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 June 30, 1998

                         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 July 31, 1998, the Registrant had approximately 4,610,300 shares of Common
Stock, $.01 par value per share outstanding.



<PAGE>
                         PART I - FINANCIAL INFORMATION



Item 1.  Financial Statements.


  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                       Page
    Consolidated Financial Statements:

     Balance sheets as of June 30, 1998 (unaudited)
     and December 31, 1997................................................3

     Statements of operations for the three months and six months
     ended June 30, 1998 and June 30, 1997 (unaudited)....................4

     Statements of cash flows for the six months ended June 30, 1998
     and June 30, 1997 (unaudited)........................................5

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

     Management's Discussion and Analysis of Financial Condition
      and Results of Operations...........................................7



                                       2
<PAGE>
                  LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            June 30,               December 31,
                                                              1998                     1997
                                                      ----------------------  -----------------------
                                                           (unaudited)
ASSETS
<S>                                                             <C>                      <C>    
Current assets:
   Cash and cash equivalents                          $        2,367,965         $    2,092,405
   Accounts receivable, net of allowance for
     doubtful accounts of $2,201,000 and $1,781,000           16,443,768             20,284,367
   Inventories, net of allowance for inventory 
     obsolescence of $1,374,000 and $1,308,000                 20,816,971            29,868,561
   Prepaid expenses and other current assets                    2,140,106             2,067,150
                                                      -------------------        --------------
Total current assets                                           41,768,810            54,312,483

Furniture, Autos and Equipment, at cost
   Less accumulated depreciation and amortization
   of $3,412,341 and $2,911,844                                  1,865,190            2,367,120

Other assets                                                       277,120              263,220
                                                      --------------------       --------------
                                                      $         43,911,120       $   56,942,823
                                                      ====================       ==============

LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities:
  Accounts payable - trade                            $         15,621,958       $   20,053,398
  Revolving credit loan                                         12,294,108           18,424,730
  Accrued  expenses and other                                      943,344            1,126,757
                                                      --------------------       ---------------

Total current liabilities                                       28,859,410           39,604,885

Capital lease obligations                                           58,494              124,113
                                                      --------------------        --------------
Total liabilities                                               28,917,904           39,728,998
                                                      --------------------        --------------

Commitments and Contingencies

Stockholders' equity:
  Preferred stock; convertible, non-voting,
    non-dividend-bearing, $.01 par value - 
    1,000,000 shares authorized, 0 and 100 shares                                    
    issued and outstanding                                          -                  6,996,507
  Common stock; $.01 par value - 8,000,000 shares 
    and 2,800,000 shares authorized; 4,610,300 and 
    2,478,114 issued and outstanding                              115,260                 61,953
  Additional paid-in capital                                   27,742,093             20,798,893
  Retained earnings                                           (12,864,137)           (10,643,528)
                                                      --------------------        ---------------
Total stockholders' equity                                     14,993,216             17,213,825
                                                      --------------------        --------------
                                                      $        43,911,120          $  56,942,823
                                                      ====================        ==============

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                            Six months ended
                                                             June 30,                                     June 30,
                                         ------------------------------------------       ------------------------------------
                                               1998                          1997                 1998                 1997
                                               ----                          ----                 ----                 ----
<S>                                             <C>                          <C>                  <C>                  <C> 
Net sales                                $ 42,430,863              $      79,573,901      $   100,015,881      $  173,009,679

Cost of sales                              39,765,872                     75,541,912           92,517,018         164,669,403
                                         -------------                --------------       ----------------     --------------
                                           

   Gross profit                             2,664,991                      4,031,989            7,498,773           8,340,276
                                            

Selling, general and administrative         4,201,945                      6,718,656            8,954,126          13,849,930
                                         --------------               --------------      -----------------     --------------

   Loss from operations                    (1,536,954)                    (2,686,667)            (1,455,354)        (5,509,654)
                                           

Other charges, net                            438,668                      1,213,148                765,256          1,876,508
                                         ---------------               -------------      -------------------    --------------

   Loss before income taxes                (1,975,622)                    (3,899,815)            (2,220,609)        (7,386,162)
                                           

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

   Net loss                           $    (1,975,622)                $   (3,899,815)      $     (2,220,609)    $   (6,986,162)
                                         ================             ===============     ===================   ===============


Basic and diluted loss per common
  share                               $         (0.43)                $        (2.23)      $          (0.50)     $       (3.99)
                                         ================             ===============     ==================    ===============
  
Weighted average number of basic and
  diluted common shares outstanding         4,610,300                      1,752,210              4,480,798           1,752,210
                                         ================             ===============     ==================    ===============
</TABLE>

See notes to condensed consolidated financial statements

                                       4
<PAGE>
                   LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                      Six months ended
                                                                         June 30,
                                                               1998                 1997
                                                        ------------------  ------------------
<S>                                                             <C>                 <C>    
Cash Flows from Operating Activities
Net loss                                                 $  (2,220,609)      $    (6,986,162)
                                                        ------------------  ------------------
Adjustments to reconcile net income  
  to net cash provided by operating
  activities:
    Depreciation and amortization                              500,497               528,012
    Provision for losses on accounts                           
      receivable                                               420,000               892,000
    Provision for inventory obsolescence                        66,000              (500,000)

Changes in operating assets and liabilities:
   Accounts receivable                                       3,420,599            (7,754,596)
   Inventories                                               8,985,590            24,374,865
   Prepaid expenses and other                                  (72,956)              740,533
   Other assets                                                (13,900)              (40,614)
   Accounts payable and accrued expenses                    (4,614,853)          (10,511,923)
                                                           -------------        -------------
                                                               
Total adjustments                                            8,690,977             7,728,277
                                                          --------------       ---------------
Net cash provided by operating activities                    6,470,368               742,115
                                                          --------------       ---------------                                      

Cash Flows from Investing Activities
   Capital disposals (expenditures)                              1,433              (544,782)
                                                          --------------       ---------------                                      
                                                                
Cash Flows from Financing Activities

   Net repayment of  revolving credit loan                  (6,130,622)             (349,649)
   Repayment of capital lease obligations                      (65,619)              134,251
                                                         -----------------     ---------------
Net cash used by financing activities                       (6,196,241)             (215,398)

Net increase (decrease) in cash and cash                       
  equivalents                                                  275,560               (18,065)
Cash and cash equivalents,beginning of period                2,092,405                18,065
                                                           -----------             -----------
                                                            
Cash and cash equivalents, end of  period               $    2,367,965        $            -
                                                        ==============        ================

Supplemental disclosure of cash flow 
information:
     Cash paid during the period for:
          Interest                                       $     818,693        $       766,262
                                                         ==============        ===============
                                                                   
          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 six month  period
ended June 30, 1998 are not  necessarily  indicative  of the results that may be
expected for the year ending December 31, 1998. 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,  1997,  which are
incorporated by reference herein.

Note 2. Capital Stock

          The  Company's  Board  of  Directors  approved  an  amendment  to  the
Company's  Certificate of Incorporation  to effect a two-for-five  reverse stock
split of the issued and  outstanding  shares of common stock and to decrease the
total number of shares of common stock which the Company has  authority to issue
from 20,000,000 to 8,000,000.  The amendment was approved by written stockholder
consent of Mr. Duke Liao, the Chairman, President and Chief Executive Officer of
the Company.  Mr. Liao owned  approximately  77.5% of the Company's  outstanding
common  stock at the time of his consent.  Accordingly,  the  amendment  was not
submitted to the other  Company  stockholders  for a vote.  The par value of the
common stock was maintained at the pre-reverse  split amount of $0.01 per share.
The effective  date of the amendment was July 1, 1998.  All references to common
shares  outstanding  and per  share  amounts  in  these  consolidated  condensed
financial statements,  notes to consolidated  condensed financial statements and
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations have been adjusted to reflect the two-for-five reverse split.

Note 3. Revolving Credit Loan

         On June 23, 1995, the Company obtained a three-year  $50,000,000 credit
facility.  The  original  terms of the  facility  provided  for  revolving  cash
borrowings  of  up  to  $35,000,000,   limited  by  available  collateral,   and
$15,000,000 for inventory floor planning, with interest at 125 basis points over
LIBOR or 25 basis points over the prime rate.  Amendments to the facility due to
the Company's default of certain financial covenants consisted of an increase in
the interest  rate to 225 basis points over the prime rate with no LIBOR option.

                                       6
<PAGE>

During December 1997, in recognition of the Company's  improved capital position
and positive steps to address recurring  losses,  the borrowing rate was reduced
to 150 basis points over the prime rate (8.5% as of June 30,  1998).  The lender
has  reserved  the right to  reverse  this  rate  reduction  upon  notice to the
Company.  An additional  amendment to the facility has been made  decreasing the
credit  faccility  to  $35,000,000.  This  amendment  provides  $17,000,000  for
revolving cash borrowings,  limited by available collateral, and $18,000,000 for
inventory  floor  planning,  with  flexibility  between the  revolving and floor
planning,  not to  exceed  the  total  facility  of  $35,000,000.  The  debt  is
collateralized  by a lien on all of the Company's  assets.  As of June 30, 1998,
the Company owed $12,294,108  under its revolving  credit loan.  During December
1997,  the  Company's  principal  shareholder  became a guarantor of this credit
facility.

         Since  December 31, 1996,  the Company has been in violation of certain
financial  covenants under its credit facility  agreement.  The Company's lender
has  reserved  all of the rights  available to  it as a result of the  Company's
default of these financial  covenants.  Management is discussing  these defaults
with its lender with the goal of  renegotiating  the  covenants and securing the
credit facility. Management believes it will be successful in these negotiations
based  upon the  Company's  progress  achieved  under the  direction  of its new
Chairman and Chief Executive  Officer;  however,  there can be no assurance that
these  negotiations  will be successfully  completed or without  conditions.  If
these negotiations are unsuccessful,  management believes sufficient alternative
sources of financing exist, some of which may be at higher interest rates.


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

Six months ended June 30, 1998 and 1997

          Net  Sales:  Net sales for the six  months  ended  June 30,  1998 were
$100,015,881  representing a decrease of $72,993,798  (42.2%) from  $173,009,679
for the six  months  ended  June 30,  1997.  For such  periods,  sales  from the
distribution  centers  responsible for the following regions changed as follows:
Southern region,  -44.64%;  Northeast region  (including  Canadian  distribution
center),  -42.86%;  Mid- and  Southwest  region,  -38.67%;  and Western  region,
-33.43%.  Sales other than Magitronic  personal  computers and notebooks for the
six months  ended June 30,  1998 were  $72,162,494,  representing  a decrease of
$65,125,991  (47.4%) from  $137,288,485  for the six months ended June 30, 1997.
Under  the  leadership  of the  Company's  new  Chairman  of the Board and Chief
Executive  Officer,  who assumed these roles midway  through 1997, the Company's
sales  approach  has  increased  the emphasis on higher  profit  margin items to
creditworthy  customers.  The change in sales  philosophy,  along  with  overall
depressed sales  experienced in the computer  industry,  have contributed to the
net decrease in sales.

                                       7
<PAGE>
         Sales of the  Company's  Magitronic  brand of  personal  computers  and
notebook  computers  for the  six  months  ended  June  30,  1998  decreased  to
$27,853,387  (27.8% of net sales) from $35,721,194  (20.6% of net sales) for the
six  months  ended  June  30,  1997.  This  dollar  decrease  is   substantially
attributable  to lower sales of notebook  computers in the second  quarter,  and
price  decreases in  components  which have  resulted in a  corresponding  price
decrease in Magitronic  personal computers and notebook  computers.  These price
decreases have continued to intensify price competition in the industry.

          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.  Although the Company's business is not highly
seasonal,  the second calendar quarter is generally a period of weaker net sales
in comparison to the rest of the year.

         Gross Profit: Gross profit decreased by $841,503 to $7,498,773 (7.5% of
net sales) for the six months ended June 30, 1998 from  $8,340,276  (4.8% of net
sales)  for the six  months  ended  June  30,  1997.  The  higher  gross  margin
percentage  was primarily due to lower costs  associated  with direct  purchases
from foreign  vendors and the Company's  focus on selling higher profit items as
well as improved utilization of information systems to better manage operations.
Margins  during  the  first  six  months  of 1998  also  improved  due to better
utilization of vendor programs such as rebates,  returns,  and price  protection
due to the stability in vendors used by the Company.  Margins for the six months
ended  June 30,  1998  were  negatively  affected  by  turnover  in key  product
management  positions  which  caused the Company not to take full  advantage  of
various vendor pricing and incentive programs.

          Selling, General and Administrative Expenses: For the six months ended
June 30,  1998,  selling,  general  and  administrative  expenses  decreased  by
$4,895,804  to  $8,954,126  (9.0% of net sales)  from  $13,849,930  (8.0% of net
sales) for the six months ended June 30, 1997. The percentage increase from 8.0%
to 9.0% is primarily due to lower sales. The dollar decrease is primarily due to
the Company's reduction in employee headcount and, to a lesser extent, increased
vendor support for the Company's  advertising  and  promotional  expenses.  As a
result of this  reduction  in force,  salaries,  employment  taxes and  employee
benefits for the six months ended June 30, 1998  decreased  to  $4,361,064  from
$6,940,533 for the six months ended June 30, 1997.

          Other Charges:  Net interest expense decreased to $818,693 for the six
months  ended  June 30,  1998 from  $1,276,182  for the first  half of 1997 as a
result of  decreased  borrowings.  Additionally,  during the first six months of
1998,  the  interest  rate was at the reduced  rate of 150 basis points over the
prime rate  rather  than the rate of 225 basis  points over the prime rate which
applied during the first half of 1997.

                                       8
<PAGE>

         Net Loss: Net loss  decreased by $4,765,553 to $2,220,609  (2.2% of net
sales) for the six  months  ended  June 30,  1998 from a net loss of  $6,986,162
(4.0% of net sales)  for the six months  ended  June 30,  1997.  The  percentage
decrease in net loss was primarily  affected by the increase in gross margin and
the Company's continued monitoring and management of operating expenses.

     The loss related to the Toronto branch was $456,401  (20.6% of net loss) on
sales of  $5,297,821  (5.3% of net sales) for the six months ended June 30, 1998
compared  to a loss of  $2,669,850  (38.2% of net loss) on sales of  $13,099,063
(7.6% of net sales) for the six months ended June 30, 1997.

Three months ended June 30, 1998 and 1997

          Net Sales:  Net sales for the three  months  ended June 30,  1998 were
$42,430,863, representing a decrease of $37,143,038 (46.7%) from $79,573,901 for
the  three  months  ended  June 30,  1997.  For  such  periods,  sales  from the
distribution  centers  responsible for the following regions changed as follows:
Southeast region,  -52.83%;  Northeast region (including  Canadian  distribution
center),  -48.50%;  Mid- and  Southwest  region,  -31.10%;  and Western  region,
-25.45%.  Sales other than Magitronic  personal  computers and notebooks for the
three months ended June 30, 1998 were  $30,313,944,  representing  a decrease of
$29,690,401  (49.5%) from  $60,004,345 for the three months ended June 30, 1997.
Under  the  leadership  of the  Company's  new  Chairman  of the Board and Chief
Executive  Officer,  who assumed these roles midway  through 1997, the Company's
sales  approach  has  increased  the emphasis on higher  profit  margin items to
creditworthy  customers.  The change in sales  philosophy,  along  with  overall
depressed sales  experienced in the computer  industry,  have contributed to the
net decrease in sales.  Although the Company's  business is not highly seasonal,
the second  quarter is generally a period of weaker net sales in  comparison  to
the rest of the year.

          Sales of the  Company's  Magitronic  brand of personal  computers  and
notebook  computers  for the three  months  ended  June 30,  1998  decreased  to
$12,116,919  (28.6% of net sales) from $19,569,556  (24.6% of net sales) for the
three months ended June 30, 1997. The percentage increase from 24.6% to 28.6% of
net sales is primarily due to lower  distribution  sales. The dollar decrease is
substantially  attributable to price decreases in components which have resulted
in corresponding price and volume decreases in Magitronic personal computers and
notebook  computers.  These price  decreases have  continued to intensify  price
competition in the industry.

         Gross Profit:  Gross profit decreased by $1,366,998 to $2,664,991 (6.3%
of net sales) for the three months ended June 30, 1998 from $4,031,989  (5.1% of
net sales) for the three  months  ended June 30,  1997.  The higher gross margin
percentage was primarily due to reduced  purchasing costs as a result of dealing
directly  with foreign  vendors,  the Company's  focus on selling  higher profit
items as well as improved  utilization of  information  systems to better manage
operations.  Margins during the second quarter of 1998 were negatively  impacted
by turnover in key product management  positions which caused the Company not to
take full advantage of various vendor pricing and incentive programs.

                                       9

<PAGE>
          Selling,  General and  Administrative  Expenses:  For the three months
ended June 30, 1998, selling,  general and administrative  expenses decreased by
$2,516,711 to $4,201,945 (9.9% of net sales) from $6,718,656 (8.4% of net sales)
for the three months ended June 30, 1997. The  percentage  increase from 8.4% to
9.9% is primarily  due to lower sales.  The dollar  decrease is primarily due to
the Company's reduction in employee headcount and, to a lesser extent, increased
vendor support for the Company's advertising and promotional expenses. Salaries,
employment taxes and employee  benefits for the three months ended June 30, 1998
decreased  to  $2,265,414  from  $3,015,068  for the three months ended June 30,
1997.

         Other Charges: Net interest expense decreased to $409,977 for the three
months  ended June 30, 1998 from  $593,589  for the second  quarter of 1997 as a
result of decreased borrowings at reduced interest rates.

         Net Loss: Net loss  decreased by $1,924,193 to $1,975,622  (4.7% of net
sales) for the three  months  ended June 30, 1998 from a net loss of  $3,899,815
(4.9% of net sales) for the three months  ended June 30,  1997.  The decrease in
net loss was primarily  affected by the increase in gross profit  percentage and
lower interest expense.

     The loss related to the Toronto  branch was $111,801  (5.7% of net loss) on
sales of $1,431,247 (3.4% of net sales) for the three months ended June 30, 1998
compared  to a loss of  $2,660,694  (68.2% of net  loss) on sales of  $2,475,240
(3.1% of net sales) for the three months ended June 30, 1997.

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, equity capital and credit terms from its major suppliers.
In the six months ended June 30, 1998, net cash provided by operating activities
was $6,470,368 compared to net cash provided by operating activities of $742,115
for the six  months  ended June 30,  1997.  The  increase  in net cash flow from
operating  activities  between  the six months  ended June 30, 1998 and June 30,
1997, in the amount of  $5,728,253  was primarily due to a reduction in accounts
receivable,  which  resulted  from lower sales and  decreased  inventory  levels
maintained  by the  Company  due to the  change  in  sales  philosophy  and  the
reduction  in the number of vendors  utilized  by the  Company.  The Company may
experience  shifts in cash flow in the  future,  particularly  if its  suppliers
provide more  restrictive  credit terms than the Company is currently  afforded.
For the six month  periods  ended June 30, 1998 and June 30,  1997,  the Company
generally paid its suppliers  approximately 35-45 days from the date of invoice.
Terms vary from one day to 60 days.


                                       10
<PAGE>
         Working  capital was $12,909,400 as of June 30, 1998 and $14,707,598 as
of December  31,  1997.  On June 23,  1995,  the Company  obtained a  three-year
$50,000,000  credit  facility.  The original terms of the facility  provided for
revolving cash borrowings of up to $35,000,000, limited by available collateral,
and $15,000,000 for inventory floor planning,  with interest at 125 basis points
over LIBOR or 25 basis  points over the prime rate.  Amendments  to the facility
due to the  Company's  default of certain  financial  covenants  consisted of an
increase in the  interest  rate to 225 basis  points over the prime rate with no
LIBOR option.  During  December 1997, in  recognition of the Company's  improved
capital position and positive steps to address recurring  losses,  the borrowing
rate was  reduced to 150 basis  points over the prime rate (8.5% as of March 31,
1998).  The lender has reserved the right to reverse  this rate  reduction  upon
notice to the  Company.  An  additional  amendment to the facility has been made
decreasing  the  credit  facility  to  $35,000,000.   This  amendment   provides
$17,000,000 for revolving cash borrowings,  limited by available collateral, and
$18,000,000 for inventory floor planning, with flexibility between the revolving
and floor planning, not to exceed the total facility of $35,000,000. The debt is
collateralized  by a lien on all of the Company's  assets. At June 30, 1998, and
December 31, 1997, the Company owed $12,294,108 and  $18,424,730,  respectively,
under its revolving credit loans. As of June 30, 1998 and December 31, 1997, the
Company had  $10,021,977 and $7,359,025  combined  available for cash borrowings
under  its  revolving  credit  loan  and for the  floor  planning  of  inventory
purchases,   respectively.   During  December  1997,  the  Company's   principal
shareholder became a guarantor of this credit facility.

         Since  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.  Management is discussing  these defaults
with its lender with the goal of  renegotiating  the  covenants and securing the
credit facility. Management believes it will be successful in these negotiations
based  upon the  Company's  progress  achieved  under the  direction  of its new
Chairman and Chief Executive  Officer;  however,  there can be no assurance that
these  negotiations will be successfully  completed.  If these  negotiations are
unsuccessful,  management believes  sufficient  alternative sources of financing
exist, some of which may be at higher interest rates.

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 49 days during the first six months of 1998 and every 41 days for
the first six months of 1997.  The Company takes a physical  inventory  monthly,
which is then 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. Not all of the Company's products are covered by these programs.  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.  These programs,  in part,
reduce the Company's risk with respect to slow moving inventories.

         Accounts  Receivable:  The Company  primarily  sells its  products on a
cash,  C.O.D.  or terms of up to 30 days  basis.  The  Company's  average  days'
receivable  was  approximately  33 days for the six month  period ended June 30,
1998 and  approximately  37 days for the six month  period  ended June 30, 1997.
This  decrease in the average  days sales  receivable  resulted  primarily  from
improved  collection  staff  stability  and better  credit  control to avoid the
occurrence of additional delinquencies.

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<PAGE>
MANAGEMENT ESTIMATES

         Financial  statements  prepared in conformity  with generally  accepted
accounting principles  necessitate 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 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.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1997, the Financial  Accounting Standards Board issued SFAS No.
131,  "Disclosures  about  Segments of an Enterprise  and Related  Information,"
which  supersedes  SFAS No. 14,  "Financial  Reporting  of  Segments of Business
Enterprise." SFAS No. 131 establishes  financial and reporting standards for the
reporting of public companies of information about operating  segments in annual
financial  statements  and for the first time,  requires  reporting  of selected
information about operating  segments in interim financial  statements issued to
the public. It also establishes standards for disclosures regarding products and
services,  geographic  areas and major  customers.  SFAS 131  defines  operating
segments as components of a company about which separate  financial  information
is available that is evaluated  regularly by the chief operating  decision maker
in deciding how to allocate resources in assessing performance.

         SFAS  No.  131  is  effective  for  financial  statements  for  periods
beginning  after  December 15, 1997 and requires the  restatement of comparative
information for earlier periods.  Disclosure for interim financial statements is
not  required  until  the first  quarter  of fiscal  1999.  Management  has been
evaluating the impact the new statement will have on future financial  statement
disclosures and has determined that the impact will not be significant.

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,  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, lender relationships,
and the risk factors  listed from time to time in the  Company's  reports  filed
with the Commission.


                                       12
<PAGE>
                           PART II - OTHER INFORMATION

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

         As of June 3, 1998,  a  stockholder  of the  Company  owning  8,929,053
(approximately  77.5%) of the  11,525,958  shares of the Company's  common stock
("Common  Stock")  outstanding on such date consented in writing to amending the
Company's  certificate of  incorporation  (a) to effect a  two-for-five  reverse
split (the  "Reverse  Split") of the  issued  and  outstanding  shares of Common
Stock,  and (b) to decrease the total number of shares of Common Stock which the
Company has  authority to issue from  20,000,000 to  8,000,000.  An  information
statement, pursuant to Regulation 14C under the Securities Exchange Act of 1934,
relating to the foregoing stockholder action was distributed on or about June 9,
1998 to  stockholders  of record as of the close of business on June 3, 1998 and
the  Reverse  Split and  decrease  in the  number of  authorized  shares  became
effective on July 1, 1998.


Item 5.  Other Information

          By letter dated July 29, 1998, the Nasdaq Listing Qualifications Panel
notified the Company  that the Common  Stock will be  de-listed  from the Nasdaq
National Market ("National Market") and also disallowed  Nasdaq's  consideration
of the  Company's  application  to transfer the listing of the Common Stock from
the National Market to The Nasdaq SmallCap Market  ("SmallCap  Market"),  noting
that on July 29,  1998 the per share bid price of the  Common  Stock had  fallen
below $1.00 (the  minimum  required for listing the Common Stock on the SmallCap
Market).  Recognizing that the Company cannot meet the maintenance  requirements
of the National Market,  the Company has requested an oral hearing to appeal the
decision with respect to the SmallCap  Market and, as a result,  the  de-listing
from the National  Market will be stayed  until the oral  hearing is  completed.
There can be no assurance  that the Company will be  successful  in such appeal,
the outcome of which will be substantially influenced by the per share bid price
of the  Common  Stock  in the  future.  In the  event  the  Common  Stock is not
permitted  to be listed on the SmallCap  Market,  the Common Stock will trade on
the OTC Bulletin Board.


Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibit 27 (financial data schedule for the first six months of 
1998).

         (b)   No reports on Form 8-K were filed by the Registrant during the
quarter ended June 30, 1998.


                                       13
<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: August 14, 1998


                                             LIUSKI INTERNATIONAL, INC.


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


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