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 MARCH 31, 2001.
_____    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.)


    5593 West 78th Street, Minneapolis, Minnesota                55439
    ---------------------------------------------                -----
      (Address of principal executive offices)                (Zip Code)

                                 (952) 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 11,311,838 shares of Common Stock, $ 0.01 par value per share,
outstanding as of May 14, 2001.

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


                                       1
<PAGE>


                        RSI Systems, Inc. and Subsidiary

                                      INDEX


                                                                            Page
                                                                            ----

PART I.  FINANCIAL INFORMATION

     Item 1.    Financial Statements

                Balance Sheets - March 31, 2001 (unaudited)
                and June 30, 2000 .............................................3

                Statements of Operations (unaudited) - Three
                Months and nine months ended March 31, 2001 and 2000...........4

                Statements of Cash Flows (unaudited) - Nine
                Months ended March 31, 2001 and 2000...........................5

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

     Item 2.    Management's Discussion and Analysis of Financial Condition
                And Results of Operations ....................................11

PART II  OTHER INFORMATION....................................................17

Signatures....................................................................19

Exhibit Index.................................................................20


                                       2
<PAGE>


                        RSI SYSTEMS, INC. AND SUBSIDIARY

                           Consolidated Balance Sheets

                        March 31, 2001 and June 30, 2000

<TABLE>
<CAPTION>
                                                                     March 31,
                                                                        2001           June 30,
                                       Assets                       (Unaudited)          2000
-------------------------------------------------------------------------------------------------
<S>                                                                <C>                 <C>
Current assets:
    Cash and cash equivalents                                      $    467,299           83,930
    Accounts receivable, net of allowance for doubtful
      accounts of $168,500 and $241,000, respectively                   424,028          799,832
    Inventories                                                         578,006          806,956
    Prepaid expenses                                                     56,015           65,010
-------------------------------------------------------------------------------------------------
            Total current assets                                      1,525,348        1,755,728
-------------------------------------------------------------------------------------------------

Property and equipment:
    Software                                                            400,710          310,049
    Furniture and equipment                                           1,290,726        1,272,714
    Leasehold improvements                                                4,444               --
      Less accumulated depreciation and amortization                 (1,356,283)      (1,120,702)
-------------------------------------------------------------------------------------------------
            Net property and equipment                                  339,597          462,061
-------------------------------------------------------------------------------------------------

Patents, net                                                             77,452               --
-------------------------------------------------------------------------------------------------

                                     Total assets                  $  1,942,397        2,217,789
=================================================================================================

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

Current liabilities:
    Revolving credit facility                                           571,079          573,801
    Current portion of capital lease obligations                         88,026          137,978
    Accounts payable                                                    774,494          792,786
    Accrued expenses                                                    225,847          265,149
    Deferred revenue                                                     70,632           75,759
-------------------------------------------------------------------------------------------------
            Total current liabilities                                 1,730,078        1,845,473
-------------------------------------------------------------------------------------------------

Long-term liabilities:
    Capital lease obligations, net of current portion                    21,824           72,053
-------------------------------------------------------------------------------------------------
            Total long-term liabilities                                  21,824           72,053
-------------------------------------------------------------------------------------------------

Stockholders' equity:
      Common stock ($.01 par value per share, 15,000,000 shares
            authorized, 10,882,266 issued and outstanding)              108,823           87,249
      Additional paid-in capital                                     19,303,205       18,615,457
      Accumulated deficit                                           (19,221,533)     (18,402,443)
-------------------------------------------------------------------------------------------------
            Total stockholders' equity                                  190,495          300,263
-------------------------------------------------------------------------------------------------

                     Total liabilities and stockholders' equity    $  1,942,397        2,217,789
=================================================================================================
</TABLE>

See accompanying notes to financial statements.


                                       3
<PAGE>


                            RSI SYSTEMS, INC. AND SUBSIDIARY

                          Consolidated Statements of Operations

               Three Months and Nine Months Ended March 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                           Three Months      Three Months
                                                              Ended             Ended
                                                            March 31,         March 31,
                                                              2001              2000
                                                           (Unaudited)       (Unaudited)
----------------------------------------------------------------------------------------
<S>                                                       <C>                   <C>
Net sales                                                 $    713,074          741,234
Cost of goods sold                                             366,498          374,812
Inventory writedown to lower of cost or market                      --          320,000
----------------------------------------------------------------------------------------
         Gross profit                                          346,576           46,422

Research and development                                       129,680          164,862
Selling, general, and administrative                           518,211          518,953
----------------------------------------------------------------------------------------
         Operating loss                                       (301,315)        (637,393)

Other expense:
   Interest expense, net                                       (46,811)         (52,838)
----------------------------------------------------------------------------------------
         Other expense, net                                    (46,811)         (52,838)
----------------------------------------------------------------------------------------

         Net loss                                         $   (348,126)        (690,231)
========================================================================================

         Net loss per common share - basic                $      (0.04)           (0.09)
         Net loss per common share - diluted              $      (0.04)           (0.09)
========================================================================================

         Weighted average shares outstanding - basic         9,605,294        7,747,171
         Weighted average shares outstanding - diluted       9,605,294        7,747,171
========================================================================================

<CAPTION>
                                                           Nine Months       Nine Months
                                                              Ended             Ended
                                                            March 31,         March 31,
                                                              2001              2000
                                                           (Unaudited)       (Unaudited)
----------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>
Net sales                                                 $  2,708,751        3,489,988
Cost of goods sold                                           1,360,429        1,764,097
Inventory writedown to lower of cost or market                      --          320,000
----------------------------------------------------------------------------------------
         Gross profit                                        1,348,322        1,405,891

Research and development                                       420,575          650,218
Selling, general, and administrative                         1,583,503        2,728,185
----------------------------------------------------------------------------------------
         Operating loss                                       (655,756)      (1,972,512)

Other expense:
   Interest expense, net                                      (163,334)        (155,739)
----------------------------------------------------------------------------------------
         Other expense, net                                   (163,334)        (155,739)
----------------------------------------------------------------------------------------

         Net loss                                         $   (819,090)    $ (2,128,251)
========================================================================================

         Net loss per common share - basic                $      (0.09)           (0.29)
         Net loss per common share - diluted              $      (0.09)           (0.29)
========================================================================================

         Weighted average shares outstanding - basic         9,014,069        7,333,728
         Weighted average shares outstanding - diluted       9,014,069        7,333,728
========================================================================================
</TABLE>

See accompanying notes to financial statements.


                                       4
<PAGE>


                        RSI SYSTEMS, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

                    Nine Months Ended March 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                          Nine Months       Nine Months
                                                                             Ended             Ended
                                                                           March 31,         March 31,
                                                                              2001             2000
                                                                          (Unaudited)       (Unaudited)
-------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                <C>
Cash flows from operating activities:
    Net loss                                                             $   (819,090)      (2,128,251)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
        Depreciation and amortization                                         239,099          222,267
        Inventory writedown to lower of cost or market                             --          320,000
        Compensation expense  - stock and warrant grants                       45,920               --
        Changes in operating assets and liabilities:
          Accounts receivable, net                                            375,804        1,146,651
          Inventories                                                         228,950         (147,236)
          Prepaid expenses                                                      8,995           22,673
          Accounts payable                                                    (18,292)        (373,868)
          Accrued expenses                                                    (28,269)         (43,735)
          Deferred revenue                                                     (5,127)          (3,064)
-------------------------------------------------------------------------------------------------------
            Net cash provided by (used in) operating activities                27,990         (984,563)
-------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
    Proceeds from sale of marketable securities                                    --          911,764
    Purchases of software, property and equipment                            (113,118)        (276,003)
    Payments for patent costs                                                 (80,969)              --
-------------------------------------------------------------------------------------------------------
            Net cash provided by (used in) investing activities              (194,087)         635,761
-------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
    Net proceeds from issuance of common stock                                427,369          618,299
    Net repayments on revolving credit facility                                (2,722)        (859,560)
    Proceeds from note payable-stockholder                                    425,000          300,000
    Repayment of note payable- stockholder                                   (200,000)              --
    Payments of capital lease obligations                                    (100,181)         (84,735)
-------------------------------------------------------------------------------------------------------
            Net cash provided by (used in) financing activities               549,466          (25,996)
-------------------------------------------------------------------------------------------------------

            Net change in cash and cash equivalents                           383,369         (374,798)


Cash and cash equivalents at beginning of period                         $     83,930          418,863
-------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period                                    467,299           44,065
=======================================================================================================

Supplemental disclosure of cash flow information:

    Cash paid during period for interest                                 $    147,909     $    221,984
    Cash paid during period for income taxes                             $         --     $         --

Supplemental schedule of non-cash investing and financing activities:

    Note payable and accrued interest converted to common stock          $    236,034     $         --
</TABLE>

See accompanying notes to financial statements.


                                       5
<PAGE>


                        RSI SYSTEMS, INC. AND SUBSIDIARY
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 2001 and 2000
                                   (Unaudited)


1. BASIS OF PRESENTATION:

The unaudited interim financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America,
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, 2000 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:

In August 2000, the Company modified its commercial loan agreement with a bank
for a $2,500,000 committed line of credit facility that matures on June 26,
2001. This agreement amended and restated the previous commercial loan agreement
dated September 3, 1999. The new facility is secured by all corporate assets and
provides working capital based on a borrowing base comprised of accounts
receivable, inventories and marketable securities. The new facility also
contains certain covenants and conditions, including minimum net worth plus
subordinated debt levels. Interest on outstanding borrowings accrues at the
prime rate plus 4% (12.0% at March 31, 2001). Outstanding borrowings were
$571,079 and $573,801 at March 31, 2001 and June 30, 2000, respectively.

3. STOCKHOLDER'S EQUITY:

(a)      COMMON STOCK

         On January 31, 2001, the Company issued 75,000 shares of common stock
         to an employee for services provided. The shares have not been
         registered with the Securities and Exchange Commission.

         On February 23, 2001, the Company received $424,369 net of offering
         costs as a result of a private placement of 1,400,000 shares of its
         common stock to Digital Investors, LLC (Digital) ($.35 per share). The
         shares were sold in connection with a Stock Purchase Agreement between
         the Company and Digital. The shares have not been registered with the
         Securities and Exchange Commission.


                                       6
<PAGE>


         On March 31, 2001, the Company received net proceeds of $3,000 and
         issued 8000 shares of common stock upon the exercise of employee stock
         options ($.375 per share). The shares have been registered with the
         Securities and Exchange Commission.

(b)      STOCK WARRANTS

         On February 23, 2001, the Company granted warrants to Active
         Management, LLC (AM), a management and consulting firm, for the
         purchase of 500,000 shares of common stock at an exercise price of $.45
         per share. The warrants vest at a rate of 50,000 on February 23, 2001
         and 37,500 per quarter thereafter (or earlier, based on the achievement
         of certain earnings targets) and are exercisable for a period of five
         years from the date of issuance.

         On February 23, 2001, the Company granted warrants to RSI Marketing,
         LLC (RSIM), a sales and marketing firm affiliated with AM, for the
         purchase of 1,000,000 shares of common stock at an exercise price of
         $.45 per share. The warrants vest based on the achievement of certain
         sales targets by RSIM through December, 2002. The warrants are
         exercisable for a period of five years from the date of issuance.


                                       7
<PAGE>


4. COMMITMENTS AND CONTINGENCIES:

         MANUFACTURING AGREEMENT

         On August 28, 1996, the Company entered into a manufacturing agreement
         with a third party custom manufacturer (Manufacturer). Pursuant to this
         agreement, the Manufacturer agrees to produce the Company's
         videoconferencing products, and warrants that all products will be free
         from defects in material and workmanship for twelve months from the
         date the Company ships to the customer, or fifteen months from the date
         the Manufacturer ships to the Company, whichever comes first.

         The agreement may be terminated by either party upon failure of the
         other party to comply with any material term of the agreement after a
         30-day written notice and cure period. In the event of such
         termination, the Company would be obligated to pay for any goods
         accepted under the terms of the agreement. The Company may also
         terminate the agreement upon 30 days written notice. In such case, the
         Company would be obligated to pay for material and work in progress for
         products ordered by the Company. As of March 31, 2001, the Company's
         commitment for material and work in progress for products ordered was
         approximately $600,000.

5. RELATED PARTY TRANSACTIONS:

         NOTES PAYABLE TO RELATED PARTY

         In August 2000, the Company received $225,000 from Richard F. Craven,
         Chairman of the Company, in exchange for a convertible demand note
         payable. On February 26, 2001, the principal amount of the note,
         together with accrued interest at 10% per annum, ($236,034) was
         converted into 674,383 shares of common stock of the Company at a price
         of $.35 per share, in connection with a Stock Purchase Agreement
         between the Company and Digital and the terms of the Note Payable.

         On January 31, 2001, the Company received $200,000 in cash from Richard
         F. Craven, Chairman of the Company, in exchange for a convertible
         demand note payable. On or after February 5, 2001, the maturity date of
         the note, the principal amount of the note together with the accrued
         interest at 10% per annum was convertible into common stock at a price
         of $.45 per share, which was the market price of the Company's common
         stock on the date the note was signed. The note, together with accrued
         interest was repaid by the Company on February 26, 2001.

6.       SUBSEQUENT EVENTS:

(a)      ASSET PURCHASE

         On April 16, 2001, the Company purchased certain product rights,
         marketing and distribution rights and related intellectual property
         from an unrelated company (the


                                       8
<PAGE>


         Seller). As part of the agreement, the Seller is restricted from
         selling the product to current and previous customers, but may continue
         to distribute the product to certain new customers in the future. As
         consideration, the Company paid $275,000 cash and granted warrants to
         purchase 750,000 shares of RSI common stock at a price of $.70 per
         share, exercisable immediately. The Company also granted warrants to
         the Seller to purchase up to an additional 250,000 shares of RSI common
         stock at $.70 per share depending upon the level of the Company's sales
         of the product back to the Seller, in connection with the Seller's
         distribution of the product to new customers. The warrants are
         exercisable through April 12, 2006.

(b)      SALE OF COMMON STOCK

         On April 30, 2001, the Company received $150,000 net of offering costs
         as a result of a private placement of 428,572 shares of its common
         stock ($.35 per share). The shares were sold to Digital Investors LLC
         (Digital) in connection with the Stock Purchase Agreement between the
         Company and Digital. The 428,572 shares are considered an early partial
         closing of the additional 3,100,000 shares that Digital had agreed to
         purchase subsequent to February 23, 2001 in accordance with the terms
         of the Stock Purchase Agreement, therefore reducing the remaining
         number of shares to be purchased by Digital under the terms of the
         agreement to 2,671,428. The shares purchased on April 30, 2001 have not
         been registered with the Securities and Exchange Commission.


                                       9
<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.


                                       10
<PAGE>


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 through a worldwide
network of resellers and distributors, strategic and other private label
partners, and directly to end users. The Company was incorporated under the laws
of Minnesota on December 21, 1993.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000

Net Sales. Net sales for the third quarter of fiscal year 2001 were $713,074
compared to $741,234 in the third quarter of fiscal year 2000. Unit volume
increased approximately 37% in the third quarter of fiscal year 2001 compared to
the third quarter of fiscal year 2000, but competitive pressures resulted in
lower average selling prices during the current quarter which offset the impact
of higher unit volume. International sales, primarily in Europe, accounted for
approximately 69% of overall net sales in the third quarter of fiscal year 2001.

During the third quarter of fiscal year 2001, the Company reduced its reserve
for sales returns and allowances by approximately $43,000 which increased net
sales by this amount. The reserve had been accrued during the first two quarters
of fiscal year 2001 consistent with historical sales returns and allowance
experience and outstanding accounts receivable. The resolution of certain
pricing issues with customers and the reduction of accounts receivable during
the third quarter of fiscal year 2001 resulted in the reduction of such reserve
as of March 31, 2001.

To improve domestic sales, the Company entered into a sales and marketing
agreement with RSI Marketing, LLC, (RSIM) in February, 2001. The agreement gives
RSIM exclusive rights to market and sell the Company's products in North America
on a straight commission basis through both third party distribution and direct
sales. The agreement also provides certain performance warrants for RSIM that
vest upon the achievement of certain pre-defined sales targets. Sales in the
fourth quarter of fiscal year 2001 are not expected to be significantly affected
by the new relationship, as most of the work performed by RSIM through June 30,
2001 will be associated with initial marketing efforts.

In April 2001, the Company acquired the product rights to the Automated Line
Routing Switch (ALRS) from a separate company. The Company expects to apply for
certification of the ALRS in foreign countries including several in the EU, and
the Pacific Rim, and plans to distribute this product both internationally and
domestically through third party resellers. Prior to its acquisition by the
Company, the ALRS had only been marketed in United States.

In May, 2001 the Company announced plans to sell Sony Electronics' PCS-1600(TM)
set-top videoconferencing systems and e-Conference(TM) solutions. In addition,
the Company became an agent for the sale of Genesys Corporation group of
companies' point to point and multipoint services.

The Company expects sales to increase in fiscal year 2002 as a result of its new
relationship with RSIM, and the recent the addition of the ALRS and
products/services from Sony Electronics and Genesys.

Gross Profit. Gross profit was $346,576 in the third quarter of fiscal year
2001 compared to a gross profit of $46,422 during the third quarter of fiscal
year 2000 on relatively comparable sales levels.


                                       11
<PAGE>


The primary reason for the lower level of gross profit in the third quarter of
fiscal year 2000 was a write -down of certain inventory during that prior-year
quarter by $320,000 to estimated market value, as a result of its transition to
new generation products. Excluding the effects of this inventory write down,
other quarter-end adjustments to inventory which were not related to costs of
goods sold during the third quarter of fiscal year 2001, and the adjustment to
the reserve for sales returns and allowances as discussed above, cost of goods
sold as a percentage of net sales were 61% in the third quarter of fiscal year
2001 compared to 51% for the third quarter of fiscal year 2000.

This increase in cost of goods sold as a percentage of net sales (after
excluding the adjustments described above) for the third quarter of fiscal year
2001 was primarily a result of lower average selling prices during the third
quarter of fiscal year 2001 due to competitive pressures. The Company expects
these competitive pressures and their negative impact on average selling prices
to continue over the coming year, which will continue to reduce gross margin
percentages during fiscal year 2002 from levels achieved during fiscal year
2001.

Research and Development Expenses. Research and development expenses were
$129,680 for the third quarter of fiscal year 2001, or 18% of sales, compared to
research and development expenses of $164,862, or 22% of sales for the third
quarter of fiscal year 2000. Actual spending was lower during the third quarter
of fiscal year 2001 due to a lower level of hardware and software development
activity during the period and lower headcount as a result of attrition. The
Company has implemented a strategy of outsourcing certain required technology
from independent third parties in order to minimize ongoing overhead costs. The
Company believes it has maintained key development personnel in all critical
areas.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $518,211 in the third quarter of fiscal year 2001,
or 73% of sales, compared to $518,953 or 70% of sales for the third quarter of
fiscal year 2000. During the third quarter of fiscal year 2001, the Company
signed a management agreement with Active Management LLC (AM). In connection
with this agreement, the Company granted warrants to purchase 500,000 shares of
common stock to AM of which warrants to purchase 50,000 shares vested
immediately. As part of the agreement, the Company hired a new Chief Executive
Officer. The Company granted its previous Chief Executive Officer 75,000 shares
of common stock for consulting services provided during the management change.
Selling, general and administrative expenses for the third quarter of fiscal
year 2001 included approximately $46,000 associated with the vesting of warrants
to purchase 50,000 shares of common stock granted to AM and the grant of 75,000
shares of common stock to the Company's former Chief Executive Officer.

Other Expense. Interest expense, net was $46,811 for the third quarter of fiscal
year 2001, compared to $52,838 for the third quarter of fiscal year 2000. During
the third quarter of fiscal year 2001, interest expense included approximately
$16,000 on outstanding borrowings on the Company's line of credit, compared to
approximately $31,000 for the third quarter of fiscal year 2000. The lower level
of bank interest during the third quarter of fiscal year 2001 was related to
lower overall outstanding borrowings on the Company's line of credit during the
third quarter of fiscal year 2001 compared to the third quarter of fiscal year
2000. Other than bank interest on the Company's line of credit, the remaining
interest expense related primarily to interest charged


                                       12
<PAGE>


to the Company by its third party manufacturer for inventory procured on behalf
of the Company and interest on outstanding balances of capital lease
obligations.

As a result of the foregoing, the net loss for the third quarter of fiscal year
2001 was $(348,126) or $(.04) per common share compared to a net loss of
$(690,231), or $(.09) per common share in the third quarter of fiscal year 2000.

NINE MONTHS ENDED MARCH 31, 2001 COMPARED TO NINE MONTHS ENDED MARCH 31, 2000

Net Sales. Net sales for the nine-month period ended March 31, 2001 were
$2,708,751, down 22% from $3,489,988 for the nine-month period ended March 31,
2000. The decrease in sales during the nine-month period ended March 31, 2001
was a result of a termination of an OEM relationship between the Company and
Philips Electronics, NV of the Netherlands in the September, 1999. The
termination was a result of Philips'overall decision to discontinue its
involvement in the settop/workgroup systems videoconferencing market. Total
sales to Philips were $655,000 during the previous nine-month period ended March
31, 2000, yet the Company had no sales to Philips during the nine-month period
ended March 31, 2001. Net sales for the nine-month period ended March 31, 2000
included a $290,540 lump sum settlement payment from Philips as part of the
termination.

Gross Profit. Gross profit was $1,348,322 for the nine-month period ended March
31, 2001, compared to a gross profit of $1,405,891 during the nine-month period
ended March 31, 2000. Cost of goods sold as a percentage of net sales were 50%
for the nine-month period ended March 31, 2001 compared to 55% during the
nine-month period ended March 31, 2000 (excluding an inventory write-down to
estimated market value of $320,000 and the $290,540 settlement from Philips).
The decrease in cost of sales as a percentage of net sales during the nine-month
period ended March 31, 2001 was primarily due to a higher mix of direct sales to
end users and associated higher average selling prices compared to the
nine-month period ended March 31, 2000. This higher mix of direct sales to end
users occurred during the first two quarters of fiscal year 2001, and more than
offset the effects of lower average selling prices during the third quarter of
fiscal year 2001.

Research and Development Expenses. Research and development expenses were
$420,575, or 16% of sales for the nine-month period ended March 31, 2001,
compared to research and development expenses of $650,218 or 19% of sales for
the nine-month period ended March 31, 2000. Actual spending was lower during the
nine-month period ended March 31, 2001 due to a lower level of hardware and
software development activity during the period and lower headcount as a result
of attrition. The Company has implemented a strategy of outsourcing certain
required technology from independent third parties in order to minimize ongoing
overhead costs. The Company believes it has maintained key development personnel
in all critical areas.

Selling, General and Administrative Expenses. Selling, general, and
administrative expenses were $1,583,503 for the nine-month period ended March
31, 2001 or 58% of sales, compared to $2,728,185 or 78% of sales for the
nine-month period ended March 31, 2000. The lower level of actual expenditures
during the nine-month period ended March 31, 2001 was a result of


                                       13
<PAGE>


decreased sales, marketing, technical support and administrative expenses
associated with lower sales volume.

Other Expense. Interest expense, net was $163,334 for the nine-month period
ended March 31, 2001, compared to $155,739 for the nine-month period ended March
31, 2000. During the nine-month period ended March 31, 2001, interest expense
included approximately $61,000 on outstanding borrowings on the Company's line
of credit compared to approximately $128,000 for the nine-month period ended
March 31, 2000. The lower level of bank interest during the nine-month period
ended March 31, 2001 was related to lower overall outstanding borrowings on the
Company's line of credit compared to the nine-month period ended March 31, 2000.
Other than bank interest on its line of credit, the remaining amount of interest
expense relates primarily to interest charged to the Company by its third party
manufacturer for inventory procured on behalf of the Company and interest on
outstanding balances of capital lease obligations.

As a result of the foregoing, the net loss for the nine-month period ended March
31, 2001 was $(819,090) or $(.09) per common share, compared to a net loss of
$(2,128,251), or $(.29) per common share in the nine-month period ended March
31, 2000.

OUTLOOK

The Company is continuing its strategy of increasing distribution by developing
relationships with a few carefully selected strategic partners, third party
resellers and distributors. The Company's new relationship with RSI Marketing
LLC in the third quarter of fiscal year 2001 was a major milestone as part of
that strategy. This relationship will begin RSI's direct sales strategy in North
America and expand its worldwide marketing capability. The Company also expects
to continue expanding its product offerings to increase revenue streams,
strengthen its competitive advantage and enhance value. The addition of the ALRS
product line as well as products from Sony Electronics and Genesys in the third
quarter of fiscal year 2001 was a significant step toward that strategy.
Finally, the Company expects to continue searching for cost reduction
opportunities to mitigate the effects of continued competitive pressure on
pricing and related margins. The Company believes its strategy will allow it to
increase revenues and improve income from operations in fiscal year 2002.

LIQUIDITY, CAPITAL RESOURCES AND MATERIAL CHANGES IN FINANCIAL CONDITION

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash provided by operating activities was $27,990 for the nine-month period
ended March 31, 2001, which was primarily due to the net loss of $(819,090),
offset by non-cash items of depreciation, amortization and compensation totaling
$285,019, a reduction in accounts receivable of $375,804 and a decrease in
inventory of $228,950. Accounts receivable decreased during the nine-month
period ended March 31, 2001 as a result of lower levels of accounts receivable
due from slower paying foreign customers on March 31, 2001.


                                       14
<PAGE>


Inventory decreased during the nine-month period ended March 31, 2001 as a
result of reductions in inventory levels of both videoconferencing codecs as
well as peripheral components. The reduction in codec inventory was achieved
through Company efforts to convert certain models already in inventory to
alternate models in order to fulfill production requirements. In addition, for
best possible pricing, the Company purchases many peripheral components
intermittently in quantities that satisfy requirements over several months. The
Company was able to avoid any significant new purchases of these peripheral
components toward the end of the nine-month period ended March 31, 2001 as all
sales requirements were met by inventory on hand, thereby reducing inventory
levels of peripherals.

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of software and property and equipment of $113,118 during the
nine-month period ended March 31, 2001, were primarily the result of the Company
procuring and developing certain new software features to expand the
capabilities of the MediaPro 384(R). These costs have been capitalized in
accordance with the Company's policy of capitalizing such costs, if material,
subsequent to the establishment of technological feasibility.

During the nine-month period ended March 31, 2001, the Company also capitalized
legal costs of $80,969 which were incurred as a result of activities related to
securing its patents.

CASH FLOW FROM FINANCING ACTIVITIES

During the nine-month period ended March 31, 2001, cash requirements of the
Company have been funded primarily by loans from a Director of the Company,
borrowings on the Company's revolving credit facility and the sale of additional
common stock.

In August 2000, the Company received loan proceeds of $225,000 from a director
of the Company. (See NOTE 5 - RELATED PARTY TRANSACTIONS). On February 26, 2001,
the note and accrued interest were converted to 674,383 shares of common stock
of the Company at a price of $.35 per share in connection with the terms of the
Stock Purchase Agreement with Digital and the terms of the note payable.

On January 31, 2001, the Company received $200,000 in cash from Richard F.
Craven, Chairman of the Company, in exchange for a convertible demand note
payable. On or after February 5, 2001, the maturity date of the note, the
principal amount of the note together with the accrued interest at 10% per annum
was convertible into common stock at a price of $.45 per share, which was the
market price of the Company's common stock on the date the note was signed. The
note was repaid by the Company on February 26, 2001.

On February 23, 2001, the Company received $424,369 in cash, net of offering
costs, as a result of a private placement of 1,400,000 shares of its common
stock to Digital Investors, LLC (Digital) ($.35 per share). The shares were sold
in connection with a Stock Purchase Agreement between the Company and Digital.
(See NOTE 3 - STOCKHOLDERS' EQUITY).


                                       15
<PAGE>


The Company also has a $2,500,000 credit facility with a bank. Under the terms
of the facility, a maximum of $2,500,000 may be drawn based on a borrowing base
comprised of a percentage of eligible accounts receivable, inventory and
marketable securities. At March 31, 2001, the Company had cash equivalents of
$467,299, and an outstanding line of credit balance of $571,079 on the
$2,500,000 credit facility, leaving approximately $1,929,000 unused and
approximately $59,000 available. The facility matures on June 26, 2001, and the
Company is actively seeking either a renewal of the current facility or
alternative working capital bank financing.

LIQUIDITY

Management believes that the terms of the Stock Purchase Agreement with Digital
will be met in a timely manner and expects to complete the sale of stock to
Digital in the first quarter of fiscal year 2002. Management also believes that
the total amount of cash expected from the sale of common stock to Digital,
along with management of operating expenses and working capital, and funds
available under its line of credit, will provide sufficient cash until the
Company achieves positive cash flow from operations. Management believes that
its overall strategy for increasing sales and income from operations will allow
it to achieve such a positive cash flow. However, there can be no assurance that
the sale of additional stock to Digital will be completed, or that the Company
will be able to obtain renewed working capital bank financing subsequent to June
26, 2001 or that sales increases will materialize sufficiently to achieve a
positive cash flow from operations prior to the need for additional capital.

In the event the sale of additional shares to Digital does not occur, or the
Company does not obtain additional working capital bank financing, or sales do
not materialize as planned, the Company would require, and 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 reasonable terms, or at all.


                                       16
<PAGE>
                                     PART II
                                OTHER INFORMATION

Item 1.           LEGAL PROCEEDINGS

                  On May 14, 2001, the Company initiated a suit in United States
                  District Court, District of Minnesota, against Tandberg, asa
                  of Oslo Norway. The suit alleges infringement of the Company's
                  United States Patent Number 5,802,281 and 6,073,192.

Item 2.           CHANGES IN SECURITIES

                  On January 31, 2001, the Company issued 75,000 shares of
                  common stock to an employee for services provided. The shares
                  have not been registered with the Securities and Exchange
                  Commission.

                  On February 23, 2001, the Company received $424,369 net of
                  offering costs as a result of a private placement of 1,400,000
                  shares of its common stock to Digital Investors, LLC (Digital)
                  ($.35 per share). The shares were sold in connection with a
                  Stock Purchase Agreement between the Company and Digital. The
                  shares have not been registered with the Securities and
                  Exchange Commission.

                  In August 2000, the Company received $225,000 from Richard F.
                  Craven, Chairman of the Company, in exchange for a convertible
                  demand note payable. On February 26, 2001, the principal
                  amount of the note, together with accrued interest at 10% per
                  annum, ($236,034) was converted into 674,383 shares of common
                  stock of the Company at a price of $.35 per share, in
                  connection with a Stock Purchase Agreement between the Company
                  and Digital and the terms of the Note Payable.

                  On February 23, 2001, the Company granted warrants to Active
                  Management, LLC (AM), a management and consulting firm, for
                  the purchase of 500,000 shares of common stock at an exercise
                  price of $.45 per share. The warrants vest at a rate of 50,000
                  on February 23, 2001 and 37,500 per quarter thereafter (or
                  earlier, based on the achievement of certain earnings targets)
                  and are exercisable for a period of five years from the date
                  of issuance.

                  On February 23, 2001, the Company granted warrants to RSI
                  Marketing, LLC (RSIM), a sales and marketing firm affiliated
                  with AM, for the purchase of 1,000,000 shares of common stock
                  at an exercise price of $.45 per share. The warrants vest
                  based on the achievement of certain sales targets by RSIM
                  through December, 2002. The warrants are exercisable for a
                  period of five years from the date of issuance.

                  On April 30, 2001, the Company received $150,000 net of
                  offering costs as a result of a private placement of 428,572
                  shares of its common stock ($.35 per share). The shares were
                  sold to Digital Investors LLC (Digital) in connection with the
                  Stock Purchase Agreement between the Company and Digital. The
                  shares have not been registered with the Securities and
                  Exchange Commission.

                  On April 16, 2001, the Company granted warrants to purchase
                  750,000 shares of RSI common stock at a price of $.70 per
                  share, exercisable immediately to King Research, LLC ("King",
                  or "Seller") as partial consideration for the purchase of a
                  certain product and related rights thereto. The Company also
                  granted warrants to King to purchase up to an additional
                  250,000 shares of RSI common stock at $.70 per share,
                  depending upon the level of the Company's sales of the product
                  back to the Seller, in connection with the Seller's
                  distribution of the product to new customers. The warrants are
                  exercisable through April 12, 2006.

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
                  January 4, 2001 for the purpose of electing three 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:

                  Richard F. Craven - Shares voted "For" (7,791,019), "Withheld"
                   (38,662)
                  Byron G. Shaffer - Shares voted "For" (7,794,549), "Withheld"
                   (35,132)
                  S. Albert Hanser - Shares voted "For" (7,799,319), "Withheld"
                   (30,362)

                  The Proposal to ratify the appointment of Virchow, Krause &
                  Company, LLP, (formerly Lund, Koehler, Cox and Arkema LLP) as
                  independent accountants for the Company for the fiscal year
                  ending June 30, 2001 was approved with the following vote:

                  Shares voted "For" (7,790,099)
                  Shares voted "Against" (24,382)
                  Shares "Abstaining" (15,200)
                  Shares not voting (0)

                                       17
<PAGE>


Item 5.           OTHER INFORMATION

                  Agreement and Plan of Merger. With written action on April 9,
                  2001, the Company's Board adopted the Plan of Merger attached
                  as Exhibit 10.40 to this Form 10-QSB. The purpose of the
                  merger is to reincorporate the Company as a Nevada corporation
                  named Viseon, Inc. (Viseon) which was formed on April 5, 2001
                  as a 100% subsidiary of the Company for the sole purpose of
                  the Company's reincorporation. The Plan of Merger is subject
                  to shareholder approval at a Special Meeting of the Company's
                  shareholders to be held on May 23, 2001. If approved, Viseon
                  will be the surviving corporation and each of the Company's
                  shareholders will receive one share of common stock of Viseon
                  for each share of the Company's common stock they own. The
                  Articles of Incorporation of Viseon will be substantially the
                  same as those of the Company, except that the total number of
                  authorized shares of common stock of Viseon will be
                  50,000,000. A majority of the outstanding shares of common
                  stock of the Company entitled to vote at the Special Meeting
                  is required for approval of the Agreement and Plan of Merger.

                  Management. On February 26, 2001, the Company appointed John
                  C. Harris as its new Chief Executive Officer to replace Eugene
                  W. Courtney. In addition, on April 9, 2001, the Company
                  appointed John C. Harris as a new fourth director.

Item 6.           EXHIBITS AND REPORTS ON FORM 8-K

                  (a)      Reports on Form 8-K:

                           The Company filed a Form 8k on February 27, 2001,
                           announcing the Stock Purchase Agreement with Digital
                           Investors, LLC.

                           The Company filed a Form 8k on April 26, 2001,
                           announcing the purchase of the Automated Line Routing
                           Switch product.


                                       18
<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: May 15, 2001                      /s/       John C. Harris
                                         ------------------------
                                                   John C. Harris
                                         Its President & Chief Executive Officer


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


                                       19
<PAGE>


                                RSI SYSTEMS, INC.
                                EXHIBIT INDEX TO
                FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 2001

<TABLE>
<CAPTION>
Item No.                           Title of Document                              Method of Filing
--------                           -----------------                              ----------------
<S>             <C>                                                        <C>
10.33           Stock Purchase Agreement with Digital Investors, LLC       Filed herewith electronically
                dated February 23, 2001
10.34           Shareholder Voting Agreement with Digital Investors,       Filed herewith electronically
                LLC, Richard F. Craven and Byron G. Shaffer dated
                February 23, 2001
10.35           Registration Rights Agreement with Digital Investors,      Filed herewith electronically
                LLC dated February 23, 2001
10.36           Marketing Agreement with RSI Marketing, LLC dated          Filed herewith electronically
                February 23, 2001
10.37           Registration Rights Agreement with RSI Marketing, LLC      Filed herewith electronically
                dated February 23, 2001
10.38           Management and Consulting Agreement with Active            Filed herewith electronically
                Management, LLC dated February 1, 2001
10.39           Registration Rights Agreement with Active Management,      Filed herewith electronically
                LLC dated February 23, 2001
10.40           Plan of Merger with Viseon, Inc. dated April 9, 2001       Filed herewith electronically
10.41           Asset Purchase Agreement with King Research, LLC dated     Filed herewith electronically
                April 12, 2001
10.42           Licensing and Manufacturing Agreement with Mike Prell      Filed herewith electronically
                and Mike Prell d/b/a Dallas Computer Recovery dated
                April 12, 2001
10.43           NonCompetition Confidentiality and Assignment Agreement    Filed herewith electronically
                with King Research, LLC and Jeff Clem dated April 12,
                2001
10.44           NonCompetition Confidentiality and Assignment Agreement    Filed herewith electronically
                with King Research, LLC dated April 12, 2001
10.45           NonCompetition Confidentiality and Assignment Agreement    Filed herewith electronically
                with Mike Prell and Mike Prell d/b/a Dallas Computer
                Recovery dated April 12, 2001
10.46           NonCompetition Confidentiality and Assignment Agreement    Filed herewith electronically
                with King Research, LLC and Andrew Sears dated April 12,
                2001
</TABLE>


                                       20