US SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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, 1997.

         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.)


     7400 Metro Blvd., Suite 475, 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 6,321,031 shares of Common Stock, $0.01 par value per share,
outstanding as of February 4, 1998.

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

<PAGE>


                        RSI Systems, Inc. and Subsidiary

                                      INDEX

                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION

    Item 1.     Financial Statements

                Consolidated Balance Sheets - December 31, 1997 (unaudited)
                and June 30, 1997 .............................................3

                Consolidated Statements of Operations (unaudited) - Three
                months and six months ended December 31, 1997 and 1996 ........4

                Consolidated Statements of Cash Flows (unaudited) - Six
                months ended December 31, 1997 and 1996 .......................5

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

    Item 2.     Management's Discussion and Analysis...........................8

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

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

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

<PAGE>


                        RSI SYSTEMS, INC. AND SUBSIDIARY

                           Consolidated Balance Sheets

                    As Of December 31, 1997 and June 30, 1997

<TABLE>
<CAPTION>
                                                                     December 31,          June 30,
                                                                         1997                1997
                                      Assets                         (Unaudited)
----------------------------------------------------------------------------------------------------
<S>                                                                 <C>                   <C>       
Current assets:
   Cash and cash equivalents                                        $     168,406         1,152,671 
   Accounts receivable, net of allowance for doubtful accounts of
    $220,102 and $210,000 respectively                                  1,114,893           747,427 
   Inventories                                                            590,390           544,613 
   Prepaid expenses                                                        61,486            41,556 

----------------------------------------------------------------------------------------------------
            Total current assets                                        1,935,175         2,486,267 
----------------------------------------------------------------------------------------------------

Property and equipment
   Furniture and equipment                                                732,817           718,998 
   Leasehold improvements                                                   4,818             4,818 
      Less accumulated depreciation                                      (454,505)         (332,589)

----------------------------------------------------------------------------------------------------
            Net property and equipment                                    283,130           391,227 
----------------------------------------------------------------------------------------------------

Other assets, net                                                              21               521 
----------------------------------------------------------------------------------------------------

                                      Total assets                  $   2,218,326         2,878,015 
====================================================================================================

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

Current liabilities:
   Accounts payable                                                       746,221         1,166,507 
   Accrued expenses                                                       355,596           363,165 
   Deferred revenue                                                       285,378           123,989 
   Line of credit                                                            --                --   

----------------------------------------------------------------------------------------------------
            Total current liabilities                                   1,387,195         1,653,661 
----------------------------------------------------------------------------------------------------

Stockholders' equity:
      Common stock ($.01 par value per share, 10,000,000 shares
            authorized, 4,979,776 and 4,757,265 issued and
            outstanding, respectively)                                     49,798            47,573 
      Additional paid-in capital                                       14,732,051        14,358,381 
      Unearned compensation                                               (50,001)         (100,000)
      Accumulated deficit                                             (13,900,717)      (13,081,600)

----------------------------------------------------------------------------------------------------
            Total stockholders' equity                                    831,131         1,224,354 
----------------------------------------------------------------------------------------------------

                      Total liabilities and stockholders' equity    $   2,218,326         2,878,015 
====================================================================================================

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>


                        RSI SYSTEMS, INC. AND SUBSIDIARY

                      Consolidated Statements of Operations

          Three Months and Six Months Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                Three Months Ended    Three Months Ended
                                                   December 31,           December 31,
                                                      1997                    1996
                                                   (Unaudited)            (Unaudited)
------------------------------------------------------------------------------------
<S>                                               <C>                       <C>    
Net sales                                         $  1,031,236              454,215
Cost of goods sold                                     374,049              350,918
Inventory writedown to lower of cost or market            --                570,557
------------------------------------------------------------------------------------
          Gross profit (loss)                          657,187             (467,260)
                                                                       
Research and development                               196,712              444,880
Selling, general, and administrative                   903,104              981,009
------------------------------------------------------------------------------------
          Operating loss                              (442,629)          (1,893,149)
                                                                       
Other income (expense):                                                
   Interest income (expense), net                      (34,483)              36,811
   Other income (expense), net                            --                 35,319
------------------------------------------------------------------------------------
          Other income (expense), net                  (34,483)              72,130
------------------------------------------------------------------------------------
                                                                       
          Net loss                                $   (477,112)          (1,821,019)
====================================================================================
                                                                       
          Net loss per common share - basic       $      (0.10)               (0.38)
          Net loss per common share - diluted     $      (0.10)               (0.38)
====================================================================================
                                                                       
          Weighted average shares outstanding        4,776,613            4,752,265
====================================================================================

                                                Six Months Ended      Six Months Ended
                                                   December 31,         December 31,
                                                       1997                 1996
                                                   (Unaudited)          (Unaudited)
------------------------------------------------------------------------------------
                                                                      
Net sales                                         $  2,127,285              888,091
Cost of goods sold                                     800,781              824,118
Inventory writedown to lower of cost or market            --                570,557
------------------------------------------------------------------------------------
          Gross profit (loss)                        1,326,504             (506,584)
                                                                      
Research and development                               422,383              927,483
Selling, general, and administrative                 1,671,497            1,680,035
------------------------------------------------------------------------------------
          Operating loss                              (767,376)          (3,114,102)
                                                                      
Other income (expense):                                               
                                                                      
   Interest income (expense), net                      (51,441)              38,747
   Other income (expense), net                            (300)              35,319
------------------------------------------------------------------------------------
          Other income (expense), net                  (51,741)              74,066
------------------------------------------------------------------------------------
                                                                      
          Net loss                                $   (819,117)          (3,040,036)
====================================================================================
                                                                      
          Net loss per common share - basic       $      (0.17)               (0.76)
          Net loss per common share - diluted     $      (0.17)               (0.76)
====================================================================================
                                                                      
          Weighted average shares outstanding        4,771,355            4,009,798
====================================================================================

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>


                        RSI SYSTEMS, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

                   Six Months Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                              Six Months        Six Months
                                                                Ended             Ended
                                                             December 31,      December 31,
                                                                 1997              1996
                                                             (Unaudited)       (Unaudited)
------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>        
Cash flows from operating activities:
   Net loss                                                 $   (819,117)      (3,040,036)
   Adjustments to reconcile net loss to net cash used in
      operating activities:
        Depreciation and amortization                            122,416          131,768
        Unearned compensation                                     49,999             --  
        Inventory writedown to market                               --            570,557
        Foreign currency translation                                --            (28,400)
        Changes in operating assets and liabilities:
          Accounts receivable                                   (367,466)         232,855
          Inventories                                            (45,777)         (10,357)
          Prepaid expenses                                       (19,930)          84,724
          Accounts payable                                       (44,391)        (103,474)
          Accrued expenses                                        (7,569)        (235,124)
          Deferred revenue                                       161,389             --
------------------------------------------------------------------------------------------
             Net cash used in operating activities              (970,446)      (2,397,487)
------------------------------------------------------------------------------------------

Cash flows from investing activities:
   Purchase of marketable securities                                --         (1,480,913)
   Purchases of furniture and equipment                          (13,819)        (127,590)
------------------------------------------------------------------------------------------
             Net cash used in investing activities               (13,819)      (1,608,503)
------------------------------------------------------------------------------------------

Cash flows from financing activities:
   Proceeds from issuance of common stock                           --          3,947,317
   Proceeds from line of credit                                  815,058             --
   Payments on line of credit                                   (815,058)            --
------------------------------------------------------------------------------------------
             Net cash provided by financing activities              --          3,947,317
------------------------------------------------------------------------------------------

             Net change in cash and cash equivalents            (984,265)         (58,673)


Cash and cash equivalents at beginning of period            $  1,152,671        1,032,921
------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period                  $    168,406          974,248
==========================================================================================

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>


                        RSI SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1997 and 1996

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, 1997 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.

Net loss per common share amounts are based on the weighted average number of
shares of common stock outstanding. Common stock equivalents have not been
included in the computation as the effect would be anti-dilutive.

2. STOCKHOLDER'S EQUITY:

On December 29, 1997 the Company issued 210,011 shares of its common stock as
payment on $375,895 in trade debt to two of the Company's key vendors.

Effective September 30, 1996, the Company sold 1,500,000 shares of common stock
to "accredited investors" through a private offering at a price of $3.00 per
share. Net proceeds to the Company from the private placement were approximately
$4,000,000. The proceeds were used to fund research and development, expand
sales and marketing activities, purchase capital equipment and inventory,
finance accounts receivable and for other general corporate purposes, including
working capital.

3.  DEBT:

In July, 1997 the Company signed a commercial loan agreement with a bank for a
$1,000,000 discretionary revolving credit facility. Under the terms of the
agreement, working capital funds are drawn based on a borrowing base comprised
of eligible accounts receivable and inventory. The interest rate on the loan is
equal to 4.0 points above a base rate set by the bank. There was no outstanding
balance on the line of credit on December 31, 1997.

4.  SUBSEQUENT EVENT:

As of January 22, 1998, the Company completed the private placement of 1,671,255
shares of its common stock at $1.65 per share to "accredited investors". Net
proceeds to the Company from the private placement were approximately
$2,522,000. The proceeds will be used to expand Company marketing and
distribution efforts, fund the development of new video conferencing features
and products and for other general corporate purposes.

<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.

<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") incorporated under the laws of Minnesota on
December 21, 1993, designs, develops, manufactures and markets
telecommunications products for video conferencing.

The Company's primary product, the Video Flyer, is a self-contained, high
performance video conferencing peripheral unit which connects directly to any
size TV, projection system, PC, MAC or laptop (properly configured) and can
support most of the popular industry cameras and recording, playback and
communication devices. The Video Flyer was designed to comply with all industry
video communications primary standards. The Company markets its products
domestically and internationally through a variety of channels, including
authorized resellers, OEM and private label relationships and direct sales to
major accounts. The Company offers full training and support to its customers
through a variety of materials and programs.

Beginning in fiscal year 1997, the Company has been focusing on the expanding
mobile workgroup video conferencing market segment, culminating in the
introduction of its second generation product - the Video Flyer during the
second half of fiscal year 1997. The Company's primary focus during the first
six months of fiscal year 1998 has been the development of new distribution
channels and the introduction of new features and enhancements to the Video
Flyer.

In the second quarter of fiscal year 1998, the Company finalized an agreement
with Philips North American Corporation (Philips), a subsidiary of Philips
Electronics NV of Eindhoven, Holland. The agreement calls for Philips and the
Company to share technology to co-develop specialized high-performance 384 and
128 Kbps video conferencing systems for Philips to resell through its own
distribution channels.

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1996

Net Sales. Net sales for the second quarter of fiscal year 1998 were $1,031,236,
up 127% from $454,215 in the second quarter of fiscal year 1997. The increase
in sales in the second quarter of fiscal year 1998 compared to the second
quarter of fiscal year 1997 was a result of higher pricing and higher unit
volume associated with the Company's second generation product - the Video Flyer
through the Company's expanded distribution channels. While sales in North
America and Europe were in accordance with expectations, the Company believes
overall sales volume during the second quarter of fiscal year 1998 was adversely
affected by the economic situation in the Pacific Rim. Since the ultimate
effects of the situation in the Pacific Rim are unknown, the Company expects to
continue monitoring the situation while focusing the majority of its efforts on
markets in Europe and North America through the remainder of fiscal year 1998.
The Company is in the early stages of its relationship with Philips. While the
Company expects to generate revenues from product shipments to Philips late in
fiscal year 1998, the ultimate responsibility for product launch remains with
Philips, therefore the magnitude of the new relationship with Philips on fiscal
year 1998 results cannot be

<PAGE>


reasonably estimated. Although the overall effect of industry competition on
future unit sales is uncertain, the Company expects unit sales through the
remainder of fiscal year 1998 to be higher than comparable quarters in fiscal
year 1997, as a result of a shift to full production and marketing of Video
Flyer in fiscal year 1998. Consequently, the Company expects higher sales during
the remainder of fiscal year 1998 compared to comparable periods in fiscal year
1997.

Gross Profit (Loss). Gross profit was $657,187 or 64% of sales in the second
quarter of fiscal year 1998 compared to a gross loss of $(467,260) or (103%) of
sales during the second quarter of fiscal year 1997. In addition to carrying a
higher unit price than previous generation products, the Video Flyer also has a
lower unit manufacturing cost, resulting in a higher gross margin per unit. In
addition, the higher cost of goods sold relative to sales in the second quarter
of fiscal year 1997 was partially a result of an inventory writedown to lower of
cost or market of $570,557 related to previous generation products.

Research and Development Expenses. Research and development expenses were
$196,712 for the second quarter of fiscal year 1998, or 19% of sales, compared
to research and development expenses of $444,880, or 98% of sales for the
second quarter of fiscal year 1997. The percentage decrease in the second
quarter of fiscal year 1998 was due to higher sales as discussed above as well
as a reduction in the actual dollar spending. During the second quarter of
fiscal year 1998 the Company's research and development efforts were directed
primarily toward enhancements to the Video Flyer. In the second quarter of
fiscal year 1997, the Company was focused on full scale software and hardware
development and related testing of its Video Flyer, resulting in higher
expenditures compared to the second quarter of fiscal year 1998.

Selling, General and Administrative Expenses. Selling, general, and
administrative expenses were $903,104 in the second quarter of fiscal year
1998, or 88% of sales, compared to $981,009, or 216% of sales for the second
quarter of fiscal year 1997. The percentage decrease was due to primarily to
higher sales in the second quarter of fiscal year 1998 as discussed above.

Other Income (Expense). Other income (expense) was $(34,483) in the second
quarter of fiscal year 1998, compared to $72,130 in the second quarter of fiscal
year 1997. In the second quarter of fiscal year 1998, the higher amount of other
(expense) 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. In the second quarter of fiscal year 1997, the Company had minimal
interest expense and earned interest income on the proceeds of a private
placement of its common stock on September 30, 1996. In addition, the second
quarter of fiscal year 1997 included other income of $35,319 resulting from a
reduction in the Company's foreign currency translation adjustment upon
finalizing the closure of its UK operation.

As a result of the foregoing, the net loss for the second quarter of fiscal year
1998 was $(477,112), or $( .10) per common share, compared to a net loss of
$(1,821,019), or $( .38) per common share in the second quarter of fiscal year
1997.

SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996

Net Sales. Net Sales for the six-month period ended December 31, 1997 were
$2,127,285, compared to $888,091 for the six-month period ended December 31,
1996. The increase in sales during the six-month period ended December 31, 1997
was a result of higher pricing and higher unit volume

<PAGE>


associated with the Company's second generation product - the Video Flyer
through the Company's expanded distribution channels.

Gross Profit (Loss). Gross profit was $1,326,504, or 62% of sales in the
six-month period ended December 31, 1997, compared to a gross loss of $(506,584)
or (57%) during the six-month period ended December 31, 1996. In addition to
carrying a higher unit price than previous generation products, the Video Flyer
also has a lower unit manufacturing cost, resulting in a higher gross margin per
unit. In addition, the higher cost of goods sold relative to sales in the
six-month period ended December 31, 1996 was a result of an inventory writedown
to lower of cost or market of $570,557 related to previous generation products.

Research and Development Expenses. Research and development expenses were
$422,383, or 20% of sales for the six-month period ended December 31, 1997,
compared to research and development expenses of $927,483, or 104% of sales for
the six-month period ended December 31, 1996. The percentage decrease in the
six-month period ended December 31, 1997 was due to higher sales as discussed
above, as well as a reduction in the actual dollar spending. During the
six-month period ended December 31, 1997, the Company's research and development
efforts were directed primarily toward enhancements to the Video Flyer. During
the six-month period ended December 31, 1996, the Company initiated full scale
software and hardware development and related testing of its Video Flyer,
resulting in higher expenditures compared to the six-month period ended December
31, 1997.

Selling, General and Administrative Expenses. Selling, general, and
administrative expenses were $1,671,497 in the six-month period ended December
31, 1997, or 79% of sales, compared to $1,680,035, or 189% of sales in the
six-month period ended December 31, 1996. The percentage decrease was due
primarily to higher sales in the six-month period ended December 31, 1997 as
discussed above.

Other Income (Expense). Other income (expense) was $(51,741) in the six-month
period ended December 31, 1997, compared to $74,066 in the six-month period
ended December 31, 1996. The higher amount of other (expense) in 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. The six-month period ended December 31, 1996 included
higher interest income earned on the proceeds of a private placement of the
Company's common stock on September 30, 1996 and other income of $35,319
resulting from a reduction in the Company's foreign currency translation
adjustment upon finalizing the closure of its UK operation.

As a result of the foregoing, the net loss for the six-month period ended
December 31, 1997 was $(819,117), or $( .17) per common share, compared to a net
loss of $(3,040,036), or $( .76) per common share in the six-month period ended
December 31, 1996.

OUTLOOK

The Company is aggressively pursuing its fiscal year 1998 strategy of targeting
specific markets through increased marketing initiatives, enhancing distribution
through a variety of channels, and developing additional product offerings to
enhance value and competitive advantage. Although the video conferencing
industry is competitive and rapidly changing, the Company believes these
initiatives

<PAGE>


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

In the six-month period ended December 31, 1997, a reduction in the Company's
net loss resulted in a decrease in cash used in operating activities compared to
the period ended December 31, 1996. The decrease in the amount of cash used in
operations was less than the actual reduction in the Company's net loss, because
the net loss during the previous period included a non-cash inventory write-down
to market of $570,557 related to the Company's previous generation product. The
reduction in cash used in operating activities also resulted from an increase in
deferred revenue during the six-month period ended December 31, 1997, which
represents billings and payments received from certain customers prior to
recognition of revenue.

In addition to the net loss from operations for the period ended December 31,
1997, additional cash was used in operating activities as a result of an
increase in accounts receivable generated from increased sales.

A reduction in accrued expenses during the period ended December 31, 1996
resulted from activities associated with the closure of the Company's UK
operation along with a reduction in various other miscellaneous accruals during
the period.

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash used in investing activities was $(13,819) during the six-month period
ended December 31, 1997, compared to a use of $(1,608,503) during the six-month
period ended December 31, 1996. The higher use of cash for investing activities
in the six-month period ended December 31, 1996 was largely a result of the
Company's investment of cash in marketable securities during October, 1996.
Purchases of furniture and equipment during the six-month period ended December
31, 1996 were greater than the six-month period ended December 31, 1997, due to
the Company's investments in test equipment in connection with development
activity on the Video Flyer during the period.

CASH FLOWS FROM FINANCING ACTIVITIES

Effective September 30, 1996, the Company sold 1,500,000 shares of common stock
to "accredited investors" through a private offering at a price of $3.00 per
share, netting proceeds of approximately $3,947,000.

During the first quarter of fiscal year 1998, the Company signed a commercial
loan agreement with a bank for a $1,000,000 discretionary revolving credit
facility, and in September 1997, the Company first borrowed against the line of
credit. Under the terms of the agreement, working capital funds are drawn based
on a borrowing base comprised of a percentage of eligible accounts receivable
and inventory. During the six-month period ended December 31, 1997, the Company
borrowed and repaid a total of approximately $815,000 on the line of credit.

<PAGE>


Through December 31, 1997, cash requirements of the Company have been funded
primarily by cash received from equity investments in the Company and its new
credit facility.

The Company believes that funds from the private placement completed in January,
1998 and funds from the line of credit will be sufficient to cover cash needs
until sufficient cash flow from operations can be achieved. Management plans to
continue to increase sales and improve operating results by expanding
distribution of its products through an expanded dealer network, and continued
emphasis on larger, national and OEM/private label accounts. In the event sales
do not materialize at expected rates, management would conserve cash by reducing
administrative expenses, sales and marketing expenses and research and
development expenses. To the extent that the Company requires cash in excess of
the funds generated by the private placement, its line of credit or future
operations, management would seek additional financing, however no assurance can
be made that any such financing would be available on favorable terms or at all.

<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 December
            19, 1997 for the purpose of electing a two directors to serve for
            three year terms, and voting on the proposals described below.
            Proxies for the meeting were solicited prusuant 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"(3,784,650), "Withheld" (7,400)
            Byron B. Shaffer - Shares voted "for"(3,783,850), "Withheld" (8,200)

            The proposal to amend the restated Articles of Incorporation to
            eliminate the Company's three different classes of directors in
            favor of one class of directors to be elected annually was approved
            with the following vote:

            Shares voted "for" (2,897,757) 
            Shares voted "against" (9,200) 
            Shares "abstaining" (15,350)
            Shares not voting(869,743)

            The proposal to amend the Company's 1994 Stock Option Plan to
            increase the number of shares of Common Stock reserved for issuance
            by 300,000 shares and to increase the options issuable to
            non-employee directors was approved with the following vote:

            Shares voted "for" (2,596,007)
            Shares voted "against" (268,450)
            Shares "abstaining" (57,850)
            Shares not voting(869,743)

<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, 1998 was approved with the
            following vote:

            Shares voted "for" (3,753,525)
            Shares voted "against" (13,975)
            Shares "abstaining" (24,550)
            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

<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 17, 1997                By:  /s/   Donald C. Lies
                                              --------------------
                                                    Donald C. Lies
                                         Its President & Chief Executive Officer


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

<PAGE>


                                RSI SYSTEMS, INC.
                                EXHIBIT INDEX TO
             FORM 10-QSB FOR THE SIX MONTHS ENDED DECEMBER 31, 1997



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

27.1             Financial Data Schedule           Filed herewith electronically