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                                  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 Quarterly Period Ended September 30, 1997

                         Commission File Number 0-19378

                           LIUSKI INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

      Delaware                                         11-3065217
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        Identification No.)

6585 Crescent Drive, Norcross, Georgia                      30071
(Address of principal executive offices)                  Zip Code)

       Registrant's telephone number, including area code: (770) 447-9454


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. Yes X No ___

As of September 30, 1997, the  Registrant had 4,380,525  shares of Common Stock,
$.01 par value per share outstanding.



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<PAGE>



                         PART I - FINANCIAL INFORMATION




Item 1.  Financial Statements.


  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                    Page
  Consolidated Financial Statements:

   Balance sheets as of September 30, 1997 
   (unaudited) and December 31, 1996...................................3

   Statements of operations for the 
   three months and nine months ended 
   September 30, 1997 and September 30, 1996 (unaudited)...............4

   Statements of cash flows for the nine 
   months ended September 30, 1997
   and September 30, 1996 (unaudited)..................................5

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

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


                                       2

<PAGE>
                  LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>



                                                                      September 30,            December 31,
                                                                          1997                     1996
                                                                  ----------------------  -----------------------
                                                                       (unaudited)
<S>                                                                        <C>                        <C>    
Assets
Current assets:
   Cash and cash equivalents                                       $      4,065,238          $       18,065
   Accounts receivable, net of allowance for
         doubtful accounts of $1,964,000 and $3,208,000,
         respectively                                                    23,270,274              31,994,144
   Inventories, net of allowance for inventory obsolescence
      of $740,000 and $1,600,000, respectively                           23,160,860              49,872,618
   Prepaid expenses and other current assets                              5,201,896               5,592,192
                                                                  ------------------        ----------------
Total current assets                                                     55,698,268              87,477,019

Furniture, Autos and Equipment, at cost
         less accumulated depreciation and amortization 
         of $3,953,882 and $3,425,870, respectively                       2,434,161               2,741,814

Other assets                                                                263,503                 235,145
                                                                  ------------------        ----------------
                                                                  $      58,395,932          $   90,453,978
                                                                  ==================        ================ 
Liabilities and Shareholders' Equity 
Current liabilities:
  Revolving credit loan                                           $      10,140,450          $   28,614,929
  Notes payable - officer                                                 8,219,928                   -
  Accounts payable - affiliate                                            3,106,794              13,889,474
  Accounts payable - trade                                               25,209,663              26,209,403
  Accrued expenses and other                                              1,135,759               2,810,144
                                                                  ------------------        ----------------
Total current liabilities                                                47,812,594              71,523,950

Capital lease obligations                                                   466,479                 406,428
                                                                  ------------------        ----------------
Total liabilities                                                        48,279,073              71,930,378
                                                                  ------------------        ----------------

Commitments and Contingencies

Stockholders' equity:
  Preferred stock; $.01 par value - 1,000,000 shares
    authorized, none issued                                                      -                      -
  Common stock; $.01 par value - 7,000,000 shares
    authorized; 4,380,525 issued and outstanding                             43,806                 43,806
  Additional paid-in capital                                             18,435,164             18,435,164
  (Accumulated deficit) retained earnings                                (8,362,111)                44,630
                                                                  ------------------        ----------------
Total stockholders' equity                                               10,116,859             18,523,600
                                                                  ------------------        ----------------
                                                                  $      58,395,932        $    90,453,978
                                                                  ==================        ================ 

  See notes to condensed consolidated financial statements
</TABLE>

                                       3

<PAGE>

                   LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)



<TABLE>
<CAPTION>

                                                       Three months ended                            Nine months ended

                                                         September 30,                                 September 30,
                                                  ----------------------------                  ---------------------------

                                                   1997                    1996                 1997                 1996
                                                  ------                  ------               ------               ------

<S>                                                 <C>                     <C>                  <C>                  <C>        
Net sales                                    $    62,217,673         $   110,480,302      $   235,227,352      $   310,664,576

Cost of sales                                     57,800,427             102,903,391          222,469,833          289,071,696
                                             ----------------        ----------------     ----------------     ----------------
   Gross profit                                    4,417,246               7,576,911           12,757,519           21,592,880

Selling, general and administrative                5,303,775               9,432,853           19,153,705           23,505,161
                                             ----------------        ----------------     ----------------     ----------------
   Loss from operations                             (886,529)             (1,855,942)          (6,396,186)          (1,912,281)

Other charges, net                                   534,047                 671,561            2,410,555            1,648,832
                                             ----------------        ----------------     ----------------     ----------------
   Loss before income taxes                       (1,420,576)             (2,527,503)          (8,806,741)          (3,561,113)

Income taxes                                               -                (608,000)            (400,000)            (750,000)
                                             ----------------        ----------------     ----------------     ----------------

   Net loss                                   $   (1,420,576)         $   (1,919,503)      $   (8,406,741)      $   (2,811,113)
                                             ================        ================     ================     ================

Loss per share of common and common
  equivalent shares outstanding:
  Primary and fully diluted
                                              $        (0.32)         $        (0.44)      $        (1.92)      $       (0.64)
                                             ================        ================     ================     ================
Weighted average number of common and
  common equivalent shares
  outstanding: Primary and fully
  diluted
                                                   4,380,525              4,380,525             4,380,525            4,380,525
                                             ================        ================     ================     ================
</TABLE>

See notes to condensed consolidated financial statements

                                       4
<PAGE>



                   LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                     Nine months ended

                                                                                        September 30,
                                                                           ----------------------------------------
                                                                                   1997                1996
                                                                           ------------------    ------------------
<S>                                                                              <C>                       <C>    
Cash Flows from Operating Activities:
Net loss                                                                 $    (8,406,741)    $      (2,811,113)

Adjustments  to  reconcile   net  income  
to  net  cash  provided  by  operating
   activities:
       Depreciation and amortization                                             765,073               723,570
       Provision for losses on accounts
         receivable                                                            1,347,504             2,850,000

Changes in operating assets and liabilities:
     Accounts receivable                                                       7,376,366            (8,093,381)
     Inventories                                                              26,711,758            (1,226,085)
     Prepaid expenses and other                                                  390,296              (871,710)
     Other assets                                                                (28,358)                1,416
     Accounts payable - affiliate                                            (10,782,680)            4,895,379
     Accounts payable and accrued expenses                                    (2,674,125)             (261,788)
                                                                             -----------            -----------
Total adjustments                                                             23,105,834            (1,982,599)
Net cash provided (used) by operating                                        -----------            -----------
  activities                                                                  14,699,093            (4,793,712)
                                                                             -----------            -----------

Cash Flows from Investing Activities:
   Capital expenditures                                                         (457,420)             (563,370)
                                                                             -----------            -----------
Cash Flows from Financing Activities:
   (Payments on) proceeds from revolving credit
     loan                                                                    (18,474,479)            5,426,887
   Proceeds from officer loans                                                 8,219,928                    -
   Capital lease obligations                                                      60,051               118,514
                                                                             -----------            -----------
                            
Net cash provided (used) by financing activities                             (10,194,500)            5,545,401
                                                                             -----------            -----------

Net increase in cash and cash equivalents                                      4,047,173               188,319
Cash and cash equivalents,
   beginning of period                                                            18,065               200,989
                                                                             -----------            ----------
  
Cash and cash equivalents, end of period                                $      4,065,238    $          389,308
                                                                        ================    ==================
Supplemental disclosure of cash flow information:
     Cash paid during the period for:
               Interest                                                 $      1,501,674    $        1,630,259
                                                                        ================    ==================

               Income taxes                                             $           -       $            -
                                                                        ================    ==================   
                                                                     
</TABLE>

See notes to condensed consolidated financial statements

                                       5
<PAGE>


                   LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)


Note 1. Consolidated Financial Statements

         The accompanying  unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted  accounting  principles
for interim  financial  information  and with the  instructions to Form 10-Q and
Rule  10-01 of  Regulation  S-X.  Accordingly,  they do not  include  all of the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of Management, all adjustments
(consisting of only normal recurring accruals)  considered  necessary for a fair
presentation  have been  included.  Operating  results for the nine month period
ended September 30, 1997 are not necessarily  indicative of the results that may
be expected for the year ending December 31, 1997. For further information refer
to the consolidated  financial statements and footnotes thereto in the Company's
Annual  Report on Form 10-K for the year  ended  December  31,  1996,  which are
incorporated by reference herein.

Note 2. Buyout of  Principal  Shareholder;  Loans to the Company and  Conversion
        into Equity

     On June 27, 1997, the Company's then Chief  Executive  Officer  ("CEO") and
principal shareholder,  Mr. Morries Liu, sold substantially all of his shares in
the Company  (1,783,620  shares or approximately  41% of the outstanding  common
stock ("Common Stock")) to Mr. Duke Liao. Concurrently,  Mr. Liao became the new
CEO and Chairman of the Board of the Company.

    Through  October  1997,  Mr. Liao has loaned the Company  $9,219,928.01  for
working capital purposes  ($8,219,928.01 plus accrued interest of $129,742 as of
September  30,  1997).  The loans  accrue  interest at the bank prime loan rate,
which was 8.5% at  September  30,  1997.  Pursuant to an  agreement  between the
Company and Mr. Liao,  dated as of October 15, 1997,  $2,223,421.16 of the loans
and the interest of  $158,454.97  which accrued to such date on all of the loans
(together  aggregating  $2,381,876.13) were converted into 1,814,762  restricted
shares of Common Stock at the conversion  price of $1.3125 per share,  which was
the last sale  price of the  Common  Stock on such date on the  Nasdaq  National
Market.  Such  1,814,762  shares were  issued to Mr.  Liao out of the  Company's
remaining  authorized  shares  and,  as a result,  Mr.  Liao became the owner of
approximately 58% of the outstanding  Common Stock. The remaining  $6,996,506.85
of the loans will be converted into shares of non-voting  preferred stock of the
Company which will convert  automatically into shares of Common Stock at $1.3125
per share upon  amendment  of the  Company's  Certificate  of  Incorporation  to
increase  the  authorized  number of  shares  of Common  Stock to allow for this
conversion.  Mr. Liao has made an irrevocable  election to vote his  controlling
shares for such  amendment.  However,  if such preferred  stock is not converted
into Common Stock by March 31, 1998,  Mr. Liao will have the option to cause the
Company to redeem  all of the  preferred  stock for  $6,996,506.85  plus  annual
interest  thereon of 8.5% accruing from October 16, 1997. The Company  estimates
that,  after Mr. Liao's loans to the Company and the interest  thereon are fully
converted into shares of Common Stock,  he will own  approximately  77.5% of the
outstanding shares of Common Stock. The Company believes that the improvement in
its balance sheet which will result from this conversion of debt into equity may
result in improving the Company's relationship with its bank and its vendors.

                                       6
<PAGE>


    The following  represents  the pro forma effect of the  conversions  of debt
into equity, described above, as of September 30, 1997:

<TABLE>
<CAPTION>


September 30, 1997                                  As Reported           Adjustment               Pro forma
                                              ----------------------------------------------------------------------
ASSETS
<S>                                                       <C>             <C>             <C>
Current Assets                                     $ 55,698,268        $        -               $ 55,698,268
Fixed Assets                                          2,434,161                 -                  2,434,161
Other Assets                                            263,503                 -                    263,503
                                              ----------------------------------------------------------------------
                                Total Assets       $ 58,395,932        $        -               $ 58,395,932
                                              ----------------------------------------------------------------------
LIABILITIES
Current Liabilities                                $ 47,812,594        $  (8,219,928)           $ 39,592,666
Long-term Liabilities                                   466,479                 -                    466,479
                                              ----------------------------------------------------------------------
                           Total Liabilities         48,279,073           (8,219,928)             40,059,145

STOCKHOLDERS' EQUITY                                 10,116,859            8,219,928              18,336,787
                                              ----------------------------------------------------------------------
    Total Liabilities & Stockholders' Equity       $ 58,395,932        $       -                $ 58,395,932
                                              ----------------------------------------------------------------------


</TABLE>


Note 3. Revolving Credit Loan

          In June  1995,  the  Company  signed  a  $50,000,000  credit  facility
replacing  the  Company's  existing   $25,000,000   revolving  credit  loan  and
$14,000,000 line for the floorplanning of inventory.  This facility provides for
revolving borrowings of up to $35,000,000,  limited by available collateral, and
$15,000,000  for  inventory  floorplanning.  Amounts  available on the revolving
credit  loan  are  based  on a  formula  of the  sum  of up to  85% of  eligible
receivables  and the lesser of 50% (30% for  Magitronic  goods) of the  eligible
inventory or $15,000,000.  Under the loan agreement,  in the absence of default,
outstanding  borrowings  bear interest at 1/4% per annum above the lending banks
prime rate or 125 basis  points  above LIBOR rates and mature in June 1998.  The
debt is collateralized by a lien on all of the Company's assets. As of September
30, 1997, the Company owed $10,140,450 under its revolving credit loans.

         As of December 31,  1996,  the Company has been in violation of certain
financial  covenants under its credit facility  agreement.  The Company's lender
has  preserved  all of the rights  available to it as a result of the  Company's
default of these financial covenants. Consequently, the balance of the revolving
credit loan is  classified  as a current  liability at September  30, 1997. As a
consequence  of this  default,  the interest  rate paid by the Company under its
revolving  credit  loan was  increased  as of April 14,  1997 to 2 1/4% over the
prime rate and the LIBOR rates are no longer available. The Company has received
notice of the lender's  intention to terminate the credit facility.  The Company
is currently pursuing other lending options, as well as continuing  negotiations
with its current lender.


                                       7

<PAGE>



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

GENERAL

The following  discussion and analysis  should be read in  conjunction  with the
Condensed Consolidated Financial Statements and Notes thereto.

RESULTS OF OPERATIONS

Nine months ended September 30, 1997 and 1996
---------------------------------------------

         Net Sales:  Net sales for the nine months ended September 30, 1997 were
$235,227,352  representing a decrease of $75,437,224  (24.3%) from  $310,664,576
for the nine months ended  September  30,  1996.  The  Company's  net sales were
negatively  affected by shortages of working capital  resulting in the inability
of the  Company to maintain  sufficient  inventory  of certain of the  Company's
products. Additionally,  Management began tightening the Company's credit policy
in July 1997 in response to increased  bad debt  write-offs  experienced  in the
prior year.  Also, the mail order business was  discontinued in June 1996. Since
Mr. Liao assumed the role of Chairman of the Board and Chief  Executive  Officer
of the Company in June 1997, the Company has stressed sales of its higher margin
Magitronic line of computers over its lower margin wholesale  distribution line,
which contributed to the net decrease in sales. The wholesale  distribution line
has historically made up the majority of the Company's sales.

          Sales of the  Company's  Magitronic  brand of personal  computers  and
notebook  computers for the nine months ended  September  30, 1997  decreased to
$48,899,406  (20.8% of net sales) from $66,417,372  (21.4% of net sales) for the
nine  months  ended   September  30,  1996.   This  decrease  is   substantially
attributable to lower sales of notebook  computers in the first quarter,  volume
decreases  resulting  from  tightening  credit  policies and price  decreases in
components  which have resulted in a corresponding  price decrease in Magitronic
personal  computers  and  notebook   computers.   Specifically,   Intel  central
processing  units  ("CPU's") have dropped in price by fifty percent  (50%),  and
monitor  and CD  ROM  prices  also  have  decreased  dramatically.  These  price
decreases have intensified price competition in the industry. In addition, there
has been  substantial  turnover  in  Magitronic  product  management  which  has
negatively  affected  sales.  Included  in  Magitronic  personal  computers  are
private-label  and brand-name  components that the Company also sells separately
in its  distribution  business.  In addition,  the company also sells components
separately under the Magitronic name.

          While  the  Company  distributes  products  from  more  than  70  U.S.
suppliers,  the loss of major  suppliers or a shortage in a  particular  product
could have a material  adverse impact on the Company during the relatively brief
period the Company  believes  it would need to  establish  alternate  sources of
supply at required volume levels.

         Gross Profit: Gross profit decreased by $8,835,361 to $12,757,519 (5.4%
of net sales) for the nine months  ended  September  30,  1997 from  $21,592,880
(6.9% of net sales) for the nine months  ended  September  30,  1996.  The lower
gross  margin was  primarily  due to price  decreases in  components  which have
resulted in a corresponding  price decrease in Magitronic personal computers and
notebook computers.  Additionally,  margins were negatively impacted by turnover
in key product  management  positions  which caused the Company to not take full
advantage of various  vendor pricing and incentive  programs.  Over the last few
years,  the computer  industry has  experienced  intense price  competition  and
Management  believes that the price competitive  conditions in the industry will
continue.


                                       8
<PAGE>


          Selling,  General  and  Administrative  Expenses:  For the nine months
ended September 30, 1997, selling, general and administrative expenses decreased
by $4,351,456 to $19,153,705  (8.1% of net sales) from $23,505,161  (7.6% of net
sales) for the nine months ended  September 30, 1996.  The decrease is primarily
due  to a  substantial  reduction  in the  Company's  workforce  as the  Company
continues to reduce staff in order to reduce  expenses.  The number of employees
has been reduced by forty-two  percent  (42%) since the beginning of March 1997.
As a result of this reduction in force, salaries,  employment taxes and employee
benefits for the nine months ended  September  30, 1997  decreased to $9,616,778
from $13,096,125 for the nine months ended September 30, 1996.

         Other  Charges:  Net interest  expense  increased to $1,750,411 for the
nine months ended  September 30, 1997 from  $1,653,577 for the first nine months
of 1996 as a result of an increase,  as of April 14, 1997,  in the interest rate
the Company is paying on its revolving credit loan. Due to the default under its
credit  facility  agreement,  the Company is paying  interest at 2 1/4% over the
prime rate on its  revolving  credit  facility and no LIBOR rates are  currently
available. Additionally, the Company incurred costs of $575,000 in settlement of
various discrimination issues brought on by fourteen former employees.

         Net Loss: Net loss increased by $5,595,628 to $8,406,741  (-3.6% of net
sales)  for  the  nine  months  ended  September  30,  1997  from a net  loss of
$2,811,113 (-0.9% of net sales) for the nine months ended September 30, 1996.

Three months ended September 30, 1997 and 1996
----------------------------------------------

         Net Sales: Net sales for the three months ended September 30, 1997 were
$62,217,673 representing a decrease of $48,262,629 (43.7%) from $110,480,302 for
the three months ended  September  30, 1996.  Management  began  tightening  the
Company's  credit  policy  in July  1997  in  response  to  increased  bad  debt
write-offs  experienced  in  the  prior  year.  Additionally,   net  sales  were
negatively  affected by the Company's new Managements'  decision to stress sales
of its  higher  margin  Magitronic  line of  computers  over  its  lower  margin
wholesale  distribution  line. The wholesale  distribution line has historically
made up the majority of the Company's sales.

                                       9
<PAGE>
         Sales of the  Company's  Magitronic  brand of  personal  computers  and
notebook  computers for the three months ended  September 30, 1997  decreased to
$13,178,212  (21.2% of net sales) from $23,160,758  (21.0% of net sales) for the
three  months  ended  September  30,  1996.   This  decrease  is   substantially
attributable to decreases in volume  resulting from  tightening  credit policies
and price decreases in components  which have resulted in a corresponding  price
decrease in Magitronic personal computers and notebook computers.  Specifically,
Intel central  processing units ("CPU's") have dropped in price by fifty percent
(50%),  and monitor and CD ROM prices also have  decreased  dramatically.  These
price decreases have intensified price competition in the industry.

         Gross Profit:  Gross profit decreased by $3,159,665 to $4,417,246 (7.1%
of net sales) for the three  months  ended  September  30, 1997 from  $7,576,911
(6.9% of net sales) for the three months  ended  September  30, 1996.  The lower
gross margin was primarily  due to the decrease in net sales.  Over the last few
years,  the computer  industry has  experienced  intense price  competition  and
Management  believes that the price competitive  conditions in the industry will
continue.

          Selling,  General and  Administrative  Expenses:  For the three months
ended September 30, 1997, selling, general and administrative expenses decreased
by  $4,129,078 to $5,303,775  (8.5% of net sales) from  $9,432,853  (8.5% of net
sales) for the three months ended  September 30, 1996. The decrease is primarily
due  to a  substantial  reduction  in the  Company's  workforce  as the  Company
continues to reduce staff in order to reduce  expenses.  The number of employees
has been reduced by forty-two  percent  (42%) since the beginning of March 1997.
As a result of this reduction in force, salaries,  employment taxes and employee
benefits for the three months ended  September 30, 1997  decreased to $2,779,124
from $4,618,165 for the three months ended September 30, 1996.

         Other Charges: Net interest expense decreased to $474,229 for the three
months ended September 30, 1997 from $666,739 for the third quarter of 1996 as a
result of decreased  borrowings on its revolving  credit loan,  which offset the
increase in the Company's  borrowing  rate.  Due to the default under its credit
facility agreement, the Company is paying interest at 2 1/4% over the prime rate
on its revolving credit facility and no LIBOR rates are currently available.

         Net Loss:  Net loss  decreased by $498,927 to $1,420,576  (-2.3% of net
sales)  for the  three  months  ended  September  30,  1997  from a net  loss of
$1,919,503 (-1.7% of net sales) for the three months ended September 30, 1996.

                                       10
<PAGE>

IMPACT OF INFLATION

         The  Company  has not been  adversely  affected  by  inflation  because
technological  advances and competition  within the microcomputer  industry have
generally caused prices of products sold by the Company to decline.  The Company
has flexibility in its pricing because it has no long-term contracts with any of
its  customers  and,  accordingly,   could,  if  necessary,   and  depending  on
competitive factors, pass along price changes to its customers.

LIQUIDITY AND CAPITAL RESOURCES

         The  Company  finances  its  operations  through  borrowings  under its
revolving credit loan,  officer loans,  equity capital and credit terms from its
major suppliers.  In the nine months ended September 30, 1997, net cash provided
by operating  activities was $14,699,093  compared to net cash used by operating
activities  of  $4,793,712  for the nine months ended  September  30, 1996.  The
change in net cash flow from operating  activities between the nine months ended
September 30, 1997 and September  30, 1996,  in the amount of  $19,492,805,  was
primarily due to a significant reduction in inventories and accounts receivable,
which was partially  offset by a decrease in accounts  payable.  The decrease in
inventories was primarily due to: 1) Management's initiative in the beginning of
the year to sell older,  non-returnable  inventory at reduced  prices and 2) the
new  Management's  philosophy to  concentrate  on sales of the  Company's  lower
volume,  higher margin  Magitronic line of products as opposed to higher volume,
lower margin wholesale  distribution products. The Company may experience shifts
in  cash  flow  in the  future,  particularly  if  its  suppliers  provide  more
restrictive  credit terms than the Company  currently is afforded.  For the nine
month  periods ended  September  30, 1997 and  September  30, 1996,  the Company
generally paid its suppliers  approximately 35-45 days from the date of invoice.
Terms vary from 1 day to 60 days.

          Working   capital  was   $7,885,674  as  of  September  30,  1997  and
$15,953,060  as of December 31, 1996.  On June 23,  1995,  the Company  signed a
three year  $50,000,000  credit  facility  replacing  its  existing  $25,000,000
revolving  credit loan and a $14,000,000  line for  floorplanning  of inventory.
This facility  provides for revolving cash  borrowings of up to $35,000,000  and
$15,000,000 for inventory  floorplanning.  Borrowings under the revolving credit
loan bear  interest at 125 basis  points over LIBOR or the prime rate plus 1/4%.
Amounts  available under the revolving credit loan are based on a formula of the
sum of up to 85% of eligible  receivables and 50% of eligible  inventory (30% of
Magitronic goods) not to exceed $15,000,000.  At September 30, 1997 and December
31, 1996, the Company owed $10,140,450 and $28,614,929,  respectively, under its
revolving credit loans. The Company was obligated under letters of credit in the
amount of $742,800 on September 30, 1996 and had no such obligations outstanding
as of September 30, 1997.  As of September  30, 1997 and December 31, 1996,  the
Company had $0 and $1,641,424  available for cash borrowings under its revolving
credit loan and $1,738,580 and $11,128,407  available for the  floorplanning  of
inventory purchases,  respectively. As of September 30, 1997, the new CEO of the
Company  has made loans to the Company in the amount of  $8,219,928  for working
capital  purposes.  The entire  balance of the loans plus  accrued  interest  of
$129,742  through  September  30,  1997  will be  converted  into  shares of the
Company's  common stock.  See Note 2 to the  Consolidated  Financial  Statements
herein for further  discussion and pro forma effects of this stock conversion as
of September 30, 1997.

                                       11
<PAGE>


         As of  December  31,  1996,  the  Company  is in  violation  of certain
financial  covenants under its credit facility  agreement.  The Company's lender
has  preserved  all of the rights  available to it as a result of the  Company's
default of these financial covenants. Consequently, the balance of the revolving
credit loan is  classified  as a current  liability at September  30, 1997. As a
consequence  of this  default,  the interest  rate paid by the Company under its
revolving  credit  loan was  increased  as of April 14,  1997 to 2 1/4% over the
prime rate and the LIBOR rates are no longer available. The Company has received
notice of the lender's  intention to terminate the credit facility.  The Company
is currently pursuing other lending options, as well as continuing  negotiations
with its current lender.

ASSET MANAGEMENT

         Inventory:  Management  attempts to maximize  product  availability and
delivery while  minimizing  inventory levels so as to lessen the risk of product
obsolescence and price  fluctuations.  Most products are stocked to provide a 30
to 45-day supply.  The Company often reduces prices of products in its inventory
in order to improve its turnover  rate.  The Company  turned its inventory on an
average every 46 days during the first nine months of 1997 and every 44 days for
the first nine months of 1996.  This  decrease in the average  days in inventory
resulted from the Company's initiative of reducing aged inventory through either
returning  the goods to vendors  for credit or selling to  customers  at reduced
prices. Additionally, inventory was negatively affected in the first nine months
of 1997 by  shortages  of working  capital  resulting  in the  inability  of the
Company to maintain  sufficient  inventory of certain of the Company's products.
The  Company  takes a physical  inventory  every  month which is compared to its
perpetual  inventory and monitors inventory levels daily according to sales made
by product and distribution center.

         Most of the Company's U.S.  suppliers provide price protection,  by way
of credits,  against price  reductions  by the supplier  between the time of the
initial  sale to the  Company  and the  subsequent  sale by the  Company  to its
customer.  Such suppliers accept defective  merchandise returned within 12 to 15
months  after  shipment to the Company and some permit the Company to rotate its
inventory by returning slow moving inventory for other inventory.

         Accounts  Receivable:  The Company  primarily  sells its  products on a
cash,  C.O.D. or terms of up to 30 days. The Company's  average days' receivable
was approximately 35 days for the nine month period ended September 30, 1997 and
approximately 31 days for the nine month period ended September 30, 1996.

                                       12

<PAGE>


MANAGEMENT ESTIMATES

         Financial  statements  prepared in conformity  with generally  accepted
accounting principles  necessitates the use of management estimates.  Management
has estimated  reserves for inventory  obsolescence and  uncollectible  accounts
receivable  based upon  historical and developing  trends,  aging of items,  and
other   information   it  deems   pertinent  to  estimate   collectibility   and
realizability.  It is reasonably possible that these reserves will change within
a year,  and the  effect  of the  change  could  be  material  to the  Company's
consolidated financial statements.

FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE

         This report contains  forward-looking  statements and information  that
are  based  on  management's  beliefs,  as  well as  assumptions  made  by,  and
information currently available to, management.  When used in this document, the
words "anticipate,"  "believe," "estimate" and "expect," and similar expressions
are intended to identify forward-looking  statements.  Such statements involve a
number of risks and uncertainties. Among the factors that could cause results to
differ  materially  are the  following:  business  conditions  and growth in the
industry,  general  economic  conditions,   rapid  or  unexpected  technological
changes,  product development,  inventory risks due to shifts in product demand,
competition,  domestic  and  foreign  government  regulations,  fluctuations  in
foreign  exchange  rates,  rising  costs for  components  or  unavailability  of
components,  the timing of orders booked,  and the risk factors listed from time
to time in the Company's SEC reports.

                                       13
<PAGE>



                           PART II - OTHER INFORMATION


Item 5.  Other Information

          See Note 2 to the Consolidated  Financial  Statements,  page 6 herein,
for a discussion of the  conversion  into equity of Mr. Duke Liao's loans to the
Company,  and interest thereon to October 15, 1997, totaling  approximately $9.4
million, resulting in Mr. Liao becoming the majority shareholder of the Company.

          In August 1997, Eric Bashford, Paul Konigsberg and Manuel Tan resigned
from the Board of Directors of the Company. In addition, Mr. Tan was replaced as
President  of the  Company  by Mr.  Liao.  Each of these  former  Directors  was
appointed and/or elected to the Board while the Company's founder,  Morries Liu,
was Chairman and CEO of the Company.  As discussed in Note 2, Mr. Liao purchased
substantially  all  of  Mr.  Liu's  Common  Stock   (approximately  41%  of  the
outstanding)  in June 1997 and assumed the  positions  of Chairman  and CEO. Mr.
Liao, Mr. Liu, Edwin Feinberg and Kenny Liu currently constitute the Board.


Item 6.  Exhibits and Reports on Form 8-K


         (a) (i)  Exhibit  11  (statement  concerning  computation  of per share
earnings)  and  exhibit  15  (letter  concerning   unaudited  interim  financial
information) are each hereby  incorporated by reference from "Notes to Condensed
Consolidated Financial Statements" of Part I - Financial  Information,  Item 1 -
Financial Statements, contained in this Form 10-Q.

          (ii) Exhibit 27 (financial  data schedule for the first nine months of
1997)

         (b) A report on Form 8-K was filed by the  Registrant  on July 3, 1997,
relating to the sale of the shares of the principal  shareholder,  under Item 1:
Changes in Control of Registrant.

                                       14
<PAGE>



                                   SIGNATURES

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


Dated: November 5, 1997


                                            LIUSKI INTERNATIONAL, INC.




                                          By:           /s/
                                             --------------------------------
                                             Ting Y. Tsai
                                             Chief Financial Officer