UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

                                   Form 10-Q


Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                                  Act of 1934

For the Quarter ended   June 30, 1998 

Commission File Number  0-19943


                             PROTOCOL SYSTEMS, INC.
------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


            Oregon                                        93-0913130
------------------------------------------------------------------------------
   (State or other jurisdiction of                        (I.R.S. Employer
    incorporation or organization)                        Identification No.)


      8500 SW Creekside Place, Beaverton, OR                     97008        
------------------------------------------------------------------------------
      (Address of principal executive offices)                   (Zip Code)

                                 (503) 526-8500
------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.

                                                        [X] Yes    [  ] No

              Number of shares of common stock outstanding as of
                               August 7, 1998:
                  8,443,326 shares, $.01 par value per share
                  ------------------------------------------









<PAGE>2

                             PROTOCOL SYSTEMS, INC.

                              Index to Form 10-Q


PART I  FINANCIAL INFORMATION                                         Page No.
-----------------------------                                         --------

Item 1. Financial Statements
      
        Condensed Consolidated Statements of
        Operations for the three and six months
        ended June 30, 1998 and 1997                                     3

        Condensed Consolidated Balance Sheets
        as of June 30, 1998 and December 31, 1997                        4

        Consolidated Statements of Cash Flows for
        the six months ended June 30, 1998 and 1997                      5

        Notes to Condensed Consolidated Financial
        Statements                                                      6-8

Item 2. Management's Discussion and Analysis of
        Financial Condition and Results of Operations                   9-13


PART II  OTHER INFORMATION
--------------------------

Item 2. Changes in Securities                                            14

Item 4. Submission of Matters to a Vote of Security Holders              14

Item 6. Exhibits and Reports on Form 8-K                                 15


SIGNATURES                                                               16
----------
















<PAGE>3
<TABLE>
                                    PROTOCOL SYSTEMS, INC.
                        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            (in thousands except per share amounts)
                                          (unaudited)



                                  Three months ended June 30,  Six months ended June 30,
                                       1998       1997             1998        1997     
                                      ------     ------           ------      ------
<S>                                   <C>        <C>              <C>         <C>
Sales                                 $16,960    $16,110          $31,880     $29,303              
Cost of sales                           7,993      8,033           16,000      14,730           
                                      -------    -------          -------     -------        
    Gross profit                        8,967      8,077           15,880      14,573             

Operating expenses:
  Research and development expenses     2,052      2,143            3,911       4,164            
  Selling, general and administrative
   expenses                             6,193      5,238           11,208       9,866 
                                      -------    -------          -------     -------         
    Total operating expenses            8,245      7,381           15,119      14,030            
                                      -------    -------          -------     -------    
    Income from operations                722        696              761         543

Other income                              213        279              493         512               
                                      -------    -------          -------     -------       
    Income before income taxes            935        975            1,254       1,055

Provision for income taxes                262        281              351         306             
                                      -------    -------          -------     -------          
    Net income                        $   673    $   694          $   903     $   749           
                                      =======    =======          =======     =======
 
    Comprehensive income              $   654    $   729          $   891     $   699         
                                      =======    =======          =======     =======

    Basic earnings per share          $  0.08    $  0.08          $  0.10     $  0.09      
                                      =======    =======          =======     =======
    Diluted earnings per share        $  0.08    $  0.08          $  0.10     $  0.08     
                                      =======    =======          =======     =======

Weighted average number of shares
used in the computation of:  
    Basic earnings per share            8,501      8,846            8,647       8,813
    Diluted earnings per share          8,845      9,103            8,988       9,148           




       See accompanying notes to condensed consolidated financial statements

</TABLE>
<PAGE>4
<TABLE>
                                    PROTOCOL SYSTEMS, INC.
                             CONDENSED CONSOLIDATED BALANCE SHEETS
                                        (in thousands)
                                         (unaudited)


                                                                 June 30,  December 31,
                                                                   1998         1997
                                                                  ------       ------
<S>                                                              <C>          <C> 
ASSETS
Current assets:
  Cash and cash equivalents                                      $ 8,522      $12,257
  Short-term investments                                           8,317        6,524
  Accounts receivable - net                                       16,609       16,106
  Inventories                                                     12,116       13,507
  Deferred taxes                                                   1,404        1,474
  Prepaid expenses and other                                         408          276
                                                                 -------      -------
    Total current assets                                          47,376       50,144

Long-term investments                                              3,691        6,789
Property and equipment - net                                       4,550        4,575
Other assets                                                       2,433        2,247
                                                                 -------      -------
                                                                 $58,050      $63,755
                                                                 =======      =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                               $ 2,509      $ 2,806
  Accrued salaries, wages and related liabilities                  2,061        2,375
  Other accrued liabilities                                          454          606
  Income taxes payable                                               114          676
  Reserve for warranties                                           1,120        1,084
  Deferred revenue and customer deposits                             127          122
                                                                 -------      -------
    Total current liabilities                                      6,385        7,669

Deferred taxes                                                       444          408
Shareholders' equity:
  Common stock, $.01 par value.  Authorized 30,000 shares;
    issued and outstanding 8,427 at 1998 and 8,935 at 1997            84           89
  Additional paid-in capital                                      30,215       35,414
  Unearned compensation                                             (144)           -
  Unrealized holding gain on investments                              33           33
  Retained earnings                                               20,980       20,077
  Foreign currency translation adjustment                             53           65
                                                                 -------      -------
    Total shareholders' equity                                    51,221       55,678
                                                                 -------      -------
                                                                 $58,050      $63,755
                                                                 =======      =======


       See accompanying notes to condensed consolidated financial statements







</TABLE>
<PAGE>5
<TABLE>        
                                    PROTOCOL SYSTEMS, INC.
                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (in thousands)
                                        (unaudited)
                                                          Six months ended June 30,
                                                              1998         1997
                                                             ------       ------
<S>                                                         <C>          <C>
Cash flows from operating activities:
 Net income                                                 $   903      $   749

 Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation and amortization                              1,137        1,211
   Amortization of bond premium                                  32          201
   Provision for deferred taxes                                 101          (38)
   Other non-cash items                                          48            -
   Increase (decrease) in cash resulting from
    changes in:
     Accounts receivable                                       (501)       1,510
     Inventories                                              1,390         (401)
     Prepaid expenses and other assets                         (118)         (46)
     Accounts payable and accrued liabilities                  (819)      (1,039)
     Income taxes payable                                      (515)          55
     Reserve for warranties                                      37           42
     Deferred revenue and customer deposits                       5          (27)
                                                            -------      -------
        Net cash provided by operating activities             1,700        2,217

Cash flows from investing activities:
  Purchase of investments                                    (6,843)      (9,943)
  Proceeds from maturity of investments                       8,115        9,002
  Acquisition of property and equipment                      (1,028)      (1,199)
  Capitalization of software development costs                 (191)          -
  Acquisition of intangible assets                              (74)         (10)
                                                             -------      -------
        Net cash used in investing activities                   (21)      (2,150)

Cash flows from financing activities:
  Proceeds from exercise of stock options
   and stock purchase plan                                      740          469
  Repurchase of common stock                                 (6,140)          - 
                                                            -------      -------
        Net cash provided by (used in) financing activities  (5,400)         469
                                                            -------      -------

Effect of exchange rates on cash and cash equivalents           (14)          (1)
                                                            -------      -------

        Net increase (decrease) in cash and cash equivalents (3,735)         535

Cash and cash equivalents at beginning of period             12,257        6,903
                                                            -------      -------
Cash and cash equivalents at end of period                  $ 8,522      $ 7,438
                                                            =======      =======

Supplemental disclosure of cash flow information:
 Cash paid for income taxes                                 $   739      $   259

       See accompanying notes to condensed consolidated financial statements

</TABLE>
<PAGE>6

                            PROTOCOL SYSTEMS, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been 
prepared by the Company without audit and in conformity with generally 
accepted accounting principles for interim financial information.  
Accordingly, certain financial information and footnotes have been omitted or 
condensed.  In the opinion of management, the condensed consolidated financial 
statements include all necessary adjustments (which are of a normal and 
recurring nature) for the fair presentation of the results of the interim 
periods presented.  These financial statements should be read in conjunction 
with the Company's audited consolidated financial statements for the year 
ended December 31, 1997.  The results of operations for the interim period 
shown in this report are not necessarily indicative of results for any future 
interim period or the entire fiscal year.


INVENTORIES

Inventories are valued at the lower of cost or market with cost determined on 
the first-in, first-out basis (FIFO). The components of inventories are as 
follows:

                                               June 30,     December 31,
(in thousands)                                   1998            1997
-------------------------------------------------------------------------
Raw materials                                  $ 4,638         $ 5,521
Work in process                                  2,695           2,460
Finished goods                                   2,689           3,569
Demonstration instruments                        2,094           1,957
                                               -------          ------
   Total inventories                           $12,116         $13,507
                                               =======          ======


PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and includes the following: 

                                               June 30,     December 31,
(in thousands)                                   1998            1997
-------------------------------------------------------------------------
Equipment                                      $12,685         $11,732
Furniture and fixtures                           1,895           1,757
Leasehold improvements                             690             683
                                                ------          ------
                                                15,270          14,172
Less accumulated depreciation and amortization  10,720           9,597
                                                ------          ------
   Property and equipment - net                $ 4,550         $ 4,575
                                                ======          ======



<PAGE>7

INCOME TAXES

The provision for income taxes has been recorded based on the current estimate 
of the Company's annual effective tax rate.  This rate differs from the 
Federal statutory rate primarily because of the provision for state income 
taxes, the benefit of the Company's research and experimentation tax credits 
and tax-exempt interest income earned on investments.  See Management's 
Discussion and Analysis of Financial Condition and Results of Operations for 
further discussion of income taxes.


BASIC AND DILUTED EARNINGS PER SHARE

In accordance with the requirements of Statement of Financial Accounting 
Standards (SFAS) No. 128, "Earnings per Share" both basic earnings per share 
and diluted earnings per share are presented.  Basic earnings per share is 
computed using the weighted average number of common shares outstanding and 
diluted earnings per share is computed using the weighted average number of 
common shares outstanding and dilutive potential common shares assumed to be 
outstanding during the period using the treasury stock method.  Dilutive 
potential common shares consist of options to purchase common stock. 

COMPREHENSIVE INCOME

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income" which 
establishes standards for the reporting and display of comprehensive income 
and its components.  The following is a reconciliation of net income to 
comprehensive income:

<TABLE>
                              Three months ended June 30,    Six months ended June 30,
(in thousands)                     1998       1997                1998       1997
--------------------------------------------------------------------------------------
<S>                             <C>        <C>                 <C>          <C>              
Net income                      $   673    $   694             $   903      $   749

 Other comprehensive 
  income, net of tax
    Foreign currency 
     translation adjustments        (22)        23                 (12)         (34)
    Unrealized holding 
     gain (loss) arising 
     during the period                3         12                   -          (16)
                                 -------    -------             -------      -------
 Other comprehensive 
  income (loss)                     (19)        35                 (12)         (50)
                                 -------    -------             -------      -------

Comprehensive income            $   654    $   729             $   891      $   699
                                 =======    =======             =======      =======
</TABLE>

RECENT DEVELOPMENTS

On July 9, 1998 the Company announced that its wholly-owned subsidiary, Pryon 
Corporation, located in Menomonee Falls, Wisconsin will be relocated to the 
Company's Beaverton, Oregon facility during the third quarter of 1998.  This 
relocation will include moving all Pryon operations including key management 
personnel. 

<PAGE>8

In 1990, the Company entered into a development and supply agreement with 
Gensia, Inc. to develop and supply a closed-loop drug delivery and monitoring 
device ("GenESA device"). This agreement was amended in December 1997.  Gensia 
began shipments of the GenESA device to Europe in 1995 and received FDA 
clearance to market the product in the United States in the third quarter of 
1997.  In April 1998, the Company was informed that Gensia plans no additional 
purchases of the GenESA device under the supply agreement with the Company 
which provided for the purchase of devices through the year 2002.  In July 
1998, the Company commenced litigation against Gensia Sicor, Inc. and Gensia 
Automedics alleging that they have breached the supply agreement and is 
seeking damages of approximately $10 million.


NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, 
"Disclosures about Segments of an Enterprise and Related Information".  The 
Statement changes the way public companies report segment information in 
annual financial statements and also requires those companies to report 
selected segment information in interim financial reports to shareholders.  
The Company plans to adopt the statement for the quarter ending December 31, 
1998.

In October 1997, the AICPA issued Statement of Position (SOP) 97-2, "Software 
Revenue Recognition", which supercedes SOP 91-1. The Company adopted SOP 97-2 
for software transactions entered into beginning January 1, 1998. SOP 97-2 
generally requires revenue earned on software arrangements involving multiple 
elements to be allocated to each element based on the relative fair values of 
the elements. The revenue allocated to software products generally is 
recognized upon delivery of the products. The revenue allocated to post-
contract customer support generally is recognized ratably over the term of the 
support and revenue allocated to service elements generally is recognized as 
the services are performed. The impact on the Company's Consolidated Financial 
Statements is not material.

<PAGE>9

MANAGEMENT'S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

Second Quarter 1998 vs. Second Quarter 1997
-------------------------------------------

Sales.  Sales for the second quarter of 1998 increased 5.3% to $17.0 million 
from $16.1 million for the second quarter of 1997. 

Domestic sales, excluding military revenues and Original Equipment 
Manufacturer ("OEM") sales of GenESA devices and Pryon OEM products, increased 
15.9% to $9.2 million (54.2% of total sales) in the second quarter of 1998 
from $7.9 million (49.3% of total sales) in the second quarter of 1997.  The 
growth in domestic sales in the second quarter of 1998 was primarily due to an 
increase in both the number and average selling price of Flexible Monitoring 
system sales including the Acuity central workstation.  The Company attributes 
the increase in Flexible Monitoring system sales to the increase in the size 
and scale of individual sales as well as the introduction of the Networked 
Acuity System in 1998.  Additionally, sales of accessories and the QuikSigns 
spot-check monitor increased in the second quarter of 1998.

U.S. military revenues increased 183.1% to $3.4 million (20.0% of total sales) 
in the second quarter of 1998 from $1.2 million (7.4% of total sales) in the 
second quarter of 1997 due to several large military orders shipped during the 
second quarter 1998.   

International sales, excluding international OEM sales of GenESA devices and 
Pryon OEM products, decreased 40.0% to $2.8 million (16.6% of total sales) in 
the second quarter of 1998 from $4.7 million (29.1% of total sales) in the 
second quarter of 1997.  This decrease in international sales was principally 
due to the continuing strength of the U.S. dollar against foreign currencies 
and soft economic conditions particularly in Europe and Asia.

OEM sales of GenESA devices and Pryon OEM products decreased 31.9% to $1.6 
million (9.2% of total sales) in the second quarter of 1998 from $2.3 million 
(14.2% of total sales) in the second quarter of 1997 primarily due to 
decreased sales of Pryon products to certain of its OEM customers. The Company 
announced on July 9, 1998 it was relocating its Pryon subsidiary from 
Wisconsin to Oregon.  This move is scheduled for the third quarter of 1998 and 
is expected to provide approximately $2 million per year in savings from 
operating efficiencies beginning in 1999.  The Company estimates that the one-
time relocation charge associated with this move will not exceed $2 million. 

Gross profit.  As a percentage of sales, gross profit increased to 52.9% in 
the second quarter of 1998 from 50.1% in the second quarter of 1997.  The 
increase in gross margin was due to non-recurring warranty and product upgrade 
expenses incurred in the second quarter of 1997.

<PAGE>10

Research and development.  Research and development expenses decreased 4.2% to 
$2.1 million in the second quarter of 1998.  The decrease in research and 
development expenses resulted primarily from reduced payroll and related 
costs.  As a percentage of sales, research and development expenses decreased 
to 12.1% in the second quarter of 1998 from 13.3% in the second quarter of 
1997.

Selling, general and administrative.  Selling, general and administrative 
expenses increased 18.2% to $6.2 million in the second quarter of 1998 from 
$5.2 million in the second quarter of 1997.  This increase resulted primarily 
from the establishment of direct sales organizations in Germany and France in 
1998 and an increase in the number of direct sales representatives and 
clinical application specialists employed by the Company to expand the field 
sales and service operations. As a percentage of sales, selling, general and 
administrative expenses increased to 36.5% in the second quarter of 1998 from 
32.5% in the second quarter of 1997.

Other income.  Other income decreased 23.7% to $213,000 in the second quarter 
of 1998 from $279,000 in the second quarter of 1997 primarily due to a 
decrease in interest income.  Cash and investments decreased as the Company 
repurchased common stock during 1998 under a previously announced buy-back 
program.

Provision for income taxes.  The provision for income taxes decreased to 
$262,000 in the second quarter of 1998 from $281,000 in the second quarter of 
1997 representing effective tax rates of 28.0% and 28.8%, respectively.  The 
effective tax rate, which reflects the estimate of the Company's annual 
effective tax rate, was lower in the second quarter of 1998 than in the second 
quarter of 1997 due to greater expected percentage benefits of research and 
experimentation credits and tax-exempt interest.

Net income.  Due to the factors described above net income decreased 3.0% to 
$673,000 in the second quarter of 1998 from $694,000 in the second quarter of 
1997.  The Company expects net income in 1998, excluding costs associated with 
the relocation of Pryon, to remain relatively flat compared to 1997 as a 
result of increases in its marketing and sales efforts in 1998, including 
increases in the number of direct sales representatives, clinical application 
specialists, field service engineers, and the establishment of direct sales 
organizations in France and Germany during 1998.


Six Months Ended June 30, 1998 vs. Six Months Ended June 30, 1997
-----------------------------------------------------------------

Sales.  Sales for the first six months of 1998 increased 8.8% to $31.9 million 
from $29.3 million for the first six months of 1997. 

Domestic sales, excluding military revenues and Original Equipment 
Manufacturer ("OEM") sales of GenESA devices and Pryon OEM products, increased 
18.7% to $16.9 million (53.0% of total sales) in the first six months of 1998 
from $14.2 million (48.6% of total sales) in the first six months of 1997.  
The growth in domestic sales was primarily due to an increase in both the 
average selling price and the number Flexible Monitoring system sales 
including the Acuity central stations and related monitoring instruments. 
Additionally, sales of the QuikSigns spot-check monitor and accessories 
increased in the first six months of 1998.

U.S. military revenues increased 161.8% to $3.7 million (11.7% of total sales) 
from $1.4 million (4.9% of total sales) due to several large military orders 
shipped during the first six months of 1998.   

<PAGE>11

International sales, excluding international OEM sales of GenESA devices and 
Pryon OEM products, decreased 21.8% to $7.5 million (23.7% of total sales) in 
the first six months of 1998 from $9.6 million (32.9% of total sales) in the 
first six months of 1997. This decrease in international sales was principally 
due to the continuing strength of the U.S. dollar against foreign currencies 
and soft economic conditions particularly in Europe and Asia.

OEM sales of GenESA devices and Pryon OEM products decreased 7.4% to $3.7 
million (11.6% of total sales) in the first six months of 1998 from $4.0 
million (13.6% of total sales) in the first six months of 1997.  Pryon OEM 
sales decreased by $754,000 primarily as a result of a decrease in sales to 
certain of its OEM customers.  This decrease was partially offset by an 
increase of $460,000 in sales of the GenESA device to Gensia Automedics, Inc. 
Gensia received clearance from the Food and Drug Administration (FDA) to 
market the GenESA device in the United States in 1997.  In April 1998, the 
Company was informed that Gensia plans no additional purchases of the GenESA 
device under a supply agreement with the Company which provided for the 
purchase of devices through the year 2002.  In July 1998, the Company 
commenced litigation against Gensia Sicor, Inc. and Gensia Automedics alleging 
that they have breached the supply agreement and seeking damages of 
approximately $10 million.

Gross profit.  As a percentage of sales, gross profit increased slightly to 
49.8% in the first six months of 1998 from 49.7% in the first six months of 
1997 primarily due to an improvement in gross margins of Pryon OEM products. 

Research and development.  Research and development expenses decreased 6.1% to 
$3.9 million in the first six months of 1998 from $4.2 million in the first 
six months of 1997. The decrease in research and development expenses resulted 
primarily from the capitalization of software development costs relating to 
the Networked Acuity System which was released in the first quarter of 1998.  
Additionally, payroll and related costs decreased in the first six months of 
1998.  As a percentage of sales, research and development expenses decreased 
to 12.3% in the first six months of 1998 from 14.2% in the first six months of 
1997.

Selling, general and administrative.  Selling, general and administrative 
expenses increased 13.6% to $11.2 million in the first six months of 1998 
compared to $9.9 million in the first six months of 1997. This increase 
resulted primarily from the establishment of direct sales organizations in 
Germany and France in 1998 and an increase in the number of direct sales 
representatives and clinical application specialists employed by the Company 
to expand the field sales and service operations.  As a percentage of sales, 
selling, general and administrative expenses increased to 35.2% in the first 
six months of 1998 from 33.7% in the first six months of 1997.

Other income.  Other income decreased 3.7% to $493,000 in the first six months 
of 1998 from $512,000 in the first six months of 1997 as interest income 
decreased due to a reduction in the cash and investments balance as the 
Company repurchased shares of common stock in 1998.  This decrease was 
partially offset by a higher rate of return on investments in 1998.

Provision for income taxes.  The provision for income taxes increased to 
$351,000 in the first six months of 1998 from $306,000 in the first six months 
of 1997 representing effective tax rates of 28.0% and 29.0%, respectively.  
The effective tax rate, which reflects the estimate of the Company's annual 
effective tax rate, was lower in the first six months of 1998 than in the 
first six months of 1997 due to greater expected percentage benefits of 
research and experimentation credits and tax-exempt interest.

<PAGE>12

Net income.  Due to the factors described above net income increased 20.6% to 
$903,000 in first six months of 1998 from $749,000 in the first six months of 
1997.  The Company expects net income in 1998, excluding costs associated with 
the relocation of Pryon, to remain relatively flat compared to 1997 as a 
result of increases in its marketing and sales efforts in 1998, including 
increases in the number of direct sales representatives, clinical application 
specialists, field service engineers, and the establishment of direct sales 
organizations in France and Germany during 1998.


LIQUIDITY AND CAPITAL RESOURCES

The Company maintained its strong financial position as of June 30, 1998 with 
working capital balances of $41.0 million and a current ratio of 7.4:1 as 
compared to working capital of $42.5 million and a current ratio of 6.5:1 at 
December 31, 1997.  Cash flow from operating activities for the first six 
months of 1998 was $1.7 million as compared to cash flow from operating 
activities of $2.2 million for the first six months of 1997.  In January 1998 
the Company's Board of Directors adopted a resolution authorizing the 
repurchase of up to 1,000,000 outstanding shares of the Company's common stock 
over a 12 month period. During the first six months of 1998, the Company 
repurchased 632,000 shares.  Management believes that current cash and 
investment balances and future cash flows from operations will be sufficient 
to meet the Company's liquidity and capital needs for the foreseeable future. 

YEAR 2000 ISSUES

As the year 2000 approaches, the Company recognizes the need to ensure its 
operations will not be adversely impacted by Year 2000 software issues.  The 
Company is addressing this issue to ensure the availability and integrity of 
its financial systems and operational systems to ensure the Company is Year 
2000 compliant.  To date, no significant concerns have been identified and 
accordingly the Company does not currently expect to incur material costs in 
connection with the Year 2000 issue.  There can be no assurance; however, that 
there will not be any Year 2000 related operating problems or material 
expenses that will arise with the Company's computer systems or in connection 
with the interface with the computer systems of the Company's major vendors or 
suppliers.

FORWARD-LOOKING STATEMENTS

This Quarterly Report contains statements, including statements regarding the 
Company's expectations as to net income for 1998 and the charges to be 
incurred in connection with the relocation of Pryon Corporation, that are 
forward-looking statements within the meaning of the Securities Litigation 
Reform Act of 1995 that are based on current expectations, estimates and 
projections about the Company's business, management's beliefs and assumptions 
made by management.  Words such as "expects," "anticipates," "intends," 
"plans," "believes," "seeks," "estimates" and variations of such words and 
similar expressions are intended to identify such forward-looking statements.  
These statements are not guarantees of future performance and involve certain 
risks, uncertainties and assumptions that are difficult to predict.  
Therefore, actual outcomes and results may differ materially from what is 
expressed or forecasted in such forward-looking statements due to numerous 
factors, including, but not limited to factors that could cause unforeseen 
increases or decreases in the expenses expected to be incurred in connection 
with the relocation of Pryon Corporation, the Company's increased marketing 
and sales efforts in 1998, or the establishment of direct sales organizations 
in France and Germany during 1998.  In addition, such statements could be 
affected by other factors discussed in this Quarterly Report and from time to 
time in the Company's other Securities and Exchange Commission filings and 
reports and by general industry and market conditions and growth rates, and 
general domestic and international economic conditions.

<PAGE>13

The Company's quarterly operating results have fluctuated in the past and may 
continue to fluctuate in the future depending on factors such as increased 
competition, timing of new product announcements, pricing changes by the 
Company or its competitors, length of sales cycles, market acceptance or 
delays in the introduction of new products or enhanced versions of existing 
products, timing of significant orders, regulatory approval requirements, 
product mix and economic factors and conditions generally and in the market 
for the Company's products specifically.  In particular, the Company's 
quarterly operating results have fluctuated as a result of the unpredictable 
size and timing of military patient monitoring equipment procurements, and 
seasonal or other changes in customer buying patterns.  A substantial portion 
of the Company's revenue in each quarter results from orders booked in that 
quarter.  Accordingly, revenue from quarter to quarter is difficult to 
forecast.  The Company's expense levels are based, in part, on its 
expectations as to future revenue.  If revenue levels are below expectations, 
operating results are likely to be adversely affected.  In particular, net 
income may be disproportionately affected by a reduction in revenue because 
only a small portion of expenses vary with revenue.  Results of operations in 
any period should not be considered indicative of the result to be expected 
for any future period, and fluctuations in operating results may also result 
in fluctuations in the price of the Company's common stock.  No assurance can 
be given that the Company will be able to grow in future periods or that its 
operations will remain profitable.



<PAGE>14

                          PART II.  OTHER INFORMATION



Item 2.  Changes in Securities

During the quarter ended June 30, 1998, the Company sold securities without 
registration under the Securities Act of 1933, as amended (the "Securities 
Act") upon the exercise of certain stock options granted under the Company's 
stock option plans.  An aggregate of 5,585 shares of Common Stock were issued 
at an exercise prices ranging from $1.32 to $6.00.  These transactions were 
effected in reliance upon the exemption from registration under the Securities 
Act provided by Rule 701 promulgated by the Securities and Exchange Commission 
pursuant to authority granted under Section 3 (b) of the Securities Act.


Item 4.  Submission of Matters to a Vote of Security Holders.

The annual meeting of shareholders of the Company was held on May 19, 1998 at 
which the following actions were taken by a vote of the shareholders:


         (1)  The following persons were elected to the Board of Directors for
              three-year terms expiring in 2001 by the votes indicated below:

              James B. Moon:  7,049,449 votes for; 163,151 votes withheld
              Curtis M. Stevens: 7,145,582 votes for; 67,018 votes withheld

         (2)  The Company's 1998 Stock Incentive Plan was approved by a vote 
              of 6,090,672 to 1,104,422 (with 17,506 abstentions)

         (3)  An amendment to the Company's 1994 Employee Stock Purchase Plan 
              to reserve an additional 100,000 shares of Common Stock under 
              the Plan was approved by a vote of 7,082,884 to 113,651 (with 
              16,065 abstentions.

         (4)  The appointment of KPMG Peat Marwick LLP to serve as the
              Company's independent auditors for the year ending December 31,
              1998 was ratified by a vote of 7,146,552 to 16,423 (with 49,625
              abstentions).

<PAGE> 15

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

(a)  Exhibits: 
10.1  Protocol Systems, Inc. 1994 Employee Stock Purchase Plan as
      amended on May 19,1998*
10.2  Protocol Systems, Inc. 1998 Stock Incentive Plan**
10.3  Protocol Systems, Inc. Non-Qualified Stock Option Agreement
      dated March 6, 1998***
10.4  Protocol Systems, Inc. Restricted Stock Award Agreement
      dated April 3, 1998
27.1   Financial Data Schedule

            * Incorporated herein by reference to the Company's Registration 
              Statement on S-8 dated August 13, 1998 (File 333-61423)
           ** Incorporated herein by reference to the Company's Registration 
              Statement on S-8 dated August 13, 1998 (File 333-61419)
          *** Incorporated herein by reference to the Company's Registration 
              Statement on S-8 dated August 13, 1998 (File 333-61415)

(b)  No reports were filed on Form 8-K during the quarter for which
             this report is filed.

























<PAGE>16


                                  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.


                                                   PROTOCOL SYSTEMS, INC.
                                                        (Registrant)


Date: August 14, 1998                              By  /s/ David F. Bolender
                                                       ---------------------
                                                       David F. Bolender
                                                       Chief Executive Officer
                                                       and Chairman of the     
                                                       Board of Directors

                                                   By  /s/ Craig M. Swanson
                                                       ---------------------
                                                       Craig M. Swanson
                                                       Vice-President and
                                                       Chief Financial Officer