SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 10549

                                    Form 10-Q

X        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934 FOR QUARTER ENDED JUNE 30, 1998.

                          Commission File Number 0-2958

                                TSI INCORPORATED
             (Exact name of registrant as specified in its charter)

                  Minnesota                            41-0843524
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

500 Cardigan Road, Shoreview, Minnesota 55126 
(Address of principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 20 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

                       Yes ___ X ___            No ______

Indicate number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practical date.

Date:   July 23, 1998                     Common Shares Outstanding:  11,424,360
        -------------                                                 ----------

                                       1


<PAGE>


                                TSI INCORPORATED

                                    FORM 10-Q
                       For the Quarter Ended June 30, 1998

                                                                            Page

PART I.        FINANCIAL INFORMATION                                          2

Item 1.        Financial Statements

                   Consolidated Statements of Earnings                        3

                   Consolidated Balance Sheets                                4

                   Consolidated Statements of Cash Flows                      5

                   Notes to Consolidated Financial Statements                 6

Item 2.        Management's Discussion and Analysis of Results of

               Operations and Financial Condition                           7-9

PART II.       OTHER INFORMATION                                             10

EXHIBIT 11     Computation of Per Share Earnings                             12

                                       2
<PAGE>


CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30                                                                   1998                1997
------------------------------------------------------------------------------------     -------------------------------
<S>                                                                                      <C>                 <C>        
Net sales                                                                                $18,583,072         $19,290,167
Cost of products sold                                                                      8,229,230           8,687,550
------------------------------------------------------------------------------------     -------------------------------
                                                                    GROSS PROFIT          10,353,842          10,602,617

Operating expenses
  Research and product development                                                         2,806,301           2,784,364
  Selling                                                                                  4,549,093           4,346,776
  Administrative                                                                           1,482,506           1,487,081
------------------------------------------------------------------------------------     -------------------------------
                                                                                           8,837,900           8,618,221
------------------------------------------------------------------------------------     -------------------------------
                                                                OPERATING INCOME           1,515,942           1,984,396

Other income                                                                                 159,008             295,858
------------------------------------------------------------------------------------     -------------------------------
                                                    EARNINGS BEFORE INCOME TAXES           1,674,950           2,280,254

Provision for income taxes                                                                   553,000             798,000
------------------------------------------------------------------------------------     -------------------------------
                                                                    NET EARNINGS         $ 1,121,950         $ 1,482,254
                                                                                         ===============================

BASIC EARNINGS PER COMMON SHARE                                                          $       .10         $       .13
                                                                                         ===============================
DILUTED EARNINGS PER COMMON SHARE                                                        $       .10         $       .13
------------------------------------------------------------------------------------     ===============================


</TABLE>












See notes to consolidated financial statements.

                                       3

<PAGE>


CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
                                                             JUNE 30, 1998
                                                               (UNAUDITED)      MARCH 31, 1998
                                                             ---------------------------------
<S>                                                            <C>               <C>         
ASSETS
CURRENT ASSETS
 Cash and cash equivalents                                     $  7,763,200      $  9,385,509
 Accounts receivable                                             13,757,680        16,508,360
 Prepaid expenses                                                   446,471           223,713
 Inventories:
   Finished products                                              2,982,186         2,883,469
   Work in process                                                3,752,848         2,792,730
   Materials and supplies                                         9,965,590         9,840,083
                                                               ------------      ------------
                                                                 16,700,624        15,516,282
                                                               ------------      ------------
                               TOTAL CURRENT ASSETS              38,667,975        41,633,864
                                                               ------------      ------------
INTANGIBLES AND OTHER ASSETS
 Goodwill                                                         3,772,548         3,834,903
 Note receivable                                                    648,271           632,540
 Deferred income tax benefit                                        528,180           456,169
 Other assets                                                     2,844,987         2,878,348
                                                               ------------      ------------
                                                                  7,793,986         7,801,960
                                                               ------------      ------------
PROPERTY, PLANT AND EQUIPMENT
 Land                                                               128,503           128,503
 Building                                                         3,713,160         3,713,160
 Construction in progress                                            40,738            51,341
 Machinery and equipment                                         19,991,884        19,689,035
                                                               ------------      ------------
                                                                 23,874,285        23,582,039
 Less allowances for depreciation                                15,665,276        15,183,541
                                                               ------------      ------------
                                                                  8,209,009         8,398,498
                                                               ------------      ------------
                                       TOTAL ASSETS            $ 54,670,970      $ 57,834,322
                                                               ============      ============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
 Accounts payable and accrued expenses                         $  4,455,362      $  4,924,480
 Employee compensation                                            2,580,303         3,918,610
 Taxes, other than income taxes                                     383,170           519,285
 Income taxes payable                                             1,257,293         1,028,657
                                                               ------------      ------------
                          TOTAL CURRENT LIABILITIES               8,676,128        10,391,032
                                                               ------------      ------------
                                  TOTAL LIABILITIES               8,676,128        10,391,032
                                                               ------------      ------------
SHAREHOLDERS' EQUITY
 Common Shares, $.10 par value                                    1,141,203         1,168,138
 Additional paid-in capital                                      11,370,397        11,394,909
 Retained earnings                                               33,717,527        35,164,722
 Equity adjustment from translation                                (234,285)         (284,479)
                                                               ------------      ------------
                         TOTAL SHAREHOLDERS' EQUITY              45,994,842        47,443,290
                                                               ------------      ------------
           TOTAL LIABILITIES & SHAREHOLDERS' EQUITY            $ 54,670,970      $ 57,834,322
                                                               ============      ============
</TABLE>
See accompanying notes to consolidated financial statements

                                       4
<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30                                                1998              1997
--------------------------                                             -----------      -----------
<S>                                                                    <C>              <C>        
OPERATING ACTIVITIES:
  Net earnings                                                         $ 1,121,950      $ 1,482,254
  Adjustments to reconcile net earnings to net cash
  provided by operating activities:
    Provision for losses on accounts receivable                             15,618            5,216
    Depreciation and amortization of property, plant & equipment           461,162          427,855
    Amortization of goodwill                                                62,355           53,761
    Gain on sale of assets                                                       0           (3,468)
    Provision for deferred income taxes                                    (72,011)               0
    Changes in operating assets and liabilities:
      Accounts receivable                                                2,735,062          377,926
      Prepaid expenses                                                    (222,758)         (71,304)
      Inventories                                                       (1,184,342)        (598,280)
      Other assets                                                          17,630          110,254
      Accounts payable and accrued expenses                               (469,118)        (900,267)
      Employee compensation payable                                     (1,338,307)        (997,260)
      Taxes, other than income taxes                                      (136,115)         (29,107)
      Current income taxes payable                                         228,636          746,705
    Foreign currency translation gain (loss)                                61,824         (213,655)
------------------------------------------------------------------     -----------      -----------
                         NET CASH PROVIDED BY OPERATING ACTIVITIES       1,281,586          390,630
------------------------------------------------------------------     -----------      -----------

INVESTING ACTIVITIES
  Additions to property, plant and equipment                              (263,252)        (445,613)
  Proceeds from disposal of property, plant and equipment                        0            4,531
------------------------------------------------------------------     -----------      -----------
                             NET CASH USED IN INVESTING ACTIVITIES        (263,252)        (441,082)
------------------------------------------------------------------     -----------      -----------

FINANCING ACTIVITIES
  Proceeds from stock options exercised                                     24,809           77,574
  Purchases of common stock                                             (2,303,125)        (117,432)
  Dividends paid                                                          (342,276)        (287,354)
------------------------------------------------------------------     -----------      -----------
                             NET CASH USED IN FINANCING ACTIVITIES      (2,620,592)        (327,212)
------------------------------------------------------------------     -----------      -----------

Effect of exchange rate changes on cash and cash equivalents               (20,051)          27,821
------------------------------------------------------------------     -----------      -----------
                             DECREASE IN CASH AND CASH EQUIVALENTS      (1,622,309)        (349,843)
------------------------------------------------------------------     -----------      -----------

Cash and cash equivalents at beginning of year                           9,385,509        7,694,998
------------------------------------------------------------------     -----------      -----------
            CASH AND CASH EQUIVALENTS AT END OF THREE MONTH PERIOD     $ 7,763,200      $ 7,345,155
                                                                       ===========      ===========
</TABLE>











See notes to consolidated financial statements.

                                       5

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 1998
                                   (Unaudited)

Note 1.           Basis of Presentation

                  The information included in the accompanying interim financial
                  statements is unaudited. In the opinion of management, all
                  adjustments, consisting of normal recurring accruals necessary
                  for a fair presentation of the results of operations,
                  financial position and cash flows for the interim periods
                  presented have been reflected herein. The results of
                  operations for the interim periods are not necessarily
                  indicative of the results to be expected for the entire year.

Note 2.           Earnings Per Share

                  See Exhibit 11, Computation of Per Share Earnings, on page 12
                  of this document.

Note 3.           Comprehensive Income

                  Effective fiscal 1999, the Company has adopted Statement of
                  Financial Accounting Standards No. 130 "Reporting
                  Comprehensive Income". This statement requires companies to
                  classify items of other comprehensive income by their nature
                  in a financial statement and display the accumulated balance
                  of other comprehensive income separately from retained
                  earnings and additional paid-in-capital in the equity section
                  of the balance sheet, and is effective for the Company's
                  fiscal year ending March 31, 1999. The Company's only item of
                  other comprehensive income is foreign currency translation
                  adjustments. This item is separately displayed in the equity
                  section of the balance sheet. For the three months ended June
                  30, 1998, comprehensive net income was $33,600 higher than net
                  income, due to the effect of foreign currency translation
                  adjustments, net of income taxes.


                                       6
<PAGE>


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

Results of Operations
---------------------

Net sales for the three-month period ended June 30, 1998, were $18,583,000 which
represents a decrease of 4 percent from $19,290,000 for the same period last
year.

Sales of products for the Safety, Comfort, and Health of People increased 8
percent and accounted for 70 percent of the Company's total business during the
first quarter, compared to 63 percent for the same quarter a year ago. This area
accounted for 64 percent of the Company's business in fiscal 1998, ended March
31, 1998. During the first three months of fiscal 1999, a total of $1.9 million
of military PORTACOUNT (R) fit testers and Ultraviolet Aerodynamic Particle
Sizers(TM) Spectrometer (UV-APS) were shipped, compared with $2.1 million for
the prior year. Without the military contract sales, the Safety, Comfort, and
Health market area had about an 11 percent sales increase for the first quarter,
compared with the prior year.

Sales of products for Productivity and Quality Improvement decreased 23 percent
and were at 30 percent of total sales for the fiscal 1999 first quarter compared
with 37 percent a year ago. For the fiscal year ended March 31, 1998, this
category accounted for 36 percent of the Company's business. Sales of
Productivity and Quality Improvement instruments showed weakness in two areas:
1. The market for our industrial process control products directed to the wire
   and cable industry.
2. The markets for our research instruments.

Research markets depend on cyclical spending patterns which have been lower than
expected this year, particularly in Europe and Asia. We see the current downturn
as a normal part of that cycle. In the wire and cable area, we are instituting
new marketing initiatives targeted at building product sales.

Sales to U.S. and state government agencies, including defense, comprised about
20 percent of the Company's net sales for the quarter as compared to 21 percent
for the same quarter last year. The percentage of governmental sales is within
the range of normal fluctuations that can occur from quarter-to-quarter. Since
sales to government agencies represent a significant portion of the Company's
sales, it is important to consider the potential effects of changes in
government spending. Due to the Company's diverse line of products, sales
usually occur in a wide range of U.S. and state government agencies, so total
government sales during the past several years have been quite stable as a
percentage of total sales. However, shifts have occurred because of changes from
quarter-to-quarter and year-to-year in shipments under contracts with U.S.
military agencies for the Company's PORTACOUNT respirator fit testers and
UV-APS.

During the first quarter, the Company's order backlog decreased from $22.4
million at March 31, 1998 to $21.7 million at June 30, 1998, compared with $23.0
million at June 30, 1997. The lower backlog, compared to a year ago, is mainly
due to shipments on the aforementioned military contracts. Order bookings were
$17.6 million in the first quarter ended June 30, 1998 compared to $17.4 million
in the first quarter ended June 30, 1997. Order bookings for the quarter ended
June 30, 1997 included a $904,000 German military contract for PORTACOUNT
respirator fit testers. Excluding this contract, order bookings increased
approximately 7 percent from the same year-ago period.

Gross profit for the first quarter ended June 30, 1998 was 55.7 percent of net
sales compared with the 55.0 percent gross profit in the first quarter last
year. These first quarter gross profit margin percentages fell within what is
considered to be a normal range for TSI's business.

                                       7
<PAGE>


Research and product development expenses as a percentage of net sales were 15.1
percent for the first quarter ended June 30, 1998, compared to 14.4 percent of
net sales for the same period last year. Actual research and product development
spending was up less than 1 percent in the first quarter compared to the same
year-ago period. The Company continues its commitment to growth through
development of new technologies and products. For all of fiscal 1999, research
and development expenses are expected to continue near the Company's historical
range of 12 to 14 percent of sales.

Selling expenses were 24.5 percent of net sales for the first quarter compared
to 22.5 percent for the year earlier period. The higher percentage in the
quarter ended June 30, 1998 is due to the lower sales volume. For the past three
fiscal years, selling expenses have been 21.7 to 23.3 percent range. For all of
fiscal 1999, selling expenses are anticipated to be close to this historical
range.

Administrative expenses were 8.0 percent and 7.7 percent of net sales for the
three months ended June 30, 1998 and 1997, respectively. The Company expects
administrative costs to continue in a normal operating range of 7 to 9 percent
of net sales through the remainder of fiscal 1999.

Other income was $159,000 in the first quarter compared with $296,000 for the
same period in fiscal 1998. The quarter ended June 30, 1997 included significant
foreign currency exchange gains that were not repeated in the first quarter of
fiscal 1999.

The provision for income taxes was at the rate of 33 percent of pre-tax earnings
for the first quarter of fiscal 1999 compared to 35 percent in fiscal 1998. The
Company anticipates the effective tax rate remaining at approximately 33 percent
for the remainder of the fiscal year.

Year 2000 Conversion
--------------------

The Company has reviewed most of its critical information technology ("IT")
business systems and is in the testing phase. It is expected these systems will
be substantially Year 2000 compliant by January 1999. The Company is also
identifying all non-IT systems and will test them by January 1999. Management
does not believe significant changes will be required to non-IT systems to
become Year 2000 compliant. An initial list of key third party providers has
been made and some preliminary discussions have been held in order to determine
their state of Year 2000 readiness. We will complete our assessment of third
party providers during the fiscal year ended March 31, 1999.

Our Year 2000 compliance program is being carried out with internal staff
without significant additional outside expenditures. However, Year 2000 issues
may accelerate approximately 10 to 15 percent of our capital purchases by one to
two years. Management does not believe the focus on Year 2000 compliance has
caused us to ignore other types of upgrades to any critical systems.

Failure to upgrade existing systems not yet completed, or third party providers
being unable to supply us with inventory, could result in the company being
unable to ship certain products. However, management believes the remaining
system changes required can be implemented before January 1, 2000 and,
therefore, will not subject the Company to significant business risks. We
believe alternative suppliers can be identified should our current suppliers
fail to become Year 2000 compliant.

The Company has not yet established contingency plans but will continue to
monitor the need for such plans.

                                       8
<PAGE>


Liquidity and Capital Resources
-------------------------------

Cash and cash equivalents were $7,763,000 on June 30, 1998, compared with
$7,345,000 at June 30, 1997. This is a $1,622,000 decrease from $9,385,000 at
March 31, 1998. The decrease from March 31, 1998 is due to several factors as
shown in the Company's Consolidated Statement of Cash Flows. The most notable
item is $2.3 million spent on the repurchase of the Company's common stock.

The ratio of current assets to current liabilities was 4.5 as of June 30, 1998,
compared to 4.0 as of March 31, 1998, and 4.2 as of June 30, 1997. Working
capital decreased $1,251,000 to $29,992,000 at the end of the first quarter of
fiscal 1999, compared to $31,243,000 at the end of fiscal 1998.

Management believes internally generated funds and short-term borrowings on
existing credit lines will provide adequate resources for supporting operations
during the remainder of fiscal 1999.

Forward-Looking Statements
--------------------------

The Company believes that this report contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are subject
to certain risks and uncertainties.

Forward-looking statements represent the Company's expectations or beliefs
concerning future events, including the following: any statements regarding
future sales and gross profit percentages, any statements regarding the
continuation of historical trends, any statements regarding the sufficiency of
the Company's cash balances and cash generated from operating and financing
activities for the Company's future liquidity and capital resource needs, any
statements regarding the effect of regulatory changes, the success of
development and enhancement of the Company's products, the adequacy of the
Company's facilities, potential acquisitions, and any statements regarding the
future of the instrumentation industry and the various parts of the
instrumentation markets in which the Company conducts its business. The Company
cautions that any forward-looking statements made by the Company in this report
or in other announcements made by the Company are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitations, the factors set
forth on Exhibit 99 to the Company's report on Form 10K for the fiscal year
ended March 31, 1998.

                                       9
<PAGE>


PART II.          OTHER INFORMATION

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

                  (a)       Exhibits
                            Exhibit 11 - Computation of Per Share Earnings

                  (b)       Reports on Form 8-K:
                            No reports on Form 8-K have been filed by the
                            Registrant during the quarter for which this report 
                            is being filed.

                                       10
<PAGE>


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.

Registrant:     TSI Incorporated

Date:  August 12, 1998                          By: /s/ James E. Doubles
                                                    ----------------------------
                                                     James E. Doubles
                                                     Chairman & CEO


Date:  August 12, 1998                          By:  /s/ Robert F. Gallagher
                                                    ----------------------------
                                                     Robert F. Gallagher
                                                     Vice President & CFO

                                       11