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, 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 September 30, 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 September 30, 1998 (unaudited)
         and December 31, 1997.................................................3

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

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

         Notes to Condensed Consolidated Financial Statements (unaudited)......6




                                       2

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




<TABLE>
<CAPTION>


                                                                   September 30,       December 31,
                                                                      1998               1997
                                                                ------------------   ---------------
<S>                                                            <C>                   <C>   
                                                                    (unaudited)
Assets
Current assets:
 Cash and cash equivalents                                      $      1,887,940     $    2,092,405
 Accounts receivable, net of allowance for doubtful
   accounts of $1,851,000 and $1,781,000                              14,648,215         20,284,367
 Inventories, net of allowance for inventory obsolescence of
   $1,510,000 and $1,308,000                                          15,234,533         29,868,561
Prepaid expenses and other current assets                              1,504,643          2,067,150
                                                                ----------------      -------------
Total current assets                                                  33,275,331         54,312,483

Furniture, Autos and Equipment, at cost
    Less accumulated depreciation and amortization
    of $3,654,899 and $2,911,844                                       1,674,076          2,367,120

Other assets                                                             267,545            263,220
                                                                 ---------------      -------------
                                                                $     35,216,952     $   56,942,823
                                                                 ===============      =============

Liabilities and Shareholders' Equity 
Current liabilities:
  Accounts payable - trade                                             9,655,572         20,053,398
  Revolving credit loan                                               12,214,457         18,424,730
  Accrued expenses and other                                             810,281          1,126,757
                                                                 ---------------      -------------
Total current liabilities                                             22,680,310         39,604,885

Capital lease obligations                                                 29,602            124,113
                                                                 ---------------     --------------
Total liabilities                                                     22,709,912         39,728,998
                                                                 ---------------     --------------

Commitments and Contingencies

Stockholders' equity:
  Preferred stock; convertible, non-voting, non-dividend-bearing,
    $.01 par value - 1,000,000 shares authorized,                              -          6,996,507
    0 and 100 shares issued and outstanding
  Common stock; $.01 par value - 8,000,000 shares and 2,800,000
    shares authorized; 4,610,300 and 2,478,114 issued and                115,260             61,953
    outstanding
  Additional paid-in capital                                          27,742,093         20,798,893
  Retained earnings                                                  (15,350,313)       (10,643,528
                                                                 ---------------       ------------
Total stockholders' equity                                            12,507,040         17,213,825
                                                                 ---------------       ------------
                                                                $     35,216,952     $   56,942,823
                                                                 ===============       ============
</TABLE>

  See notes to condensed consolidated financial statements

                                       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,
                                        -------------------------------------      ------------------------------------

                                             1998                   1997                 1998                1997
                                             ----                   ----                 ----                ----
<S>                                     <C>                   <C>                  <C>                  <C>   
Net sales                               $    40,042,549       $    62,217,673      $   140,058,430      $   235,227,352

Cost of sales                                38,229,285            57,800,427          130,746,393          222,469,833
                                         --------------        --------------       --------------       --------------

   Gross profit                               1,813,264             4,417,246            9,312,037           12,757,519

Selling, general and administrative           4,084,337             5,303,775           13,046,699           19,153,705
                                         --------------        --------------       --------------       --------------

   Loss from operations                      (2,271,073)             (886,529)          (3,734,662)          (6,396,186)

Other charges, net                              215,103               534,047              972,123            2,410,555
                                         --------------         -------------         ------------         ------------

   Loss before income taxes                  (2,486,176)           (1,420,576)          (4,706,785)          (8,806,741)

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

   Net loss                              $   (2,486,176)       $   (1,420,576)      $   (4,706,785)      $   (8,406,741)
                                         ===============       ===============      ===============      ===============

Basic and diluted loss per common share  $        (0.54)       $        (0.81)      $        (1.04)      $        (4.80)
                                         ===============       ===============      ===============      ===============


                                                     
Weighted average number of basic and
  diluted common shares outstanding           4,610,300             1,752,210            4,524,468            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>
                                                              Nine months ended
                                                                  September 30,
                                                           -----------------------

                                                               1998              1997
                                                      ---------------      -------------   
<S>                                                  <C>                  <C>           
                                     
Cash Flows from Operating Activities: 
Net Loss                                             $     (4,706,785)    $   (8,406,741)

Adjustments  to  reconcile net loss to  net 
 cash  provided  by  operating activities:
       Depreciation and amortization                          743,055            765,073
       Provision for losses on accounts receivable             70,000          1,347,504
       Provision for inventory obsolescence                   202,000                  -

Changes in operating assets and liabilities:
     Accounts receivable                                    5,566,152          7,376,366
     Inventories                                           14,432,028         26,711,758
     Prepaid expenses and other                               562,507            390,296
     Other assets                                              (4,325)           (28,358)
     Accounts payable and accrued expenses                (10,714,302)       (13,456,805)
                                                      -----------------   ----------------
Total adjustments                                          10,857,115         23,105,834 
                                                      -----------------   ----------------
Net cash provided by operating activities                   6,150,330         14,699,093
                                                      -----------------   ----------------

Cash Flows from Investing Activities:
   Capital expenditures                                       (50,011)          (457,420)
                                                              --------    ----------------
Cash Flows from Financing Activities:
    Net repayment of revolving credit loan                 (6,210,273)       (18,474,479)
    Proceeds from officer loans                                     -          8,219,928
    Repayment of capital lease obligations                     (94,511)           60,051
                                                              --------            ------
Net cash used by financing activities                       (6,304,784)      (10,194,500)
                                                           -----------    ----------------
                                                                                
Net increase (decrease)  in cash and cash
   equivalents                                                (204,465)        4,047,173
Cash and cash equivalents, beginning of period               2,092,405            18,065  
                                                            -----------        ---------  
                                                           

Cash and cash equivalents, end of period                 $   1,887,940        $4,065,238
                                                          ============         =========

Supplemental  disclosure of cash flow
  information:
   Cash paid during the period for:
               Interest                                  $  1,163,646         $1,501,674  
                                                           ==========          =========  
                                                           
                                                           
               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, 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 par value of the  issued  and  outstanding  shares of common  stock and to
decrease  thetotal  number  of  shares of common  stock  which the  Company  has
authority to issuefrom  20,000,000 to  8,000,000.  The amendment was approved by
written  consent of the  Company's  majority  stockholder.  The par value of the
common  stockwas  maintained  at the  pre-reverse  split  par value of $0.01 per
share.  The effective  dateof 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.
During  December  1997,  the borrowing rate was reduced to 150 basis points over
the prime rate (8.25% as of  September  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  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.  As of September 30, 1998,  the Company owed  $12,214,457
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  preserved  all of the rights  available to it as a result of the  Company's
default  of these  financial  covenants.  Management  has been  discussing,  and
continues  to  discuss  these   defaults  with  its  lender  with  the  goal  of
renegotiating  the covenants and securing the credit  facility.  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.

                                       6
<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, 1998 and 1997
---------------------------------------------

          Net Sales: Net sales for the nine months ended September 30, 1998 were
$140,058,430  representing a decrease of $95,168,922  (40.5%) from  $235,227,352
for the nine months ended September  30,1997.  For such periods,  sales from the
distribution  centers  responsible for the following regions changed as follows:
Southeast region,  -43.63%;  Northeast region (including  Canadian  distribution
center),  -43.15%;  Mid- and  Southwest  region,  -33.36%;  and Western  region,
-23.22%.  Sales other than Magitronic  personal  computers and notebooks for the
nine months ended September 30, 1998 were $100,229,456,  representing a decrease
of $86,098,490 (46.2%) from $186,327,946 for the nine months ended September 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,  and more
recently  withthe  addition  of  Frank  Cheng  as the  Company's  President  the
Company's  sales  approach has  increased  the emphasis on higher  profit margin
items to  creditworthy  customers.  The change and sales  philosophy  along with
overall depressed sales experienced in the computer industry have contributed to
the net decrease in sales.

          Sales of the  Company's  Magitronic  brand of personal  computers  and
notebook  computers for the nine months ended  September  30, 1998  decreased to
$39,828,974  (28.4% of net sales) from $48,899,406  (20.8% of net sales) for the
nine months ended  September  30, 1997.  This dollar  decrease is  substantially
attributable  to lower  sales of  notebook  computers  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.

          Gross Profit: Gross profit decreased by $3,445,482 to $9,312,037 (6.6%
of net sales) for the nine months  ended  September  30,  1998 from  $12,757,519
(5.4% of net sales) for the nine months ended  September  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.  The margin  percentage  during  the first nine  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.  Such
improvement  in the margin  percentage  for the nine months ended  September 30,
1998 was partially offset 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 nine months
ended September 30, 1998, selling, general and administrative expenses decreased
by $6,107,006 to $13,046,699  (9.3% of net sales) from $19,153,705  (8.1% of net
sales) for the nine months ended  September 30, 1997.  The  percentage  increase
from 8.1% to 9.3% 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 nine months  ended  September  30, 1998  decreased to
$6,463,704 from $9,863,540 for the nine months ended September 30, 1997.

         Other  Charges:  Net interest  expense  decreased to $1,163,646 for the
nine months ended  September 30, 1998 from  $1,501,674 for the first nine months
of 1997 as a result of decreased borrowings. Additionally, during the first nine
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 nine months of 1997.

                                       7
<PAGE>

         Net Loss: Net loss  decreased by $3,699,956 to $4,706,785  (3.4% of net
sales)  for  the  nine  months  ended  September  30,  1998  from a net  loss of
$8,406,741 (3.6% of net sales) for the nine months ended September 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.

Three months ended September 30, 1998 and 1997
----------------------------------------------

          Net Sales:  Net sales for the three  months ended  September  30, 1998
were   $40,042,549,   representing  a  decrease  of  $22,175,124   (35.6%)  from
$62,217,673  for the three months ended  September  30, 1997.  For such periods,
sales  from the  distribution  centers  responsible  for the  following  regions
changed as follows:  Southeast  region,  -40.66%;  Northeast  region  (including
Canadian distribution center),  -46.85%; Mid- and Southwest region, -19.14%; and
Western  region,  6.46%.  Sales other than  Magitronic  persional  computers and
notebooks  for the three  months  ended  September  30,  1998 were  $29,907,434,
representing a decrease of $19,132,027  (39.0%) from  $49,039,461  for the three
months ended  September  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,  and more recently with the addition of Frank Cheng as the
Company's President,  the Company's sales approach has increased the emphasis on
higher  profit  margin  items to  creditworthy  customers.  The change and sales
philosophy  along with  overall  depressed  sales  experienced  in the  computer
industry have contributed to the net decrease in sales.

         Sales of the  Company's  Magitronic  brand of  personal  computers  and
notebook  computers for the three months ended  September 30, 1998  decreased to
$10,135,115  (25.3% of net sales) from $13,178,212  (21.2% of net sales) for the
three months ended  September 30, 1997.  The  percentage  increase from 21.2% to
25.3% 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 $2,603,982 to $1,813,264 (4.5%
of net sales) for the three  months  ended  September  30, 1998 from  $4,417,246
(7.1% of net sales) for the three months  ended  September  30, 1997.  The lower
gross  margin was  primarily  due to the  decrease  in net sales.  Additionally,
margins during the third 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.  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, 1998, selling, general and administrative expenses decreased
by $1,219,438 to $4,084,337  (10.2% of net sales) from  $5,303,775  (8.5% of net
sales) for the three months ended  September 30, 1997. The  percentage  increase
from 8.5% to 10.2% 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  September 30, 1998 decrease to $2,083,696  from  $2,765,525 for the three
months ended September 30, 1997.

         Other Charges: Net interest expense decreased to $351,371 for the three
months ended September 30, 1998 from $474,229 for the third quarter of 1997 as a
result of decreased borrowings at reduced interest rates.

         Net Loss: Net loss  increased by $1,065,600 to $2,486,176  (6.2% of net
sales)  for the  three  months  ended  September  30,  1998  from a net  loss of
$1,420,576 (2.3% of net sales) for the three months ended September 30, 1997.


                                       8
<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, equity capital and credit terms from its major suppliers.
In the nine months  ended  September  30, 1998,  net cash  provided by operating
activities was $6,150,330 compared to net cash provided by operating  activities
of $14,699,093 for the nine months ended September 30, 1997. The decrease in net
cash flow from operating  activities between the nine months ended September 30,
1998 and September 30, 1997, in the amount of $8,548,763  was primarily due to a
reduction in accounts payable. 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 nine  month  periods  ended
September  30, 1998 and  September  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.

         Working   capital  was   $10,595,021  as  of  September  30,  1998  and
$14,707,598  as of December 31, 1997.  One 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.
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 September 30, 1998,
and  December  31,  1997,  the  Company  owed   $12,214,457   and   $18,424,730,
respectively,  under its revolving  credit  loans.  As of September 30, 1998 and
December 31, 1997, the Company had $14,757,020 and $7,359,025 combined available
for cash borrowings  under its revolving  credit loan and for the floor planning
or 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.  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.

                                       9
<PAGE>

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 47 days during the first nine months of 1998 and every 46 days for
the first nine 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  34 days for the nine month period ended September
30, 1998 and approximately 35 days for the nine month period ended September 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.

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 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

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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.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

         None.
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                           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 July1, 1998.

Item 5. Other Information

          In September 1998, Mr. Frank Cheng, 43, was appointed President of the
Company,  replacing  Mr. Duke Liao,  who remains  Chairman  and Chief  Executive
Officer  of the  Company.  Mr.  Cheng  has more  than  two  decades  of  diverse
experience in the computer  industry.  Most  recently,  he managed and had total
operational  and  financial  responsibility  for  Arsys  Innotech  Corporation's
computer  distribution business in Texas. Prior to that, he served for more than
six years,  until March 1996, as the Managing  Director of the Southwest  Region
for DTK Computer Inc., a distributor and assembler of computer systems, where he
was  responsible  for all of DTK's  operations and its financial  results in the
region.  For eight years prior to working for DTK,  Mr. Cheng served as a Senior
System Analyst for the Federal  Reserve Board.  Mr. Cheng's  diverse  management
experience includes computer system design, supervision of procedures,  finance,
sales and marketing. Mr. Cheng is an MBA with a computer science degree from the
University of Central Oklahoma.

          In August  1998,  Mr.  Martin  Tsai  resigned  as the  Company's  Vice
President and Chief Financial Officer and as a member of its Board of Directors.
Mr. Tsai's resignation was by mutual agreement between him and the Company.  Mr.
Cheng has been  serving as acting  Chief  Financial  Officer  while the  Company
searches for a permanent replacement for Mr. Tsai.

          On October 22,  1998,  the Company  attended an oral hearing to appeal
the decision by the Nasdaq  Listing  Qualifications  Panel to de-list the Common
Stock from the Nasdaq National Market and to disallow the transfer of the Common
Stock's  listing  to  The  Nasdaq  SmallCap  Market  ("SmallCap  Market")  based
principally  on the fact that 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).  The Company is awaiting the Nasdaq Panel's decision regarding
this appeal.  In the event the Common Stock is not permitted to be listed on the
SmallCap Market, the Company expects that 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 nine months ended September
30, 1998)

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



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                                   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 13, 1998


                                 LIUSKI INTERNATIONAL, INC.




                               By:/s/
                                  --------------------------------------
                                 Frank Cheng
                                 President and Chief Financial Officer
                                 (Principal Accounting and Financial Officer)




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