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


(Mark One)

XXX      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998.

___      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 FOR THE TRANSITION PERIOD FROM_____TO_____.


                         Commission File Number 0-27106


                                RSI Systems, Inc.
                                -----------------
        (Exact name of small business issuer as specified in its charter)


                Minnesota                                   41-1767211
                ---------                                   ----------
      (State or other jurisdiction                        (IRS Employer
    of incorporation or organization)                   Identification No.)


5555 West 78th Street, Suite F, Minneapolis, Minnesota        55439
------------------------------------------------------        -----
      (Address of principal executive offices)              (Zip Code)

                                 (612) 896-3020
                                 --------------
                           (Issuer's Telephone Number)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days. YES _X_ NO ___

The Company had 6,668,781 shares of Common Stock, $ 0.01 par value per share,
outstanding as of February 10, 1999.

Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_


                                       1

<PAGE>


                                RSI Systems, Inc.

                                      INDEX


                                                                            Page
                                                                            ----

PART I.     FINANCIAL INFORMATION


     Item 1.      Financial Statements

                  Balance Sheets - December 31, 1998 (unaudited)
                  and June 30, 1998 .......................................... 3

                  Statements of Operations (unaudited) - Three months
                  and six months ended December 31, 1998 and 1997............. 4

                  Statements of Cash Flows (unaudited) - Six
                  months ended December 31, 1998 and 1997 .................... 5

                  Notes to Financial Statements .............................. 6

     Item 2.      Management's Discussion and Analysis of Financial Condition
                  and Results of Operations................................... 8

PART II     OTHER INFORMATION ............................................... 13

Signatures .................................................................. 15

Exhibit Index ............................................................... 16


                                       2
<PAGE>


                                RSI SYSTEMS, INC.
 
                                 Balance Sheets

                       December 31, 1998 and June 30, 1998

<TABLE>
<CAPTION>
                                                                                      December 31,        June 30,
                                                                                         1998               1998
                                      Assets                                         (Unaudited)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                    <C>    
Current assets:
     Cash and cash equivalents                                                       $    441,455           382,093
     Marketable securities                                                                989,855           979,555
     Accounts receivable, net of allowance for doubtful
        accounts of $482,000 and $254,000, respectively                                 2,849,166         1,541,626
     Inventories                                                                          928,328           637,422
     Prepaid expenses                                                                      94,759            56,949
-------------------------------------------------------------------------------------------------------------------
                Total current assets                                                    5,303,563         3,597,645
-------------------------------------------------------------------------------------------------------------------

Property and equipment:
     Furniture and equipment                                                            1,190,188         1,038,463
     Leasehold improvements                                                                53,528            50,625
        Less accumulated depreciation and ammortization                                  (731,039)         (560,403)
-------------------------------------------------------------------------------------------------------------------
                Net property and equipment                                                512,677           528,685
-------------------------------------------------------------------------------------------------------------------

                                                      Total assets                   $  5,816,240         4,126,330
===================================================================================================================

                      Liabilities and Stockholders' Equity
-------------------------------------------------------------------------------------------------------------------

Current liabilities:
     Accounts payable                                                                $  2,024,473         1,037,331
     Accrued expenses                                                                      84,465           124,254
     Deferred revenue                                                                      68,187            40,664
     Revolving credit facility                                                          1,166,386           497,715
     Current portion of capital lease obligations                                          73,024            55,388
-------------------------------------------------------------------------------------------------------------------
                Total current liabilities                                               3,416,535         1,755,352
-------------------------------------------------------------------------------------------------------------------

Long-term liabilities:
     Capital lease obligations, net of current portion                                    122,925           107,639
-------------------------------------------------------------------------------------------------------------------
                Total long-term liabilities                                               122,925           107,639
-------------------------------------------------------------------------------------------------------------------

Stockholders' equity:
        Common stock ($.01 par value per share, 10,000,000 shares
                authorized, 6,668,781 and 6,657,281 issued and
                outstanding, respectively)                                                 66,688            66,573
        Additional paid-in capital                                                     17,244,113        17,238,322
        Accumulated deficit                                                           (15,034,021)      (15,041,556)
-------------------------------------------------------------------------------------------------------------------
                Total stockholders' equity                                              2,276,780         2,263,339
-------------------------------------------------------------------------------------------------------------------

                                      Total liabilities and stockholders' equity     $  5,816,240         4,126,330
===================================================================================================================
</TABLE>


See accompanying notes to financial statements.


                                       3
<PAGE>


                                RSI SYSTEMS, INC.

                            Statements of Operations

          Three Months and Six Months Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                                Three Months     Three Months
                                                                   Ended            Ended
                                                                December 31,     December 31,
                                                                    1998             1997
                                                                (Unaudited)      (Unaudited)
--------------------------------------------------------------------------------------------
<S>                                                             <C>                <C>      
Net sales                                                       $ 2,592,594        1,031,236
Cost of goods sold                                                1,291,089          374,049
--------------------------------------------------------------------------------------------
             Gross profit                                         1,301,505          657,187

Research and development                                            342,231          196,712
Selling, general, and administrative                                992,274          903,104
--------------------------------------------------------------------------------------------
             Operating loss                                         (33,000)        (442,629)

Other income (expense):
     Interest income (expense), net                                  (6,472)         (34,483)
--------------------------------------------------------------------------------------------
             Other income (expense), net                             (6,472)         (34,483)
--------------------------------------------------------------------------------------------

             Net loss                                           $   (39,472)        (477,112)
============================================================================================

             Net loss per common share - basic                  $     (0.01)           (0.10)
             Net loss per common share - diluted                $     (0.01)           (0.10)
============================================================================================

             Weighted average shares outstanding - basic          6,665,969        4,776,613
             Weighted average shares outstanding - diluted        6,665,969        4,776,613
============================================================================================

<CAPTION>
                                                                Six Months       Six Months
                                                                   Ended            Ended
                                                                December 31,     December 31,
                                                                    1998             1997
                                                                (Unaudited)      (Unaudited)
--------------------------------------------------------------------------------------------
Net sales                                                       $ 4,955,545        2,127,285
Cost of goods sold                                                2,344,596          800,781
--------------------------------------------------------------------------------------------
             Gross profit                                         2,610,949        1,326,504

Research and development                                            615,886          422,383
Selling, general, and administrative                              1,972,614        1,671,497
--------------------------------------------------------------------------------------------
             Operating income (loss)                                 22,449         (767,376)

Other income (expense):
     Interest income (expense), net                                 (14,914)         (51,741)
--------------------------------------------------------------------------------------------
             Other income (expense), net                            (14,914)         (51,741)
--------------------------------------------------------------------------------------------

             Net earnings (loss)                                $     7,535      $  (819,117)
============================================================================================

             Net earnings (loss) per common share - basic       $      0.00            (0.17)
             Net earnings (loss) per common share - diluted     $      0.00            (0.17)
============================================================================================

             Weighted average shares outstanding - basic          6,664,750        4,771,355
             Weighted average shares outstanding - diluted        7,161,956        4,771,355
============================================================================================
</TABLE>


See accompanying notes to financial statements.


                                       4
<PAGE>


                                RSI SYSTEMS, INC.

                            Statements of Cash Flows

                   Six Months Ended December 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                                   Six Months      Six Months
                                                                     Ended            Ended
                                                                  December 31,     December 31,
                                                                     1998              1997
                                                                  (Unaudited)      (Unaudited)
----------------------------------------------------------------------------------------------
<S>                                                               <C>                <C>    
Cash flows from operating activities:
     Net earnings (loss)                                          $     7,535         (819,117)
     Adjustments to reconcile net earnings (loss) to net cash
        used in operating activities:
           Depreciation and amortization                              170,636          122,416
           Unearned compensation                                           --           49,999
           Changes in operating assets and liabilities:
              Accounts receivable                                  (1,307,540)        (367,466)
              Inventories                                            (290,906)         (45,777)
              Prepaid expenses                                        (37,810)         (19,930)
              Accounts payable                                        987,142          (44,391)
              Accrued expenses                                        (39,789)          (7,569)
              Deferred revenue                                         27,523          161,389
----------------------------------------------------------------------------------------------
                 Net cash used in operating activities               (483,209)        (970,446)
----------------------------------------------------------------------------------------------

Cash flows from investing activities:
     Purchase of marketable securities                                (10,300)              --
     Purchases of furniture and equipment                            (154,628)         (13,819)
----------------------------------------------------------------------------------------------
                 Net cash used in investing activities               (164,928)         (13,819)
----------------------------------------------------------------------------------------------

Cash flows from financing activities:
     Proceeds from issuance of common stock                             5,906
     Net proceeds from line of credit                                 668,671               --
     Net increase in obligations under capital leases                  32,922               --
----------------------------------------------------------------------------------------------
                 Net cash provided by financing activities            707,499               --
----------------------------------------------------------------------------------------------

                 Net change in cash and cash equivalents               59,362         (984,265)


Cash and cash equivalents at beginning of period                      382,093        1,152,671
----------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period                        $   441,455          168,406
==============================================================================================
</TABLE>


See accompanying notes to financial statements.


                                       5
<PAGE>


                                RSI SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
                                   (Unaudited)


1.  BASIS OF PRESENTATION:

The unaudited interim financial statements have been prepared in accordance with
generally accepted accounting principles, pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in the financial statements have been
omitted or condensed pursuant to such rules and regulations. The accompanying
unaudited financial statements should be read in conjunction with the Company's
June 30, 1998 financial statements and related notes included in the Company's
Annual Report on Form 10-KSB.

The financial statements reflect all adjustments, of a normally recurring
nature, necessary to fairly present the results of operations and financial
position of the Company for the interim periods.

2.  REVOLVING CREDIT FACILITY:

On September 22, 1998, the Company signed an amendment to a commercial loan
agreement with a bank for a committed line of credit facility. The amendment
restates a previous agreement dated April 16, 1998, and increases the maximum
line of credit from the original $1,000,000 to $2,000,000. The facility is
secured by all corporate assets and provides working capital based on a
borrowing base comprised of accounts receivable, inventory and marketable
securities. The facility contains certain covenants and conditions, including
minimum net worth and tangible net worth levels. Interest on outstanding
borrowings accrues at the bank's base rate or the base rate plus up to 4%,
depending on the level of each component of the Company's borrowing base and the
outstanding amount on the line of credit. The base rate was 7.75 % on December
31, 1998. The facility has a maturity date of June 26, 2000.

3.  NET EARNINGS (LOSS) PER SHARE:

Basic earnings (loss) per share excludes any dilutive effects of options,
warrants, and convertible securities, and diluted earnings per share includes
such effects, if dilutive. Differences between basic and diluted weighted
average shares outstanding result from the dilutive effect of stock options and
warrants under the treasury stock method.


                                        6
<PAGE>


          CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS THAT COULD
             CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER FROM THOSE
                     PROJECTED IN FORWARD LOOKING STATEMENTS

In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, readers of this document and any document
incorporated by reference herein, are advised that this document and documents
incorporated by reference into this document contain both statements of
historical facts and forward looking statements. Forward looking statements are
subject to certain risks and uncertainties, which could cause actual results to
differ materially from those indicated by the forward looking statements.
Examples of forward looking statements include, but are not limited to (i)
projections of revenues, income or loss, earnings or loss per share, capital
expenditures, dividends, capital structure and other financial items, (ii)
statements of the plans and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulatory
authorities, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying other statements and statements about the
Company or its business.

This document and any documents incorporated by reference herein also identify
important factors which could cause actual results to differ materially from
those indicated by the forward looking statements. These risks and uncertainties
include price competition, the decisions of customers, the actions of
competitors, the effects of government regulation, possible delays in the
introduction of new products, customer acceptance of products and services, and
other factors which are described herein and/or in documents incorporated by
reference herein. The cautionary statements made pursuant to the Private
Litigation Securities Reform Act of 1995 above and elsewhere by the Company
should not be construed as exhaustive or as any admission regarding the adequacy
of disclosures made by the Company prior to the effective date of such Act.
Forward looking statements are beyond the ability of the Company to control and
in many cases the Company cannot predict what factors would cause results to
differ materially from those indicated by the forward looking statements.


                                        7
<PAGE>


                      MANAGEMENT'S DISCUSSION AND ANALYSIS


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


RSI Systems, Inc. (the "Company" or RSI) designs, manufactures and sells high
performance, business quality videoconferencing systems throughout a worldwide
network of resellers and OEM or private label customers. The Company was
incorporated under the laws of Minnesota on December 21, 1993.

Since July 1996, the Company's efforts have been directed toward the emerging
small workgroup and set-top television-based market. The Company's primary
product, the Video FlyerTM PLUS system, provides computer-free television
quality video and audio (without the need for interfacing to any type of
computer system), via a miniaturized, self-contained free standing device which
is fully industry standards based.

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1997

Net Sales. Net sales for the second quarter of fiscal year 1999 were $2,592,594,
up 151% from $1,031,236 in the second quarter of fiscal year 1998. The increase
in sales in the second quarter of fiscal year 1999 compared to the second
quarter of fiscal year 1998 was primarily a result of higher unit volume
associated with the Company's expanded distribution through its OEM and private
label relationships. OEM and private label sales volume accounted for
approximately half of net sales in the second quarter of fiscal year 1999. The
increased net sales due to increased unit volume was partially offset by lower
average selling prices as a result of volume pricing discounts on sales to
certain customers during the period.

Gross Profit . Gross profit was $1,301,505 in the second quarter of fiscal year
1999 compared to a gross profit of $657,187 during the second quarter of fiscal
year 1998. The increased gross profit was a result of higher sales. Cost of
goods sold as a percentage of net sales were 50% in the second quarter of fiscal
year 1999 compared to 36% in the second quarter of fiscal year 1998. The
increased cost of sales as a percent of net sales during the second quarter of
fiscal year 1999 was due to lower average selling prices on units shipped to
certain customers compared to the second quarter of fiscal year 1998. In
addition, during the second quarter of fiscal year 1999 the company sold certain
peripheral equipment such as display devices to customers at insignificant
markup percentages, which increased the overall percentage of cost of goods sold
to net sales during the second quarter of fiscal year 1999.

Research and Development Expenses. Research and development expenses were
$342,231 for the second quarter of fiscal year 1999, or 13% of sales, compared
to research and development expenses of $196,712, or 19% of sales for the second
quarter of fiscal year 1998. The percentage decrease in the second quarter of
fiscal year 1999 was due to higher sales as discussed above. Actual spending
increased during the second quarter of fiscal year 1999 due to increased
hardware and software development on a number of new product configurations and
capabilities as well as development in


                                       8
<PAGE>


support of OEM and private label partners. The Company also incurred recruiting
costs associated with new personnel in the second quarter of fiscal year 1999.
During the second quarter of fiscal year 1998 the Company's research and
development efforts were directed toward smaller scale enhancements to the Video
Flyer product.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $992,274 in the second quarter of fiscal year 1999,
or 38% of sales, compared to $903,104 or 88% of sales for the second quarter of
fiscal year 1998. The percentage decrease was due to higher sales in the second
quarter of fiscal year 1999 as discussed above. The increase in actual
expenditures during the second quarter of fiscal year 1999 was a result of
increased sales, marketing and technical support activities associated with
higher sales volume. However, no significant additional sales or marketing
expenses were incurred in connection with the increased sales volume generated
through the Company's OEM and private label partners in the second quarter of
fiscal year 1999.

Other Income (Expense). Other income (expense) was $(6,472) in the second
quarter of fiscal year 1999, compared to $(34,483) in the second quarter of
fiscal year 1998. In the second quarter of fiscal year 1998, the higher amount
of other (expense) was due to interest charges on inventory procured by the
Company's third party manufacturer on behalf of the Company to support required
lead times. Although the Company incurred increased interest expense on higher
outstanding line of credit balances in the second quarter of fiscal year 1999
compared to the second quarter of fiscal year 1998, the interest expense was
largely offset by interest income earned on investments during the second
quarter of fiscal year 1999. The investments were made with available proceeds
of a private placement of the Company's common stock in January 1998.

As a result of the foregoing, the net loss for the second quarter of fiscal year
1999 was $(39,472) or $(.01) per common share compared to a net loss of
$(477,112), or $(.10) per common share in the second quarter of fiscal year
1998.

SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1997

Net Sales. Net sales for the six-month period ended December 31, 1998 were
$4,955,545, compared to $2,127,285 for the six-month period ended December 31,
1997. The increase in sales during the six-month period ended December 31, 1998
was a result of higher unit volume associated with the Company's expanded
distribution through its OEM and private label relationships.

Gross Profit. Gross profit was $2,610,949 for the six-month period ended
December 31, 1998, compared to a gross profit of $1,326,504 during the six-month
period ended December 31, 1997. The increased gross profit was a result of
higher sales. Cost of goods sold as a percentage of sales were 47% for the
six-month period ended December 31, 1998 compared to 38% during the six-month
period ended December 31, 1997. The increased cost of goods sold as a percentage
of sales during the six-month period ended December 31, 1998 was due to lower
average selling prices on units shipped during the period.


                                       9
<PAGE>


Research and Development Expenses. Research and development expenses were
$615,886, or 12% of sales for the six-month period ended December 31, 1998,
compared to research and development expenses of $422,383, or 20% of sales for
the six-month period ended December 31, 1997. The percentage decrease in the
six-month period ended December 31, 1998 was due to higher sales as discussed
above. Actual dollar spending increased during the six-month period ended
December 31, 1998 due to increased development associated with new product
configurations and capabilities as well as development in support of OEM and
private label partners. During the six-month period ended December 31, 1997, the
Company's research and development efforts were directed primarily toward
smaller scale enhancements to the Video Flyer.

Selling, General and Administrative Expenses. Selling, general, and
administrative expenses were $1,972,614 for the six-month period ended December
31, 1998 or 40% of sales, compared to $1,671,497, or 79% of sales the six-month
period ended December 31, 1997. The percentage decrease was due to higher sales
during the six-month period ended December 31, 1998 as discussed above. The
increase in actual expenditures during the six-month period ended December 31,
1998 was due to increased sales, marketing and technical support activities
associated with increased sales volume.

Other Income (Expense). Other income (expense) was $(14,914) for the six-month
period ended December 31, 1998, compared to $(51,571) for the six-month period
ended December 31, 1997. The higher amount of other (expense) during the
six-month period ended December 31, 1997 was associated with interest charges on
inventory procured by the Company's third party manufacturer on behalf of the
Company to support required lead times, and interest on outstanding borrowings
on the Company's line of credit. Although the Company incurred interest expense
on its line of credit during the six-month period ended December 31, 1998 the
Company also earned interest income on investments during the same period, which
offset a significant portion of interest expense. The investments were a result
of a private placement of the Company's common stock in January, 1998.

As a result of the foregoing, the net profit for the six-month period ended
December 31, 1998 was $7,535, or $0.00 per common share, compared to a net loss
of $(819,117), or $(.17) per common share in the six-month period ended December
31, 1997.

OUTLOOK

The Company is pursuing its fiscal year 1999 strategy of increasing sales by
targeting specific markets best suited to its product capabilities, increasing
distribution through a variety of channels and developing additional product
offerings to enhance value and competitive advantage. Although the video
conferencing industry remains very competitive and continues to rapidly change,
the Company believes its strategy will allow it to increase revenues, maintain
margins and improve income from operations. The magnitude of these improvements
cannot be reasonably estimated.

LIQUIDITY, CAPITAL RESOURCES AND MATERIAL CHANGES IN FINANCIAL CONDITION

CASH FLOWS FROM OPERATING ACTIVITIES


                                       10
<PAGE>


Although the Company generated a profit during the six-month period ended
December 31, 1998, a significant increase in accounts receivable of $1,307,540
and an increase in inventories of $290,906, offset by an increase in accounts
payable of $987,142, resulted in a net use of cash in operating activities of
$(483,209). The increase in accounts receivable was primarily a result of
increased sales to OEM and private label distribution partners. These sales
occurred primarily in the last month of the second quarter and as a result, had
not yet been paid by December 31, 1998.

The increase in inventory during the six-month period ended December 31, 1998
was a result of increased sales activity and Company efforts to ensure adequate
product was on hand to support customer orders. A significant portion of this
inventory was delivered to the Company in the last month of the six-month period
ended December 31, 1998 on open credit terms and had not been paid for as of
December 31, 1998. As a result, accounts payable increased $987,142 during the
six-month period ended December 31, 1998.

CASH FLOW FROM INVESTING ACTIVITIES

Net cash used in investing activities was $(164,928) during the six-month period
ended December 31, 1998, compared to a use of $(13,819) during the six-month
period ended December 31, 1997. The increased use of cash for investing
activities was a result of purchases of equipment and development tools related
the increased development and sales activity related to Video Flyer PLUS during
the six-month period ended December 31, 1998.

CASH FLOW FROM FINANCING ACTIVITIES

During the period ended December 31, 1998, the Company entered into various
capital leases to finance new equipment and development tools.

For the six-month period ended December 31, 1998, the Company's cash
requirements were funded by a $2,000,000 credit facility. Under the terms of the
credit facility, a maximum of $2,000,000 in working capital funds may be drawn
based on a borrowing base comprised of a percentage of eligible accounts
receivable, inventory and marketable securities. At December 31, 1998 the
Company had cash and cash equivalents of $441,455, marketable securities of
$989,855 and an outstanding line of credit balance of $1,166,386 on the
$2,000,000 credit facility.

The Company believes funds from operations, funds remaining from previous equity
investments in the Company and funds from its line of credit will be sufficient
to cover cash needs during fiscal year 1999. However, in the event the Company
requires cash in excess of the funds from these sources, management would seek
additional financing, however no formal arrangements have been made in this
regard and no assurance can be made that any such financing would be available
on favorable terms or at all.

YEAR 2000 STATUS

The Company has a timetable for becoming ready for the year 2000. The assessment
phase, originally expected to be completed by December 31, 1998 has been
rescheduled for completion by


                                       11
<PAGE>


March 31, 1999. The Company still expects to be utilizing all newly developed
systems designed to comply with the Year 2000 issue by July 1, 1999 as
originally planned. As of February 10, 1999 the Company's internal information
systems have been upgraded to comply with the Year 2000 issue and are currently
being utilized with no known problems.

To date the costs of assessing the year 2000 problem have been insignificant,
and based on its assessment to date, the Company does not believe future
remediation costs will be material to the Company's financial condition or
operating results.

In addition to completing its assessment phase, the Company is currently
continuing its efforts to develop a contingency plan to handle a worst case
scenario related to the Year 2000 issue. The contingency plan is being developed
in order to minimize uncertainties and the potential costs involved under a
worst case scenario involving replacement of its sources of supply for critical
components. The Company's revised schedule for a completed contingency plan is
March 31, 1999.


                                       12
<PAGE>


                                     PART II
                                OTHER INFORMATION


Item 1. LEGAL PROCEEDINGS

        None

Item 2. CHANGES IN SECURITIES

        None

Item 3. DEFAULTS UPON SENIOR SECURITIES

        None

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

        The Company's Annual Meeting of Shareholders was held on November 19,
        1998 for the purpose of electing four directors to serve for one-year
        terms and voting on the proposals is described below. Proxies for the
        meeting were solicited pursuant to Section 14 (a) of the Securities
        Exchange Act of 1934 and there was no solicitation in opposition to
        management's solicitations. All of management's nominees for directors
        as listed in the proxy statement were elected with the following vote:

        Donald C. Lies--Shares voted "For" (5,327,405), "Withheld" (26,000)
        Richard F. Craven--Shares voted "For" (5,328,095), "Withheld" (25,310)
        David W. Stassen--Shares voted "For" (5,328,405), "Withheld" (25,000)
        Manfred D. Haiderer--Shares voted "For" (5,327,405), "Withheld" (26,000)

        The proposal to amend the Company's 1994 Stock Option Plan to increase
        the number of shares of Common Stock reserved for issuance by 600,000
        shares was approved with the following vote:

        Shares voted "For" (3,094,876)
        Shares voted "Against" (848,320)
        Shares "Abstaining" (18,940)
        Shares not voting (1,391,269)


                                       13
<PAGE>


        The proposal to ratify the appointment of KPMG Peat Marwick LLP,
        certified public accountants, as independent auditors for the Company
        for the year ending June 30, 1999 was approved with the following vote:

        Shares voted "For" (5,327,045)
        Shares voted "Against" (19,260)
        Shares " Abstaining" (7,100)
        Shares not voting (0)

Item 5. OTHER INFORMATION

        None

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)   Exhibit 27.1 - Financial Data Schedule

        (b)   Reports on Form 8-K - None


                                       14
<PAGE>


                                   SIGNATURES



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


                                       RSI Systems, Inc.




Dated: February 12, 1999               /s/         Donald C. Lies
                                       --------------------------
                                                   Donald C. Lies
                                       Its President & Chief ExecutiveOfficer


                                       By: /s/     James D. Hanzlik
                                           ------------------------
                                                   James D. Hanzlik
                                       Its Chief Financial Officer


                                       15
<PAGE>


                                RSI SYSTEMS, INC.
                                EXHIBIT INDEX TO
               FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1998



Item No.              Title of Document                 Method of Filing
--------              -----------------                 ----------------

27.1             Financial Data Schedule         Filed herewith electronically


                                       16