath, Inc., a publicly-held company, from March 1994
to September 1995. From June 1988 to June of 1992 Ms. Bryden served as
Director of Audit for Westmark International. She was with the private business
advisory services of Peat Marwick and Touche Ross from September 1982 to June
1988.

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<PAGE>

JON SCHERRER joined the Company in February 1995 and he has served as Vice
President of OEM Sales since December 1995. Mr. Scherrer was National Sales
Manager of ESS Technology from October 1993 to November 1994. From July 1987
to January 1993, he served as Western Regional Sales Manager and National Sales
Manager of Phoenix Technologies, Ltd.

MARSHA MURRY has served as a Director of the Company since July 1993. Ms.
Murry is the principal of Accelerated Edge, which she founded in January 1994.
From May 1992 to August 1994, she was Strategic Product Manager for Autodesk,
Inc. Ms. Murry served as Vice President of Marketing and Business Development
of the Company from February 1988 to August 1990 and as its Secretary from
February 1989 to July 1991. From August 1990 to October 1991, she was a Product
Manager for Teltone Corporation and between April 1985 and March 1987 a Resource
Manager for ESCA Corporation.

A. PETER PARSONS has served as a Director of the Company since
January 1996. Mr. Parsons is a partner with the law firm Davis Wright Tremaine
and is Chairman of the firm's Technology Section. Mr. Parsons has practiced law
since 1973 and has been a partner with Davis Wright Tremaine since January 1988.

STEPHEN V. SEDMAK has served as a Director since July 1993. Mr. Sedmak has
been President of SRS Labs since June 1993. From September 1988 to June 1993 he
was Vice President of Sales and Marketing for Wolfe & Associates. From March
1982 to September 1985 Mr. Sedmak held executive marketing and sales position
with ROLM Corporation. Mr. Sedmak also serves on the Board of Directors of SRS
Laboratories.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE. The following table sets forth certain
information with respect to compensation paid by the Company for the fiscal year
ended December 31, 1995 and for the prior two fiscal years to (i) the Company's
Chief Executive Officer and (ii) its most highly compensated executive officers
whose cash compensation exceeded $100,000 for services performed during the
fiscal year ended December 31, 1995.

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
FISCAL ------------------- OPTIONS ALL OTHER
NAME & PRINCIPAL POSITION(1) YEAR SALARY($) BONUS($) (SHARES) COMPENSATION($)
- ---------------------------- ---- --------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Larry Foster
President, Chief 1995 $ 26,126 -- 125,000 --
Executive Officer &
Chairman (1)

Raymond Bily, 1995 117,083 $10,000 40,764 --
Chief Executive 1994 96,667 10,000 40,764 --
Officer & Chairman (2) 1993 56,750 12,000 40,764 --

Ronald E. Risdon (3) 1995 77,254 10,000 -- $34,768
1994 99,583 -- 86,027 --
1993 68,750 -- -- --

Calvin Dyer (4) 1995 57,632 10,000 -- 41,250
1994 92,500 -- -- --
1993 31,250 -- 120,515 --
</TABLE>

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<PAGE>

- -----------------------
(1) Mr. Foster has been a Board member since May, 1995 and an employee since
September, 1995 in the position of President and Chief Operating Officer.
Effective March 1996 Mr. Foster was appointed as to Chief Executive Officer
and Chairman. The salary stated above was paid during the period of
September 21, 1995 through December 31, 1995.

(2) During all of 1995 and until March 1996 Mr. Bily was Chief Executive
Officer and Chairman.

(3) Mr. Risdon was President until September 1995. The 1995 salary stated above
was paid from January 1 through September 21, 1995. All Other Compensation
represents severance payments.

(4) Mr. Dyer was Vice President of Finance and Chief Financial Officer until
July 1995. The 1995 salary stated above was paid from January 1 through
July 24, 1995. All Other Compensation represents severance payments.

OPTION GRANTS TABLE. The following table sets forth certain information
regarding stock options granted during the fiscal year ended December 31, 1995
to executive officers of the Company whose compensation in 1995 exceeded
$100,000.

<TABLE>
<CAPTION>
PERCENT OF TOTAL
OPTIONS GRANTED EXERCISE OR
OPTIONS GRANTED TO EMPLOYEES IN BASE PRICE
NAME (SHARES) FISCAL YEAR ($/SHARE) EXPIRATION DATE
- ----------------- --------------- ----------------- ------------ ------------------
<S> <C> <C> <C> <C>
Larry Foster . . . 125,000 24.8% $2.563 October 30, 2005
Raymond Bily . . . 40,764 8.1% $2.563 December 31, 2005
Ronald Risdon. . . -- -- -- --
Calvin Dyer. . . . -- -- -- --

</TABLE>

FISCAL YEAR-END OPTIONS/OPTION VALUES TABLE. The following table sets
forth certain information regarding stock options exercised during the fiscal
year ended December 31, 1995 and options held as of December 31, 1995 by
executive officers of the Company whose compensation in 1995 exceeded $100,000.

<TABLE>
<CAPTION>
Number of Securities under- Value of unexercised in-
lying unexercised options the-money options at
Shares At fiscal year-end (#) fiscal year-end ($)(1)
Acquired on Value -------------------------- --------------------------
Name Exercise (#) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry Foster . . . -- -- -- 125,000 -- --
Raymond Bily . . . -- -- 10,191 112,101 -- --
Ronald Risdon. . . 62,526 $189,373 -- -- -- --
Calvin Dyer . . . 64,508 $131,262 -- -- -- --

</TABLE>

(1) Based on the market price minus the exercise price on the date of exercise.

No employee of the Company receives any additional compensation for his
services as a director. Non-management directors receive a fee of $500 per
meeting attended in person, $250 for participating by telephone and $250 for
attending committee meetings. The Board of Directors has also authorized
payment of reasonable travel or other out-of-pocket expenses incurred by
non-management directors in attending

-26-
<PAGE>

meetings of the Board of Directors. On election or appointment, nonemployee
directors may receive stock option grants to purchase shares of Common Stock
under the Company's 1989 Stock Option Plan. In addition, each nonemployee
director currently receives an annual grant of options to purchase 10,000
shares of Common Stock. The exercise price of options granted may not be less
than the fair market value of the Company's Common Stock on the date of grant.

EMPLOYMENT AGREEMENTS. The Company has no employment agreements with any
of its executive officers.

STOCK OPTION PLAN

The Company's 1989 Stock Option Plan was adopted in February 1989 and
amended in September 1994 (as amended, the "Option Plan"). An aggregate of
1,350,000 shares of Common Stock are reserved for issuance under the Option
Plan.

The Option Plan provides for the granting of incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and nonqualified stock options.
Nonqualified stock options may be granted to employees, directors and
consultants of the Company, while Incentive Stock Options may be granted only to
employees. No options may be granted under the Option Plan subsequent to
February 1999.

The Option Plan is currently administered by the Option Committee of the
Board of Directors, which determines the terms and conditions of the options
granted under the Option Plan, including the exercise price, number of shares
subject to the option and the exercisability thereof.

The exercise price of all Incentive Stock Options granted under the Option
Plan must be at least equal to the fair market value of the Common Stock of the
Company on the date of grant. The exercise price of all nonqualified stock
options granted under the Option Plan shall be determined by the Option
Committee. The term of all non-qualified options granted under the Option Plan
may not exceed ten years and the term of all incentive options may not exceed
five years. The Option Plan may be amended or terminated by the Board of
Directors, but no such action may impair the rights of a participant under a
previously granted option.

The Option Plan provides the Board of Directors or the Option Committee the
discretion to determine when options granted thereunder shall become exercisable
and the vesting period of such options. Upon termination of a participant's
employment or consulting relationship with the Company, all unvested options
terminate and are no longer exercisable. All vested options remain exercisable
for a period not to exceed three months following the termination date.

The Option Plan provides that, in the event the Company enters into an
agreement providing for the merger of the Company into another corporation or
the sale of substantially all of the Company's assets, any outstanding
unexercised option shall become immediately exercisable as of the date of such
agreement. Upon the consummation of the merger or sale of assets such options
shall terminate unless they are assumed or another option is substituted
therefor by the successor corporation.

As of September 30, 1996, a total of 799,323 nonqualified and Incentive
Stock Options were outstanding with exercise prices ranging from $.10 to $8.19
per share and a weighted average exercise price per share of $2.61.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Articles of Incorporation limits the liability of directors
to the maximum extent permitted by Washington law. Washington law provides that
a corporation may limit the liability of a director for damages to the
corporation or its shareholders resulting from conduct of the director other
than (i) acts or omissions which involve intentional misconduct or a knowing
violation of law, (ii) unlawful payment of dividends and certain other
distributions, or (iii) for any transaction from which the director personally
received a benefit in money, property, or services to which the director was not
legally entitled.

-27-
<PAGE>

The Company's Articles of Incorporation provide that the Company shall
indemnify its officers and directors and may indemnify its employees and other
agents to the fullest extent permitted by law. The Washington Business
Corporation Act permits a corporation to indemnify its officers and directors
except in the circumstances described in the preceding paragraph. The Company
believes that indemnification under its Articles of Incorporation is
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). The Company's Articles of Incorporation expressly authorize
the use of indemnity agreements and the Company plans to enter into such
agreements with each of its directors and executive officers. The Company
currently maintains an insurance policy which covers officers and directors
for certain liabilities arising out of their actions in such capacity.
Except as described below, there is no pending litigation or other proceeding
involving any director, officer, employee or agent of the Company where
indemnification will be required or permitted, and the Company is not aware of
any threatened litigation or other proceeding which may result in a claim for
such indemnification. The Company understands that the Securities and
Exchange Commission is conducting an investigation concerning Raymond Bily's
conduct as it relates to the restatement of the Company's financial
statements. See "Business - Legal Proceedings." Such investigation may
result in a claim for indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

-28-
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus by (i)
each person who is known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) each of the Company's executive
officers and directors, and (iii) all executive officers and directors as a
group. Common Stock not outstanding but deemed beneficially owned by virtue of
the right of an individual to acquire shares within 60 days are treated as
outstanding only when determining the amount and percentage of Common Stock
owned by such individual. Each person has sole voting and sole investment power
with respect to the shares shown except as noted.

SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING
---------------------------
NAME(1) NUMBER PERCENT
------- ------------ -------
Larry Foster . . . . . . . . . . . . . . . . -- *
Melinda A. Bryden. . . . . . . . . . . . . . 10,000 *
Jon L. Scherrer(1) . . . . . . . . . . . . . 1,650 *
Raymond Bily(2). . . . . . . . . . . . . . . 1,045,350 22%
Marsha Murry(3). . . . . . . . . . . . . . . 61,661 1%
A. Peter Parsons . . . . . . . . . . . . . . 4,410 *
Stephen V. Sedmak (4) . . . . . . . . . . . 2,500 *

All directors and executive officers
as a group (seven persons)(5). . . . . . 1,125,571 24%

* Less than 1%.

- ---------------------------------
(1) Includes 625 shares issuable upon exercise of options that are exercisable
within 60 days.

(2) Includes 30,573 shares issuable upon exercise of options that are
exercisable within 60 days.

(3) Includes 22,875 shares issuable upon exercise of options that are
exercisable within 60 days.

(4) Includes 2,500 shares issuable upon exercise of options that are
exercisable within 60 days.

(5) Includes 57,698 shares issuable upon exercise of options that are
exercisable within 60 days.

SELLING SHAREHOLDERS

In connection with the settlement of the Class Action, a total of 675,000
shares of Common Stock have been issued or transferred, as the case may be,
to the Custodian. As soon as practicable following the date of this
Prospectus, the 675,000 shares of Common Stock will be distributed to the
Class Members in proportion to their recognized losses. In addition, a
portion of the 675,000 shares of Common Stock will be distributed to legal
counsel for the Class Members. The Class Members and their legal counsel
(collectively, the "Selling Shareholders") may resell the shares of Common
Stock in the manner described herein. See "Plan of Distribution."

-29-
<PAGE>

PLAN OF DISTRIBUTION

The 675,000 shares of Common Stock will be distributed to the Selling
Shareholders in an offering exempt from registration under the Securities Act
of 1933 pursuant to Section 3(a)(10) thereof in settlement of the Class
Action. Thereafter, sale of Common Stock may be effected by the Selling
Shareholders from time to time in transactions (which may include block
transactions by or for the account of the Selling Shareholders) in the
over-the-counter market or in negotiated transactions or a combination of
such methods of sale. The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholders. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale
or at negotiated prices. The Selling Shareholders may effect such
transactions by selling their securities directly to purchasers, through
broker-dealers acting as agents for the Selling Shareholders or to
broker-dealers who may purchase shares as principals and thereafter sell the
securities from time to time in the over-the-counter market in negotiated
transactions or otherwise. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or the purchasers for whom such broker-dealers may act
as agents or to whom they may sell as principals or otherwise (which
compensation as to a particular broker-dealer may exceed customary
commissions). The Registration Statement of which this Prospectus forms a
part must be current at any time during which a Selling Shareholder sells
shares of Common Stock.

Pursuant to applicable rules and regulations under the Securities Exchange
Act of 1934, any person engaged in a distribution of securities of a company may
not simultaneously engage in market making activities with respect to any
securities of that company during the applicable period (at least two, and
possibly nine, business days) prior to the commencement of such distribution.
Accordingly, in the event a broker-dealer is engaged in a distribution of the
Common Stock owned by the Selling Shareholders, such firm will not be able to
make a market in the Company's securities during the applicable restrictive
period. The Selling Shareholders and broker-dealers, if any, acting in
connection with such sale might be deemed to be underwriters within the meaning
of Section 2(11) of the Act and any commission received by them and any profit
on the resale of the securities might be deemed to be underwriting discounts and
commissions under the Act.

CERTAIN TRANSACTIONS

On February 22, 1989, the Company entered into a Founders' Buy-Sell
Agreement with Mr. Bily and Mark McCulley (each, a "Founder"). Under the terms
of the Buy-Sell Agreement, the Company had the right to purchase some or all of
the shares of Common Stock held by a Founder at a price of approximately $.33
per share, if that Founder terminated his employment with the Company prior to
certain specified dates. All rights to Mr. Bily's shares have been
extinguished with the passage of the dates specified. As a result of Mr.
McCulley's termination of employment with the Company during the first quarter
of 1995, the Company repurchased 52,739 shares of Common Stock owned by Mr.
McCulley in September 1995.

-30-
<PAGE>

DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, no par value per share, and 2,500,000 shares of Preferred
Stock, no par value per share. As of the date hereof, 5,345,425 shares of
Common Stock and 1,100 shares of Preferred Stock are issued and outstanding.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. The Company's
Articles of Incorporation deny cumulative voting rights in the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Subject to preferences that may be applicable to any
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in the assets remaining after payment of
liabilities and the liquidation preference of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, conversion or redemption rights.
All of the outstanding shares of Common Stock are fully paid and non-assessable.

PREFERRED STOCK

The Board of Directors has the authority, without further shareholder
approval, to issue up to 2,500,000 shares of Preferred Stock from time to time
in one or more series, to establish the number of shares to be included in each
such series, and to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof. The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuances could have the effect of decreasing the market
price of the Common Stock.

The Company has designated 1,100 shares as Series A Convertible Preferred
Stock (the "Series A Preferred Stock"). All 1,100 shares were issued at a price
of $1,000 per share in an offshore private placement completed in October 1996.
The Series A Preferred Stock is convertible at the holder's option into shares
of Common Stock at a price which is equal to the lesser of 85% of the closing
bid price as of the date of conversion or 100% of the closing bid price of the
Common Stock as of the date of issuance of the Series A Preferred stock. The
Series A Preferred Stock is also subject to mandatory conversion two years after
its date of issuance based upon the conversion formula described above. Holders
of the Series A Preferred Stock are entitled to an 8% cumulative dividend
payable in Common Stock at the time of conversion. At the time of conversion,
the Company is also obligated to issue one warrant (the "Warrant") with respect
to each share of Common Stock which is issued. Each Warrant will entitle the
holder to purchase one share of Common Stock at a price equal to 200% of the
closing bid price of the Common Stock as of the date of issuance of the Series A
Preferred Stock. The Warrants will be exercisable for two years.

LISTING

The Company's Common Stock was quoted on The Nasdaq SmallCap Market-SM-
from the Company's initial public offering on July 19, 1993 through July 26,
1994, and since then, has been quoted on the Nasdaq National Market under the
symbol "MIDI".

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is
TranSecurities International, Inc., 2510 N. Pines, Suite #202, Spokane,
Washington 99206.

-31-
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

All of the 5,345,425 shares of Common Stock currently outstanding are
either freely tradeable without restriction or registration under the Act or are
currently eligible for sale in the public market subject to compliance with Rule
144 under the Act. In addition, shares of Common Stock issuable upon conversion
of the Company's Series A Convertible Preferred stock will be eligible for
resale in accordance with the provisions of the Act, including the provisions of
Regulation S adopted thereunder. In general, under Rule 144 as currently in
effect, a stockholder, including an affiliate of the Company, may sell shares of
Common Stock after at least two years have elapsed since such shares were
acquired from the Company or an affiliate of the Company. The number of shares
of Common Stock which may be sold within any three-month period is limited to
the greater of one percent of the then outstanding Common Stock or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144.
Certain other requirements of Rule 144 concerning availability of public
information, manner of sale and notice of sale must also be satisfied. In
addition, a stockholder who is not an affiliate of the Company (and who has not
been an affiliate of the Company for 90 days prior to the sale) and who has
beneficially owned shares acquired from the Company or an affiliate of the
Company for over three years may resell the shares of Common Stock under
paragraph (k) of Rule 144 without compliance with the foregoing restrictions of
Rule 144.

The Company may issue additional shares of Common Stock upon the conversion
of 1,100 shares of Series A Convertible Preferred Stock which are presently
outstanding. Such shares of Common Stock will be eligible for resale in
accordance with the Act, including the provisions of Regulation S adopted
thereunder.

No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock, or the perception that such sales may
occur, could have a material adverse effect on prevailing market prices of the
Common Stock.

LEGAL MATTERS

The validity of the securities offered will be passed upon for the Company
by Berliner Zisser Walter & Gallegos, P.C., Denver, Colorado.

EXPERTS

The financial statements as of December 31, 1995, and for the years ended
December 31, 1994 and 1995 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
as the authority of said firm as experts in auditing and accounting.

-32-
<PAGE>
AVAILABLE INFORMATION

The Company is a "small business issuer" as defined under Regulation S-B
adopted under the Act and is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission") on forms applicable to
small business issuers. Such reports, proxy statements and other information
filed by the Company under the Exchange Act may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Seven World Trade Center, 13th Floor, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material may also be obtained from the Public Reference Section
of the Commission, Washington, D.C. 20549, at prescribed rates.

The Company has filed with the Commission, a registration statement
(together with all amendments thereto, the "Registration Statement") under the
Act with respect to the Common Stock of the Company offered hereby. This
Prospectus, filed as part of the Registration Statement, omits certain
information contained in the Registration Statement in accordance with the rules
and regulations of the Commission. For further information, reference is hereby
made to the Registration Statement which may be inspected and copied in the
manner and at the sources described above. Any statements contained herein
concerning the provisions of any document are not necessarily complete and in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.

The Company intends to furnish annual reports to shareholders containing
audited financial statements, quarterly reports and such other periodic reports
as it may determine to be appropriate or as may be required by law.

-33-
<PAGE>

INDEX TO
FINANCIAL STATEMENTS

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

<TABLE>
PAGE
----
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . F-2

Balance Sheets -- December 31, 1994 and 1995. . . . . . . . . . . . . . . F-3

Statements of Operations -- Years ended December 31, 1994 and 1995. . . . F-4

Statements of Shareholders' Equity
-- Years ended December 31, 1994 and 1995. . . . . . . . . . . . . . . . F-5

Statements of Cash Flows -- Years ended December 31, 1994 and 1995. . . . F-6

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-7 - F-14

Balance Sheets -- September 30, 1996 (unaudited) and December 31, 1995. . F-15

Statements of Operations -- Three-month and nine-month periods ended
September 30, 1995 and 1996 (unaudited). . . . . . . . . . . . . . . . . F-16

Statements of Cash Flows -- Nine-month periods ended September 30, 1995
and 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-17

Notes to Financial Statements (unaudited). . . . . . . . . . . . . . . . . F-18 - F-19
</TABLE>

F-1

<PAGE>

ITEM 7. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT ACCOUNTANTS

March 27, 1996

To the Board of Directors
and Shareholders of Midisoft
Corporation

In our opinion, the accompanying balance sheets and the related statements of
operations and shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Midisoft Corporation at December
31, 1995 and 1994, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.

Price Waterhouse LLP

F-2
<PAGE>

MIDISOFT CORPORATION

Balance Sheets

December 31,
-----------------------------
1995 1994
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 2,143,000 $ 9,601,000
Short-term investments, at cost 1,540,000
Accounts receivable, net of allowance of
$1,550,000 in 1995 and $934,000 in 1994 2,329,000 3,844,000
Inventories 494,000 679,000
Prepaids and other 266,000 276,000
Deferred income taxes 283,000
------------ ------------
Total current assets 6,772,000 14,683,000

Property and equipment, net 562,000 447,000
Other assets 1,230,000 1,634,000
------------ ------------
$ 8,564,000 $ 16,764,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 429,000 $ 467,000
Accrued wages and payroll taxes 260,000 140,000
Other accrued expenses 1,804,000 115,000
Deferred revenue 807,000 785,000
------------ ------------
Total current liabilities 3,300,000 1,507,000

Deferred income taxes 291,000
Commitments and contingencies (Notes 13 and 14)

Shareholders' equity
Common stock, without par value; 10,000,000
Shares authorized, 4,662,441 issued and
outstanding in 1995 and 4,262,092 issued
and outstanding in 1994 17,106,000 14,676,000
Retained (deficit) earnings (11,842,000) 290,000
------------ ------------
Total shareholders' equity 5,264,000 14,966,000
------------ ------------
$ 8,564,000 $ 16,764,000
------------ ------------
------------ ------------

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-3
<PAGE>

MIDISOFT CORPORATION

Statements of Operations

Year ended December 31,
------------------------------
1995 1994
---- ----

Revenues $ 5,420,000 $ 4,989,000

Cost of Revenues 2,490,000 1,082,000
------------- -------------
Gross profit 2,930,000 3,907,000

Operating expenses
Sales and marketing 4,097,000 2,142,000
General and administrative 4,015,000 1,160,000
Research and development 1,787,000 617,000
Restructuring charge 3,898,000
Settlement of shareholder litigation 1,644,000
------------- -------------
Total operating expenses 15,441,000 3,919,000

Operating loss (12,511,000) (12,000)

Interest and other income 379,000 183,000
------------- -------------
(Loss) income before taxes (12,132,000) 171,000

Provision for income taxes (53,000)
------------- -------------
Net (loss) income $ (12,132,000) $ 118,000
------------- -------------

Net (loss) income per share $ (2.60) $ 0.03
---- ----
---- ----
Weighted average shares outstanding 4,665,000 3,850,000
--------- ---------
--------- ---------

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-4
<PAGE>

MIDISOFT CORPORATION

Statements of Shareholders' Equity

<TABLE>
<CAPTION>
Retained Total
Common stock (Deficit) Shareholders'
Shares Amount Earnings Equity
------ ------ -------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 2,999,000 $ 3,699,000 $ 172,000 $ 3,871,000

Net proceeds from common stock issued 1,150,000 10,916,000 10,916,000
Stock options exercised 113,000 61,000 61,000
Net income for 1994 118,000 118,000
--------- ------------- ------------- -------------

Balance at December 31, 1994 4,262,000 14,676,000 290,000 14,966,000

Common stock repurchased (53,000) (17,000) (17,000)
Common stock issued 195,000 1,991,000 1,991,000
Stock options exercised 258,000 456,000 456,000
Net loss for 1995 (12,132,000) (12,132,000)
--------- ------------- ------------- -------------

Balance at December 31, 1995 4,662,000 $ 17,106,000 $ (11,842,000) $ 5,264,000
--------- ------------- ------------- -------------
--------- ------------- ------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-5
<PAGE>

MIDISOFT CORPORATION

Statements of Cash Flows

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net (loss) income $ (12,132,000) $ 118,000
------------- ------------
Adjustments to reconcile net (loss) income to net cash
(used) for operating activities:
Depreciation and amortization 1,152,000 338,000
Loss on disposal of leasehold 16,000
Deferred rent 65,000
Write down of capitalized software 3,898,000
Settlement of litigation 150,000
(Increase) decrease in assets:
Accounts receivable, net 1,515,000 (2,338,000)
Inventories 185,000 (110,000)
Prepaids and other 15,000 (144,000)
Deferred income taxes 283,000 (283,000)
Increase (decrease) in liabilities:
Trade accounts payable (38,000) 34,000
Accrued wages and payroll taxes 120,000 115,000
Other accrued expenses 1,624,000 70,000
Deferred income taxes (291,000) 291,000
Deferred revenue 22,000 685,000
------------- ------------
Net cash used for operating (3,416,000) (1,224,000)

CASH FLOWS FROM INVESTING
Capitalized software (2,384,000) (1,447,000)
Short-term investments (1,540,000)
Additions to property and equipment (407,000) (201,000)
------------- ------------
Net cash used for investing (4,331,000) (1,648,000)

CASH FLOWS FROM FINANCING
Common stock issued 10,916,000
Stock options exercised 306,000 61,000
Stock repurchased (17,000)
------------- ------------
Net cash from financing 289,000 10,977,000
------------- ------------

Net change in cash and cash equivalents (7,458,000) 8,105,000
Cash and cash equivalents, beginning of year 9,601,000 1,496,000
------------- ------------
Cash and cash equivalents, end of year $ 2,143,000 $ 9,601,000
------------- ------------
------------- ------------

SUPPLEMENTAL CASH FLOW INFORMATION
Common stock for purchase of software assets $ 1,991,000
Stock options issued in settlement of claims 150,000
Income taxes paid 2,000 $ 36,000
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-6
<PAGE>
MIDISOFT CORPORATION

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. THE BUSINESS

Midisoft Corporation (the Company) is a leading provider of innovative
applications for the use of sound on the personal computer (PC). The
Company was incorporated in Washington in 1986 and introduced its first
product, METATRAK, the precursor to Studio, in that year. The Company has
focused its product lines to include music learning and creativity and the
integration of sound and media in today's PC environment (Note 3). The
Company divides these product lines into two development categories, music
products and strategic products. The Company's music products enable users
to enjoy, explore, learn, create and share music. The Company pioneered
the development of MIDI technology, including the ability of users to
instantly view musical notation of sounds played through a piano keyboard,
or other MIDI-equipped instrument, linked to a PC. Midisoft's strategic
products promote the convergence of sound with other technologies into the
personal computer desktop. The products allow users to enhance their
computing experience, and to communicate more effectively with and through
computers. 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, and
(iii) end users, catalog companies, and businesses.

2. SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR
The Company reports results on a calendar year ending December 31.

REVENUE RECOGNITION
Revenue from products licensed to OEMs consisting of one-time license fees
and contracts for minimum advances against future unit licenses are
recognized when the criteria for fixed fee revenue recognition under
Statement of Position No. 91-1, SOFTWARE REVENUE RECOGNITION, are
satisfied. These criteria include, but are not limited to, delivery of the
software master, the Company's lack of other significant obligations to the
customer and a determination that collectability of the amount due is
probable. Revenues on contracts which do not meet the fixed fee revenue
recognition criteria in SOP 91-1 are included in deferred revenue in the
accompanying balance sheet and are recognized as revenue on the installment
basis as payments are received. Additional royalty use or unit copy
royalty fees are recognized when they are earned pursuant to the license
agreements and upon notification of shipment and payment from the OEMs.
Revenue from sales to distributors, other resellers and end users net of a
provision for anticipated returns, is recognized when the products are
shipped. The allowance for returns is evaluated each quarter taking into
consideration, among other things, known return requests from distributors,
anticipated return requests based on the distributor's rate of product
sale, returns due to product upgrades and historical distributor return
patterns.

WARRANTIES AND RETURNS
The Company warrants products against defects and has policies permitting
the return of products under certain circumstances. The Company's
distributor agreements provide for sales returns, stock rotation,
cooperative advertising and price protection. Customers are granted price
protection for a period of up to 60 days after the Company reduces the
price of a product.

ADVERTISING COSTS
The Company generally provides for cooperative advertising at agreed-upon
rates. Advertising costs, included in sales and marketing expenses, are
expensed as incurred and were $906,000 and $713,000 for the years ended
December 31, 1995 and 1994, respectively.

F-7
<PAGE>

RESEARCH AND DEVELOPMENT
Software development costs incurred in conjunction with new software
product development and product enhancements are charged to research and
development expense until technological feasibility has been established.
Thereafter, certain costs, consisting of salaries and related benefits,
incurred internally in developing computer software are capitalized until
the software is available for general release. Amortization of capitalized
software development costs begins when the related product is available for
general release to customers. The amortized amount for each software
product is based on the greater of (i) the ratio of current gross revenues
to total current and anticipated future gross revenues for the related
software or (ii) the straight-line method over the product's estimated
economic life of 18 to 24 months.

INCOME TAXES
The Company provides for income taxes under the principles of Statement of
Financial Accounting Standards No. 109 (SFAS 109) which requires that
income taxes be provided for taxes currently due and for the expected
future tax effects of the temporary differences between the book and tax
bases of assets and liabilities.

NET (LOSS) INCOME PER SHARE
Net (loss) income per share is computed on the basis of the weighted
average number of shares of common stock outstanding during the period
after consideration of the dilutive effect, if any, of stock options and
warrants.

CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents.
Short-term investments classified as cash equivalents are stated at the
lower of cost or market, which approximates fair value.

SHORT-TERM INVESTMENTS
There were no realized or unrealized gains or losses on short-term
investments for the year ended December 31, 1995. All short-term
investments are debt instruments that mature within one year, and are
stated at cost, which approximates fair value.

INVENTORIES
Inventories are valued at the lower of cost or market using the first-in,
first-out method.

PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation
and amortization, and are depreciated using the straight-line method over
the estimated useful lives of the related assets, which range from three to
seven years. Leasehold improvements are amortized over the term of the
lease.

CONCENTRATION OF CREDIT RISK/FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable, for
which collateral is generally not required. The Company's trade
receivables include amounts due from U.S. and foreign customers in the
computer software and hardware industry and are derived from sales of
products, OEM licensing fees and unit royalties. The Company performs
ongoing credit evaluations of its customers' financial condition and limits
its exposure to losses by limiting the amount of credit extended whenever
deemed necessary.

The carrying values of cash equivalents and short-term investments and
other assets and liabilities (such as accounts receivable and payable)
approximate fair value at December 31, 1995.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

F-8
<PAGE>

NEWLY ISSUED ACCOUNTING STANDARDS
In December 1995, Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS 123), was issued. This
pronouncement requires the Company to elect to account for stock-based
compensation on a fair value based model or an intrinsic value based model.
The intrinsic value based model is currently used by the Company and is the
accounting principle prescribed by Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25). Under this model,
compensation cost is the excess, if any, of the quoted market price of the
stock at the date of grant or other measurement date over the amount the
employee must pay to acquire the stock. The fair value based model
prescribed by SFAS 123 would require the Company to value stock-based
compensation using an accepted valuation model. Compensation cost is
measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
The Company has not determined which of the methodologies it will adopt.
No assessment has been made with regard to the potential impact of this
pronouncement on the Company's financial position and results of
operations.

3. RESTRUCTURING OF OPERATIONS

During the third and fourth quarters of 1995, the Company recorded charges
of $2,369,000 and $1,529,000, respectively, for restructuring associated
with the Company's determination that certain software assets were not
compatible with the reorganized product strategy. The Company's entire
research and development, marketing and sales efforts were refocused upon
the Company's core competence in sound and music. Products that
represented education, entertainment and business were written off as it
was determined that no further internal resources would be spent to develop
or promote them. The Company will pursue licensing these products to third
party publishers for per unit royalty payments.

4. ACCOUNTS RECEIVABLE AND MAJOR CUSTOMER INFORMATION

The Company operates in a single business segment. During the years ended
December 31, 1995 and 1994, the Company had revenue from foreign customers
of $944,000 and $1,444,000, respectively. Foreign sales as a percentage of
the Company's total revenue in 1995 and 1994 were 17% and 29%,
respectively. In 1995 and 1994 separate domestic reseller customers
accounted for revenues of $2,255,000 and $1,100,000, respectively, equal to
42% and 22% of the Company's total revenue in the periods.

Accounts receivable are summarized as follows:
December 31,
------------
1995 1994
---- ----

OEMs $ 2,398,000 $ 2,979,000
Resellers and other 1,481,000 1,799,000
------------ ------------
3,879,000 4,778,000

LESS - Allowance for doubtful accounts (1,120,000) (395,000)
LESS - Allowance for warranty and returns (430,000) (539,000)
------------ ------------

$ 2,329,000 $ 3,844,000
------------ ------------
------------ ------------

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 quarterly installments. At December 31,
1995 and 1994, OEM accounts receivable amounts not yet due were $971,000
and $2,405,000, equal to 40% and 81%, respectively, of total OEM
receivables. At December 31, 1995 and 1994, reseller accounts receivable
amounts not yet due were $421,000 and $1,288,000 equal to 28% and 72%,
respectively, of total reseller receivables.

F-9
<PAGE>

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
comprise $2,769,000 and $3,136,000 of accounts receivable at December 31,
1995 and 1994, respectively. Foreign customers comprise $1,110,000 and
$1,228,000 of accounts receivable at December 31, 1995 and 1994,
respectively. At December 31, 1995 and 1994, 18 and 27 customers,
respectively, account for an aggregate balance of $2,940,000 and $3,779,000
of accounts receivable.

5. INVENTORIES

Inventories are summarized as follows:

December 31,
------------
1995 1994
---- ----

Raw materials and work-in-process $ 455,000 $ 348,000
Finished goods 284,000 344,000
Less - Allowance for obsolescence (245,000) (13,000)
---------- ----------
$ 494,000 $ 679,000
---------- ----------
---------- ----------

6. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:
December 31,
------------
1995 1994
---- ----
Equipment $ 839,000 $ 489,000
Furniture 79,000 45,000
Leasehold improvement 23,000 23,000
---------- ----------
Property and equipment, at cost 941,000 557,000

Less - Accumulated depreciation (379,000) (110,000)
---------- ----------
$ 562,000 $ 447,000
---------- ----------
---------- ----------

7. OTHER ASSETS

Other assets are summarized as follows (additionally see Note 3):
December 31,
------------
1995 1994
---- ----
Deposits and other $ 62,000
Purchased software and technology; net of
accumulated amortization of $177,000
and $147,000, respectively, in 1995 and 1994 $ 428,000 131,000
Purchased contract software technology, net of
accumulated amortization of $131,000 and
$103,000, respectively, in 1995 and 1994 364,000 1,052,000
Capitalized software development costs, net
of accumulated amortization of $139,000
and $36,000, respectively, in 1995 and 1994 438,000 389,000
----------- -----------
$ 1,230,000 $ 1,634,000
----------- -----------
----------- -----------

F-10
<PAGE>

PURCHASED SOFTWARE TECHNOLOGY
The Company purchased software technology from various sources during 1995.
The estimated useful lives of the remaining product costs range from
eighteen months to two years. Amortization expense related to purchased
software technology for the years ended December 31, 1995 and 1994 was
$561,000 and $93,000, respectively.

PURCHASED CONTRACT SOFTWARE TECHNOLOGY
Purchased contract software technology costs represent contract software
development costs incurred for work performed by external contract software
engineers in developing computer software. The Company capitalized
contract software technology costs of approximately $1,069,000 and
$1,155,000 in 1995 and 1994, respectively. Amortization expense related to
purchased contract software technology was $111,000 and $103,000 for 1995
and 1994, respectively.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalized software development costs represent software product
development and product enhancements consisting of salaries and related
benefits, incurred internally in developing computer software after
technological feasibility has been established. Amortization expense
related to capitalized software development costs was $148,000 and $36,000
for 1995 and 1994, respectively.

8. BANK CREDIT LINE FACILITY

The Company has a bank line of credit facility commitment letter, from U.S.
Bank of Washington. Pursuant to the terms of the agreement, the Company
may borrow on an unsecured basis up to $3,000,000 at the bank's prime rate
and up to $120,000 on corporate bank cards. The credit facility has a 1/4%
commitment fee, matures May 31, 1997, contains covenants not to encumber
trade accounts receivable and inventories and requires maintenance of
certain financial ratios. At December 31, 1995, no amount was drawn on
either credit facility. The Company was not in compliance with certain
financial covenants at December 31, 1995 and accordingly, received waivers
and amendments with respect to such covenants from its bank for periods up
to and including May 31, 1997.

9. OTHER ACCRUED EXPENSES

The following table summarizes the components of the other accrued expenses:

December 31,
--------------
1995 1994
---- ----

Shareholder litigation settlement $ 1,644,000
Other accrued expenses 160,000 $ 115,000
------------ ------------
$ 1,804,000 $ 115,000
------------ ------------
------------ ------------

10. INCOME TAXES

The provision for income taxes for the year ended December 31, 1994 is
summarized as follows:

Current tax expense
Federal $ 8,000
State 1,000
Foreign 36,000
----------
45,000

Deferred tax expense 8,000
----------
$ 53,000
----------
----------

F-11
<PAGE>

There is no provision for income taxes for the year ended December 31, 1995
due to the net loss incurred. A reconciliation of the provision for income
taxes to the amount computed by applying the statutory federal income tax
rate to income before income taxes is summarized as follows:

December 31,
------------
1995 1994
---- ----

Federal statutory rates $ (4,125,000) $ 59,000
State income taxes 1,000
Change in valuation allowance 4,084,000
Other 41,000 (7,000)
------------ -----------
$ - $ 53,000
------------ -----------
------------ -----------

The components of deferred income taxes are summarized as follows:

December 31,
------------
1995 1994
---- ----
Deferred income tax assets
Net operating losses $ 3,861,000 $ 776,000
Accrued liabilities and allowances 1,193,000 181,000
Other 72,000 102,000
----------- -----------
5,126,000 1,059,000
Deferred income tax liabilities
Capitalized software (482,000) (507,000)
----------- -----------
(482,000) (507,000)

Valuation allowance (4,644,000) (560,000)
----------- -----------
Net deferred tax liabilities $ - $ (8,000)
----------- -----------
----------- -----------

At December 31, 1995, the Company had federal net operating losses of
approximately $11,300,000 that 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. The value of the
Company's stock at the time of the ownership change is the primary factor
in determining the limit on the Company's ability to utilize its net
operating loss carry-forward.

Certain net operating losses arise from the deductibility for tax purposes
of compensation under nonqualified stock options equal to the difference
between the fair value of the stock on the date of exercise and the
exercise price of the options. For financial reporting purposes, the tax
effect of this deduction when recognized will be accounted for as a credit
to shareholders' equity.

11. SHAREHOLDERS' EQUITY

On July 26, 1994, the Company completed a public stock offering, for the
sale of 1,000,000 shares of its common stock at $10.75 per share, less
offering expenses. On August 2, 1994, pursuant to the underwriting
agreement, the Company transferred and closed the sale of an additional
150,000 shares of its common stock to the Underwriters on the same terms.
With the Underwriters' over allotment option exercised in full, the total
price to the public, total offering expenses and net proceeds to the
Company were $12,362,000, $1,446,000 and $10,916,000, respectively.

F-12
<PAGE>

WARRANTS
In connection with the July 26, 1994 and the July 19, 1993 public stock
offerings, the Company has agreed to issue and sell to the Underwriter
Representatives, for nominal consideration, warrants to purchase an
aggregate of 38,000 and 100,000 shares of common stock, respectively. The
warrants are exerciseable at a price per share equal to 120% of the initial
price to the public and expire in 1998.

STOCK OPTION PLAN
The Company has adopted a 1989 Stock Option Plan (the Plan), as amended
September 28, 1994, to provide for the granting of both Incentive Stock
Options (ISOs) and Nonqualified Stock Options for employees, directors and
consultants of the Company to acquire ownership in the Company and provide
them with incentives for their service.

Under the terms of the Plan, 1,350,000 shares of common stock may be
issued. The Plan is currently administered by the Option Committee of the
Board of Directors which determines the terms and conditions of the options
granted under the Plan, including exercise price, number of option shares
granted and the vesting period of such options. Upon termination of a
participant's employment or consulting relationship with the Company,
unvested options terminate and are no longer exerciseable and vested
options remain exerciseable for a period not to exceed three months. The
exercise price of all ISOs granted under the Plan must be at least equal to
the fair market value of the common stock of the Company on the date of
grant and the term may not exceed five years. The exercise price of all
ISOs granted under the Plan are determined by the Option Committee and the
term may not exceed ten years.

The fair market value was determined based upon the average between the
high and low sale or between the closing bid and ask price on the Nasdaq
Market System. Compensation expense, if any, was charged over the period
services were performed. At December 31, 1995 and 1994, there is no
unamortized unearned compensation. There was no compensation expense for
1995 and 1994 related to stock option activity.

At December 31, 1995 and 1994, options for 79,000 and 300,000 shares,
respectively, of common stock were vested and options for 347,000 and
280,000 shares, respectively, of common stock were available for future
grants under the Plan.

Activity with respect to the Stock Option Plan is as follows:

<TABLE>
<CAPTION>
Weighted
Shares Range Average
------ ----- --------
<S> <C> <C> <C>
Options outstanding, December 31, 1993 594,090 $.05-$11.25 $2.51
Granted 484,022 $7.90-$11.25 $8.46
Exercised (113,572) $.05-$7.94 $0.48
Canceled (207,036) $5.00-$11.25 $8.93

Options outstanding, December 31, 1994 757,504 $.05-$10.25 $5.03
Granted 504,764 $.05-$8.13 $5.52
Exercised (258,437) $.05-$7.94 $1.19
Canceled (421,291) $2.56-$10.25 $6.50

Options outstanding, December 31, 1995 582,540 $.10-$7.90 $2.48

</TABLE>

F-13

<PAGE>

12. LICENSE AGREEMENTS

The Company has license agreements with various developers and producers of
computer software which require the Company to pay royalties. During the
years ended December 31, 1995 and 1994, total royalty costs were $195,000
and $19,000, respectively.

13. LEASE COMMITMENTS

The Company leases office facilities and a warehouse for its operations.
The leases contain renewal and expansion provisions, exerciseable at the
discretion of the Company. The Company's leases include scheduled rent
increases over the term of the lease. The total payment amount is being
recognized to expense on a straight-line basis over the term of the lease.
Future minimum lease rental commitments for all non-cancelable operating
leases are summarized as follows:

YEAR
1996 $ 240,000
1997 267,000
1998 271,000
1999 273,000
2000 73,000
------------
$ 1,124,000

Rent expense for 1995 and 1994 was $191,000 and $93,000, respectively.

14. CONTINGENCIES

The Company is subject to various claims and lawsuits in the ordinary
course of business. In the opinion of management, the ultimate resolution
of these matters will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.

15. RELATED PARTY TRANSACTIONS

FOUNDERS' BUY-SELL AGREEMENT
During 1995, the Company repurchased from one of the co-founders, Mr.
McCulley, 53,000 shares of common stock for $17,000 under the Founders'
buy-sell agreement.

16. SUBSEQUENT EVENT

On February 26, 1996, the Company mediated a shareholders' class action
settlement in the Smith, et al. vs. Midisoft et al. complaint that was
filed in March 1995. The mediation agreement calls for the Company to pay
the complainants $100,000 in cash and 650,000 shares of common stock. The
settlement is valued at $1,644,000 based on the fair market value of the
Company's common stock on the date of settlement and was accrued and
expensed during 1995.

F-14

<PAGE>

MIDISOFT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>

ASSETS
(Unaudited)
At September 30, At December 31,
1996 1995
-------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 928,000 $ 2,143,000
Short term investments 1,540,000
Accounts receivable - net of allowances of
$1,131,000 in 1996 and $1,550,000 in 1995 1,471,000 2,329,000
Inventories 498,000 494,000
Prepaid expenses 324,000 266,000
------------ ------------
Total current assets 3,221,000 6,772,000
Property & equipment, net 450,000 562,000
Capitalized software and other costs, net 609,000 1,230,000
------------ ------------
Total assets $ 4,280,000 $ 8,564,000
------------ ------------
------------ ------------

LIABILITIES & SHAREHOLDERS' EQUITY

Current Liabilities:
Trade accounts payable $ 158,000 $ 429,000
Accrued wages & payroll taxes 183,000 260,000
Other accrued expenses 1,666,000 1,804,000
Deferred revenue 914,000 807,000
------------ ------------
Total current liabilities 2,921,000 3,300,000
------------ ------------
Shareholders' equity
Common stock, no par value; 10,000,000 shares
authorized, 4,691,066 issued and outstanding
in 1996 and 4,662,441 issued and outstanding
in 1995 17,178,000 17,106,000
Retained deficit (15,819,000) (11,842,000)
------------ ------------
Total shareholders' equity 1,359,000 5,264,000
------------ ------------
Total liabilities and shareholders' equity $ 4,280,000 $ 8,564,000
------------ ------------
------------ ------------

</TABLE>
See accompanying notes to financial statements

F-15
<PAGE>

MIDISOFT CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ----------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 1,158,000 $ 1,234,000 $ 2,161,000 $ 4,461,000
Cost of revenues 588,000 552,000 1,400,000 1,700,000
------------- ------------- ------------- -------------
Gross profit 570,000 682,000 761,000 2,761,000
Operating expenses:
Sales and marketing 723,000 1,182,000 2,459,000 2,948,000
General and administrative 488,000 1,804,000 1,708,000 2,754,000
Research and development 244,000 603,000 666,000 1,222,000
Restructuring charge 2,369,000 2,369,000
------------- ------------- ------------- -------------
Total operating expenses 1,455,000 5,958,000 4,833,000 9,293,000
------------- ------------- ------------- -------------
Operating loss (885,000) (5,276,000) (4,072,000) (6,532,000)
Interest and other income 17,000 90,000 95,000 339,000
------------- ------------- ------------- -------------
Loss before taxes (868,000) (5,186,000) (3,977,000) (6,193,000)
Provision for income taxes 326,000
------------- ------------- ------------- -------------
Net loss $ (868,000) $(5,512,000) $(3,977,000) $(6,193,000)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

Net loss per share $(0.19) $(1.23) $(0.85) $(1.37)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

Weighted average shares outstanding 4,691,000 4,497,000 4,677,000 4,512,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>

F-16

<PAGE>

MIDISOFT CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended
September 30,
---------------------------
1996 1995
----------- -----------

CASH FLOWS FROM OPERATIONS:
Net loss $(3,977,000) $(6,193,000)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation & amortization 792,000 914,000
Deferred rent provision 46,000
Writedown of capitalized software 2,369,000
(INCREASE) DECREASE IN ASSETS:
Accounts receivable, net 858,000 386,000
Inventories (4,000) (226,000)
Prepaid expenses (58,000) 83,000
INCREASE (DECREASE) IN LIABILITIES:
Trade accounts payable (271,000) 82,000
Accrued wages & payroll taxes (77,000) 367,000
Other accrued expenses (138,000) 407,000
Deferred income taxes - (18,000)
Deferred revenue 107,000 -
----------- -----------
Total adjustments 1,209,000 4,410,000
----------- -----------
Net cash (used) for operations (2,768,000) (1,783,000)
----------- -----------
CASH FROM/(USED FOR) INVESTMENTS:
Redemption of short term investments 1,540,000 -
Additions to property & equipment (59,000) (400,000)
Capitalized software - (2,384,000)
----------- -----------
Net cash from/(used for) investments 1,481,000 (2,784,000)
----------- -----------
CASH FLOWS FROM FINANCING:
Stock options exercised 72,000 29,000
Stock buyback - (17,000)
----------- -----------
Net cash provided by financing 72,000 12,000
----------- -----------
Net change in cash and cash equivalents (1,215,000) (4,555,000)
Cash and cash equivalents, beginning of year 2,143,000 9,601,000
----------- -----------
Cash and cash equivalents, end of period $ 928,000 $ 5,046,000
----------- -----------
----------- -----------
SUPPLEMENTAL CASH FLOW INVESTMENTS
Income taxes paid $ - $ 2,000
Common stock issued for purchase of other assets $ - $ 1,991,000
----------- -----------
----------- -----------

See accompanying notes to financial statements

F-17

<PAGE>

MIDISOFT CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

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 1995 audited
financial statements herein.

The results of operations for the nine months ended September 30, 1996
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:

September 30, December 31,
1996 1995

OEM $ 1,689,000 $ 2,398,000
Resellers and other 913,000 1,481,000
------------ ------------
Subtotal 2,602,000 3,879,000
Less: Allowance for doubtful accounts (895,000) (1,120,000)
Allowance for sales returns (236,000) (430,000)
------------ ------------
Total accounts receivable $ 1,471,000 $ 2,329,000
------------ ------------
------------ ------------

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 quarterly installments. At September 30,
1996, OEM accounts receivable amounts not yet due were $329,000, equal to
19.5% of total OEM receivables compared to $971,000, equal to 40% at December
31, 1995. Reseller payment terms typically are standardized and similar to
those given software distributors. At September 30, 1996, reseller accounts
receivable amounts not yet due were $776,000, equal to 85% of total reseller
receivables compared to $421,000, equal to 28% at December 31, 1995.

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 $1,812,000 of accounts receivable at September 30, 1996 compared to
$2,769,000 at December 31, 1995. Foreign customers comprised $790,000 of
accounts receivable at September 30, 1996 compared to $1,110,000 at December
31, 1995.

INCOME TAXES

No income taxes are payable at September 30, 1996, the result of the
Company's year-to-date loss and the result of Federal net operating loss
carryforwards at December 31, 1995 of approximately $11.3 million that will,
subject to limitations, be available to reduce taxes due in future periods
and expire beginning in 2008.

F-18

<PAGE>

CAPITALIZED SOFTWARE AND OTHER COSTS

Capitalized software and other costs are summarized as follows:

September 30, December 31,
1996 1995
---- ----
Purchased software technology, net of
accumulated amortization of
$353,000 and $177,000, respectively,
in 1996 and 1995 $ 252,000 $ 428,000
Purchased contract software technology,
net of accumulated amortization of
$337,000 and $131,000, respectively, in
1996 and 1995 157,000 364,000
Capitalized software development costs,
net of accumulated amortization of
$377,000 and $139,000, respectively, in
1996 and 1995 200,000 438,000
------------ ------------
Total capitalized software $ 609,000 $1,230,000
------------ ------------
------------ ------------

OTHER ACCRUED EXPENSES

The following table summarizes the components of the other accrued expenses:

September 30, December 31,
1996 1995
---- ----
Shareholder litigation settlement $1,544,000 $1,644,000
Other accrued expenses 122,000 160,000
------------ ------------
$1,666,000 $1,804,000
------------ ------------
------------ ------------

The shareholder litigation settlement is comprised of 650,000 shares of the
Company's common stock expected to be issued in the fourth quarter of 1996.
The cash payment portion of the settlement in the amount of $100,000 was made
in May, 1996.

LITIGATION

On February 26, 1996, the Company settled the shareholders' class
action lawsuit which had been filed against it in March 1995.

F-19

<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.

----------------------------------
TABLE OF CONTENTS
----------------------------------

PAGE
----

Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . .
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . .
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . .
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . .
Description of Securities. . . . . . . . . . . . . . . . . . . . . .
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . .
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information. . . . . . . . . . . . . . . . . . . . . . . .
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . F-1

UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

675,000 SHARES

MIDISOFT
CORPORATION

COMMON STOCK

---------------
PROSPECTUS
---------------

_______________, 1996

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

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Articles of Incorporation, as amended, of Midisoft Corporation
(hereinafter in this Part II, the "Company") require the Company to indemnify
and hold harmless to the greatest extent permissible by Washington law any
officer or director of the Company who is made a party to any proceeding as a
result of that person's service to the Company as an officer or director. The
Washington Business Corporation Act permits a corporation to provide such
indemnity except where the proceeding arises from (i) acts or omissions of the
person which involve intentional misconduct or a knowing violation of law, (ii)
unlawful payment of dividends and certain other distributions, or (iii) a
transaction from which the officer or director personally received a benefit in
money, property, or services to which the director was not legally entitled.

Apart from rights afforded by the Company's Articles of Incorporation, an
officer or director may be indemnified against judgments, penalties, fines,
settlements and reasonable expenses actually incurred if the officer or director
conducted himself in good faith and either (i) reasonably believed his conduct
to be in the corporation's best interest, or (ii) reasonably believed the
conduct to be at least not opposed to the corporation's best interest. In the
case of a criminal proceeding, the officer or director must have had no
reasonable cause to believe the conduct was unlawful.

The Washington Business Corporation Act also requires that a corporation
indemnify a director who is wholly successful, on the merits or otherwise, in
the defense of any proceeding to which the director was a party because of being
a director of the corporation, against reasonable expenses incurred by the
director in connection with the proceeding.

Indemnification may also be granted pursuant to the terms of agreements
which may be entered into in the future pursuant to a vote of shareholders or
directors. The statutory provisions cited above and the Articles of
Incorporation also grant the power to the Company to purchase and maintain
insurance which protects its officers and directors against any liabilities
incurred in connection with their services in such positions, and such a policy
may be obtained by the Company in the future.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Other expenses in connection with this offering which will be paid by
the Company are estimated to be substantially as follows:

AMOUNT
PAYABLE
ITEM BY THE
- ---- COMPANY*
-----------
S.E.C. Registration Fees . . . . . . . . . . . . . . . . . . . . $ 511.37
State Securities Laws (Blue Sky) Legal Fees. . . . . . . . . . . 5,000.00*
State Securities Laws Filing Fees. . . . . . . . . . . . . . . . 500.00*
Printing and Engraving . . . . . . . . . . . . . . . . . . . . . 3,000.00*
Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000.00*
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . 10,000.00*
Transfer Agent's Fees and Cost of Certificates . . . . . . . . . 500.00*
Miscellaneous Expenses . . . . . . . . . . . . . . . . . . . . . 488.63
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,000.00*
-----------
-----------
- --------------------
* Estimated for the purpose of this filing.

II-1
<PAGE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

(a) During the past three years, the Company has made sales of its Common
Stock or Preferred Stock to the following persons for the cash or other
consideration indicated, which sales were not registered under the Securities
Act of 1933:

1. Effective as of January 18, 1995, the Company issued 44,651 shares of
Common Stock to Knowledge Engineering, Inc. ("KEI") in exchange for certain
assets of KEI.

2. Effective as of April 14, 1995, the Company issued 166,667 shares of
Common Stock to Ask Me Multimedia, Inc. ("AMM") in exchange for certain assets
of AMM.

3. Effective as of October 7, 1996, the Company issued 1,000 and 100
shares of Series A Convertible Preferred Stock to Compagnie Parisienne de Ree
compte and Libertview Plus Fund, respectively.

4. In connection with the settlement of the Class Action, the Company
issued 650,000 shares of Common Stock in December 1996.

Each of the foregoing sales were made to individuals or entities which had
access to information enabling them to evaluate the merits and risks of the
investment by virtue of their relationship to the Company or their economic
bargaining power.

(b) With respect to the transactions described in paragraphs 1 and 2
above, the Company relied on Section 4(2) with respect to the issuance of the
shares for an exemption from the registration requirements of the Securities Act
of 1933. With respect to the issuance of shares described in 3 above, the
Company relied upon Regulation S in order to ensure that such securities were
offered and sold outside of the United States. Each of the investors identified
above was furnished with information concerning the operations of the Company
and each had the opportunity to verify the information supplied. In
connection with the transaction described in paragraph 4 above, the Company
relied upon Section 3(a)(10) of the Securities Act of 1933.

ITEM 27. EXHIBITS.

The following is a complete list of Exhibits filed as part of this
Registration Statement and which are incorporated herein.

EXHIBIT NO.
-----------
# 3.1.1 Articles of Incorporation of the Company as filed on
September 23, 1986 with the Secretary of State of the State
of Washington.

*** 3.1.2 Articles of Amendment to Articles of Incorporation of the
Company as filed on February 22, 1989 with the Secretary of
State of the State of Washington.

*** 3.1.3 Articles of Amendment to Articles of Incorporation of the
Company as filed on July 13, 1993 with the Secretary of State
of the State of Washington.

*** 3.2.1 By-Laws of the Company.

# 3.2.2 Amended and Restated By-Laws of the Company.

*** 4.1 Form of specimen certificate for Common Stock of the Company.

- 4.2 Designation of Rights and Preferences of Series A Convertible
Stock.

- 4.3 Form of Offshore Securities Subscription Agreement dated on
or about October 7, 1996.

- 4.4 Form of Warrant issuable pursuant to Offshore Subscription
Agreement.

** 5. Opinion of Berliner Zisser Walter & Gallegos, P.C., regarding
legality of the securities covered by this Registration
Statement.

*** 10.1.1 Employment Agreement, dated December 31, 1991, as further
amended on May 5, 1993, by and between Raymond Bily and the
Company.

*** 10.1.2 Employment Agreement, dated March 1, 1991, as further amended
on May 5, 1993, by and between Ronald E. Risdon and the
Company.

II-2
<PAGE>

EXHIBIT NO.
-----------
*** 10.1.3 Employment Agreement, dated May 15, 1991, as further amended
on May 5, 1993, by and between Jerry W. Schwartz and the
Company.

+ 10.1.4 Employment Agreement, dated July 19, 1993, by and between
Calvin M. Dyer and the Company.

*** 10.2 Combined Incentive and Nonstatutory Stock Option Plan,
adopted February 22, 1989, and as amended April 30, 1993,
authorizing 600,000 shares of Common Stock for issuance
pursuant to the combined Plan.

*** 10.5.1 Industrial Lease, dated January 28, 1992, by and between the
Teachers Insurance and Annuity Association of America, as
landlord, and the Company, as tenant.

+ 10.5.2 Industrial Leases, dated July 9, 1993, by and between
Teachers Insurance and Annuity Association of America, as
landlord, and the Company, as tenant.

+ 10.5.3 Amendment to Industrial Leases, dated February 15, 1994, by
and between Teachers and Annuity Association of America, as
landlord, and the Company, as tenant.

^ 10.5.4 Industrial Lease, dated March 9, 1995, by and between Lake
Place II Limited Partnership, as landlord, and the Company,
as tenant.

*** 10.6.1 Software License Agreement, dated June 4, 1994, by and
between Music Technology Associates and the Company.

*** 10.6.2 Software Rights Purchase Agreement, dated May 5, 1993, by and
between Music Technology Associates and the Company.

+ 10.6.3 Software License Agreement, dated August 6, 1993 by and
between Dennis McMahon d/b/a Asystem, and the Company.

# 10.6.4 Software Purchase Agreement, dated April 15, 1994 by and
between Dennis McMahon d/b/a Asystem, and the Company.

^ 10.6.5 Software Purchase Agreement, dated November 10, 1994, by and
between Dennis McMahon d/b/a Asystem, and the Company.

^ 10.6.6 Software Purchase Agreement, dated December 22, 1994, by and
between Dennis McMahon d/b/a Asystem, and the Company.

*** 10.7.1 Reseller Agreement, dated January 3, 1992, by and between
WestPoint Creative Ltd. and the Company.

*** 10.7.2 Reseller Agreement, dated December 31, 1991, by and between
CPS Computer Distribution GmbH and the Company.

*** 10.7.3 Reseller Agreement, dated February 13, 1992, by and between
Walop Electronics B.V. and the Company.

*** 10.8.1 Distribution Agreement, dated August 26, 1992, by and between
Merisel, Inc. and the Company.

*** 10.8.2 Distribution Agreement, dated July 14, 1992, by and between
Ingram Micro Inc. and the Company.

*** 10.9.1 OEM License Agreement, dated August 26, 1992, by and between
MPC (Distribution) Ltd. and the Company.

*** 10.9.2 OEM License Agreement, dated January 8, 1993, by and between
Ad Lib Multimedia Inc. and the Company.

*** 10.9.3 OEM License Agreement, dated October 26, 1993 by and between
Media Vision Corporation and the Company.

*** 10.9.4 Form of OEM License Agreement between various OEM licensees
and the Company.

# 10.9.5 OEM License Agreement, dated May 10, 1994, by and between
International Business Machines and the Company.

# 10.9.6 OEM License Agreement, dated May 17, 1994, by and between
Gateway 2000 and the Company.

II-3
<PAGE>

EXHIBIT NO.
-----------

# 10.9.7 OEM License Agreement, dated May 20, 1994, by and between
ASCII Corporation and the Company.

# 10.9.8 OEM License Agreement, dated May 20, 1994, by and between I-O
Data Devices and the Company.

++ 10.9.9 OEM License Agreement, dated March 6, 1995, by and between
Genoa Systems Corporation and the Company.

++ 10.9.10 OEM License Agreement, dated June 2, 1995, by and between
Acer America Corporation and the Company.

++ 10.9.11 OEM License Agreement, dated June 5, 1995, by and between NEC
Technologies, Inc. and the Company.

*** 10.10.1 Founders' Buy-Sell Agreement, dated February 22, 1989, by and
among Mark R. McCulley, Raymond Bily and the Company.

*** 10.10.2 Addendum to Founder's Buy-Sell Agreement, dated April 30,
1993, by and among Mark R. McCulley, Raymond Bily and the
Company.

*** 10.10.3 Shareholder Agreement, dated December 9, 1991, by and among
Raymond Bily, Mark R. McCulley and certain shareholders of
the Company, on the one hand, and the Company, on the other
hand.

++ 10.10.4 Asset Purchase Agreement, dated January 18, 1995, by and
between the Company and Knowledge Engineering, Inc.

++ 10.10.5 Asset Purchase Agreement, dated April 14, 1995, by and
between the Company and Ask Me Multimedia, Inc.

+ 10.11.1 Business Loan Agreement, dated February 22, 1994, by and
between U.S. Bank of Washington and the Company.

*** 10.11.2 Loan and Security Agreement, dated June 1, 1993, by and
between Silicon Valley Bank and the Company.

++ 10.12.1 Severance letter, dated July 24 1995.

++ 10.12.2 Temporary Employment Agreement between the Company and Craig
Bohman, dated July 24, 1995.

** 10.13.1 Stipulation of Settlement, dated July 5, 1996, as approved
by the Court on November 27, 1996, of the shareholder class
action captioned as IN RE MIDISOFT LITIGATION.

14. Not applicable.

15. Not applicable.

21. Not applicable.

** 23.1 The consent of Berliner Zisser Walter & Gallegos, P.C., to
the use of its opinion with respect to the legality of the
securities covered by this Registration Statement and to the
references to such firm in the Prospectus filed as part of
this Registration Statement will be included in Exhibit 5.

* 23.2 Consent of Price Waterhouse LLP, independent accountants
for the Company.

* 24. The Power of Attorney is included in the signature page of
this Registration Statement.

27. Financial Data Schedule is not required pursuant to Item
601 of Regulation S-B.

II-4
<PAGE>

-----------------------
* Filed herewith.
# Incorporated by reference from the Company's Registration Statement on
Form SB-2 (S.E.C. File No. 33-80064-S).
*** Incorporated by reference from the Company's Registration Statement on
Form SB-2 (S.E.C. File No. 33-62468-S).
+ Incorporated by reference from the Company's Form 10-KSB filed on
March 30, 1994 (S.E.C. File No. 000-22172).
^ Incorporated by reference from the Company's Form 10-KSB filed on
April 13, 1995 (S.E.C. File No. 000-22172).
++ Incorporated by reference from the Company's Form 10-KSB/A filed
August 8, 1995 (S.E.C. File No. 000-22172).
** To be filed by amendment.
- Incorporated by reference from the Company's Form 10-QSB filed
November 13, 1996 (S.E.C. File No. 000-22174).
- ------------------------

II-5
<PAGE>

ITEM 17. UNDERTAKINGS.

(a) RULE 415.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(b) FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(h) INDEMNIFICATION.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act, and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(i) RULE 430A.

The undersigned Registrant hereby undertakes that:

(i) For determining any liability under the Securities Act of 1933,
treat the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant under Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as
of the time the Commission declared it effective.

(ii) For determining any liability under the Securities Act of 1933,
treat each post-effective amendment that contains a form of Prospectus as a
new registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.

II-6
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement or Amendment to be signed on its behalf by the undersigned in the City
of Issaquah, State of Washington, on December , 1996.

MIDISOFT CORPORATION

By: /s/ LARRY FOSTER
-----------------------------------
Larry Foster, Chairman of the Board

Each person whose signature appears below constitutes and appoints Larry
Foster and Melinda A. Bryden or either of them, his attorneys-in-fact, with the
power of substitution, for him in any and all capacities, to sign any amendments
to this Registration Statement, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment was signed by the following persons in the
capacities and on the dates stated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LARRY FOSTER Chairman of the Board, President
- ------------------------------ and Chief Executive Officer (Principal December , 1996
Larry Foster Executive Officer)

/s/ MELINDA A. BRYDEN Vice President, Finance, Chief
- ------------------------------ Financial Officer (Principal Financial December , 1996
Melinda A. Bryden and Accounting Officer)

/s/ MARSHA MURRY Director December , 1996
- ------------------------------
Marsha Murry

/s/ Stephen V. Sedmak Director December , 1996
- ------------------------------
Stephen V. Sedmak

/s/ A. PETER PARSONS Director December , 1996
- ------------------------------
A. Peter Parsons
</TABLE>

II-7

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated March 27, 1996
relating to the financial statements of Midisoft Corporation, which appears in
such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Financial Data" in such Prospectus. However, it
should be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Financial Data."

PRICE WATERHOUSE LLP
Seattle, Washington
December 23, 1996