<PAGE>

                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549


                                      FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
          EXCHANGE ACT OF 1934

     For the quarterly period ended June 27, 1998


[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

     For the transition period from ______________ to _______________

Commission File Number: 0-19902

                                          
                             DAMARK INTERNATIONAL, INC.
               (Exact name of Registrant as specified in its charter)

           Minnesota                                    41-1551116
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


                                          
                             7101 Winnetka Avenue North
                           Minneapolis, Minnesota  55428
                      (Address of principal executive offices)
                                     (Zip code)
                                          
                                   (612) 531-0066
                (Registrant's telephone number, including area code)
                                          
                                   Not Applicable
     (Former name, former address and former fiscal year, if changed since last
                                      report)



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 Act of 1934 during the
preceding 12 months,  and (2) has been subject to such filing requirements for
the past 90 days.
     Yes  X         No        
         ---           ---

On August 11, 1998, there were 7,308,250 shares of Class A Common Stock, $.01
par value, of Damark International, Inc. outstanding. 

<PAGE>

                            DAMARK INTERNATIONAL, INC.

                                      INDEX

<TABLE>
<CAPTION>

PART I.   FINANCIAL INFORMATION                                                          PAGE
<S>                                                                                      <C>
     Item 1:   Financial Statements

               Consolidated Statements of Operations
               For the Three and Six Months ended June 27, 1998 and June 28, 1997           1
     
               Consolidated Balance Sheets
               As of June 27, 1998 and December 31, 1997                                    2
     
               Consolidated Statements of Cash Flows
               For the Six Months ended June 27, 1998 and June 28, 1997                     3
     
               Notes to Consolidated Financial Statements                                   4
     
     Item 2:   Management's Discussion and Analysis of
               Results of Operations and Financial Condition                                7
     
PART II.  OTHER INFORMATION

     Item 4:   Submission of Matters to a Vote of Security Holders                         14
     
     Item 5:   Other Information                                                           14
     
     Item 6:   Exhibits and Reports on Form 8-K                                            14
     
               Signature                                                                   15
</TABLE>

<PAGE>

                             DAMARK INTERNATIONAL, INC.
                                          
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                  (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                    (UNAUDITED)
                                          
<TABLE>
<CAPTION>
                                                  Three Months Ended            Six Months Ended
                                              -------------------------    --------------------------
                                                June 27,       June 28,    June 27,         June 28, 
                                                  1998           1997       1998              1997
                                              -------------------------    --------------------------
<S>                                           <C>            <C>           <C>             <C>
Net revenues...............................   $  115,645     $  147,494    $  250,781      $  276,116
Cost of products and services..............       79,028        105,738       170,144         198,962
                                              ----------     ----------    ----------      ----------
       Gross profit........................       36,617         41,756        80,637          77,154
Marketing and administrative expenses......       41,894         38,172        84,753          72,800
Unusual expenses (Note 6)..................          767             --           767              --
                                              ----------     ----------    ----------      ----------
       Operating (loss) income.............       (6,044)         3,584        (4,883)          4,354

Interest expense, net......................         (797)          (278)       (1,650)           (455)
Other expense, net.........................         (139)           (66)         (241)            (52)
                                              ----------     ----------    ----------      ----------
        (Loss) income before income taxes..       (6,980)         3,240        (6,774)          3,847
Income tax benefit (provision).............        2,374         (1,101)        2,303          (1,307)
                                              ----------     ----------    ----------      ----------
       Net (loss) income...................   $   (4,606)    $    2,139    $   (4,471)     $    2,540
                                              ----------     ----------    ----------      ----------
                                              ----------     ----------    ----------      ----------


Basic (loss) earnings per share............   $     (.62)    $      .27    $     (.58)     $      .32
                                              ----------     ----------    ----------      ----------
                                              ----------     ----------    ----------      ----------
Diluted (loss) earnings per share..........   $     (.62)    $      .25    $     (.58)     $      .30
                                              ----------     ----------    ----------      ----------
                                              ----------     ----------    ----------      ----------
</TABLE>

       See accompanying notes to consolidated financial statements.

                                      1
<PAGE>

                           DAMARK INTERNATIONAL, INC.
                                                              
                          CONSOLIDATED BALANCE SHEETS
                         (DOLLAR AMOUNTS IN THOUSANDS)
                                  (UNAUDITED)
                                                                     
                                                                     
                                    ASSETS

<TABLE>
<CAPTION>
                                                                          June 27,     December 31,
                                                                            1998           1997
                                                                         ----------    ------------
<S>                                                                      <C>           <C>
Current Assets:
     Cash and cash equivalents........................................   $      43     $      474
     Trade accounts receivable, net...................................      61,608         77,573
     Merchandise inventories, net.....................................      42,845         70,744
     Deferred membership solicitation and catalog costs...............      11,970          9,849
     Other current assets.............................................       3,590          1,643
                                                                         ---------     ----------
       Total current assets...........................................     120,056        160,283

Property and equipment, net...........................................      40,343         38,351
Other assets, net.....................................................       6,884          7,555
                                                                         ---------     ----------
          Total assets................................................    $167,283     $  206,189
                                                                         ---------     ----------
                                                                         ---------     ----------


                     LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
     Accounts payable.................................................   $  32,562     $  49,532
     Accrued liabilities..............................................      21,224        18,439
     Deferred membership income, net..................................      17,303        20,938
     Deferred income taxes............................................       2,675         2,675
     Borrowings under revolving credit facility.......................      34,800        44,400
                                                                         ---------     ----------
       Total current liabilities......................................     108,564       135,984

Deferred income taxes.................................................       1,542         1,542

Shareholders' Equity:
     Class A Common Stock, $.01 par, 20 million shares authorized;
       7,308,250 and 8,025,964 shares issued and outstanding at 
       June 27, 1998 and December 31, 1997, respectively..............          73            80
     Class B Common Stock, $.01 par, 2 million shares authorized;
       none issued and outstanding....................................          --            --
     Paid-in capital..................................................      68,444        75,452
     Accumulated deficit..............................................     (11,340)       (6,869)
                                                                         ---------     ----------
       Total shareholders' equity.....................................      57,177        68,663
                                                                         ---------     ----------
          Total liabilities and shareholders' equity..................   $ 167,283     $ 206,189
                                                                         ---------     ----------
                                                                         ---------     ----------
</TABLE>

             See accompanying notes to consolidated financial statements.

                                      2
<PAGE>



                           DAMARK INTERNATIONAL, INC.
                                             
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (AMOUNTS IN THOUSANDS)
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                        Six Months Ended
                                                                                     -----------------------
                                                                                     June 27,       June 28,
                                                                                       1998           1997
                                                                                     --------       --------
<S>                                                                                  <C>            <C>
OPERATING ACTIVITIES:
  Net (loss) income...............................................................   $  (4,471)     $  2,540
  Adjustments to reconcile net (loss) income to net cash provided by 
    (used for) operations:
    Depreciation and amortization.................................................       5,225         3,898
    Loss (gain) on disposal of property and equipment.............................          51          (152)
    Changes in working capital items -
      Trade accounts receivable, net..............................................      15,965       (14,817)
      Merchandise inventories, net................................................      27,899       (21,044)
      Deferred membership solicitation and catalog costs and other current assets.      (4,068)       (4,062)
      Accounts payable and accrued liabilities....................................     (14,185)       26,487
      Deferred membership income, net.............................................      (3,635)          369
                                                                                     ---------      --------
  Net cash provided by (used for) operations......................................      22,781        (6,781)
                                                                                     ---------      --------

INVESTING ACTIVITIES:
  Property and equipment additions, net...........................................      (6,785)       (3,340)
  Other, net......................................................................         188           (70)
                                                                                     ---------      --------
  Net cash used for investing activities..........................................      (6,597)       (3,410)
                                                                                     ---------      --------

FINANCING ACTIVITIES:
  (Payments) borrowings under revolving credit facility, net......................      (9,600)       10,600
  Repurchase and retirement of common stock.......................................      (7,576)         (454)
  Net proceeds from employee exercise of stock options and issuance of stock......         561            79
                                                                                     ---------      --------

  Cash (used for) provided by financing activities................................     (16,615)       10,225
                                                                                     ---------      --------

  Net (decrease) increase in cash and cash equivalents............................        (431)           34

  Cash and cash equivalents, beginning of period..................................         474             2
                                                                                     ---------      --------
  Cash and cash equivalents, end of period........................................   $      43      $     36
                                                                                     ---------      --------
                                                                                     ---------      --------

SUPPLEMENTAL CASH FLOW  INFORMATION:
  Interest paid during the period.................................................   $   1,322      $    240
  Income taxes paid during the period.............................................         986           630
                                                                                     ---------      --------
                                                                                     ---------      --------
</TABLE>

      See accompanying notes to consolidated financial statements.

                                      3
<PAGE>

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  BASIS OF PRESENTATION

     The unaudited consolidated financial statements included herein have
     been prepared by Damark International, Inc. (the "Company") pursuant to
     the Rules and Regulations of the Securities and Exchange Commission. 
     The information furnished in these financial statements includes normal
     recurring adjustments and reflects all adjustments, which are, in the
     opinion of management, necessary for a fair presentation of such
     financial statements.  Certain information and footnote disclosures
     normally included in financial statements prepared in accordance with
     generally accepted accounting principles have been condensed or omitted
     pursuant to such rules and regulations.  Although the Company believes
     that the disclosures are adequate to make the information presented not
     misleading, it is suggested that these financial statements be read in
     conjunction with the audited consolidated financial statements and notes
     thereto included in the Company's 1997 Annual Report to Shareholders and
     the Form 10-K filed with the Securities and Exchange Commission.

     Due to the seasonality of the Company's business, net revenues and
     operating results for the three and six months ended June 27, 1998 are
     not necessarily indicative of the results to be expected for the full
     year.

     The Company's fiscal year ends on December 31; however, each quarter
     ends on the last Saturday of a thirteen-week period.  As a result, the
     operating results for the first half of 1998 and 1997 included 178 and
     179 days, respectively.  It is the Company's opinion that the difference
     in days does not materially affect the comparability of the financial
     results for the periods presented.

(2)  MEMBERSHIP FEE REVENUE RECOGNITION

     On clubs in which the Company has a continuing obligation, net deferred
     membership fees and initial direct acquisition related costs are
     recorded when the trial period has elapsed and are amortized over the
     membership period, generally twelve months.

(3)  EARNINGS PER COMMON SHARE

     Basic earnings per common share ("EPS") is computed based on the
     weighted average shares of common stock outstanding during the
     applicable periods while diluted EPS assumes conversions of potentially
     dilutive shares of common stock outstanding during the applicable
     periods.  Potential dilutive shares of common stock include stock
     options, which have been granted to employees and directors of the
     Company.  For the three and six month periods ended June 27, 1998,
     options to purchase 1,807,000 shares of common stock were outstanding
     but were not included in the computation of diluted EPS as their
     inclusion would have been antidilutive.  Had the inclusion of these
     options not been antidilutive, the Company would have assumed conversion
     of stock options of approximately 320,000 and 355,000 for the second
     quarter and first half of 1998.  The components of basic and diluted EPS
     for the three and six-month periods ended June 27, 1998 and June 28,
     1997 are as follows:
 
<TABLE>
<CAPTION>

(Amounts in thousands, except per share amounts)

                                                   Three Months Ended         Six Months Ended
                                                -----------------------    ----------------------
                                                 June 27,      June 28,     June 27,     June 28,
                                                   1998          1997         1998         1997
                                                ---------      --------    ---------     --------
<S>                                             <C>            <C>         <C>           <C>
     Net (loss) income.......................   $  (4,606)     $  2,139    $  (4,471)    $  2,540
                                                ---------      --------    ---------     --------
                                                ---------      --------    ---------     --------
     Weighted average shares outstanding.....       7,485         8,026        7,672        8,040
                                                ---------      --------    ---------     --------
                                                ---------      --------    ---------     --------
     Basic EPS...............................   $    (.62)     $    .27    $    (.58)    $    .32
                                                ---------      --------    ---------     --------
                                                ---------      --------    ---------     --------
     Weighted average shares outstanding.....       7,485         8,026        7,672        8,040
     Assumed conversions of stock options....          --           417           --          386
                                                ---------      --------    ---------     --------
     Common equivalent shares outstanding....       7,485         8,443        7,672        8,426
                                                ---------      --------    ---------     --------
                                                ---------      --------    ---------     --------
                   
       Diluted EPS...........................   $    (.62)     $    .25    $    (.58)    $    .30
                                                ---------      --------    ---------     --------
                                                ---------      --------    ---------     --------
       EPS as previously reported............                  $    .25                  $    .30
                                                               --------                  --------
                                                               --------                  --------
</TABLE>

                                      4
<PAGE>

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

(4)  FINANCING ARRANGEMENTS

     For the quarter and six-month period ended June 27, 1998, the Company
     obtained financing through a $60 million revolving line of credit and
     letter of credit facility.  The entire facility was available for stand-by
     and documentary letters of credit and working capital requirements, in each
     case, subject to a defined borrowing base.  Borrowings outstanding under
     the line of credit bore interest, at the Company's option, at the reference
     rate of interest or LIBOR plus 1.50% and were collateralized by
     receivables, inventories, intangible assets and property and equipment
     other than buildings, land and vehicles. At June 27, 1998, the Company had
     borrowings of $34.8 million outstanding under this revolving line of credit
     and $1.8 million of letters of credit outstanding, issued primarily for the
     purchase of inventory from foreign sources.

     The agreement with respect to the credit facility included covenants,
     which, among other matters, required the Company to satisfy certain
     financial tests and ratios and placed certain limitations on incurring
     additional indebtedness and on the level of capital expenditures.  The
     Company was not in compliance with the tangible net worth, fixed charge
     coverage ratio and restricted payments requirements at June 27, 1998;
     however, the Company had obtained waivers of such technical defaults
     effective for the period from and including June 27, 1998 to and including
     August 31, 1998.  In addition, the agreement was amended such that
     borrowings outstanding under the line of credit subsequent to June 27, 1998
     would bear interest, at the Company's option, at the reference rate of
     interest or LIBOR plus 1.75%. 

     On July 29, 1998 the Company obtained a signed commitment letter from a
     financial institution to provide a new $75 million revolving line of credit
     and letter of credit facility, to be used for general working capital and
     other corporate purposes.  Up to $20 million of the facility will be
     available for stand-by and documentary letters of credit.  Borrowings
     outstanding under the line of credit will bear interest, at the Company's
     option, at the reference rate or LIBOR plus an interest rate spread, which
     will be based on the Company's excess availability.  Borrowings under 
     the facility will be secured by certain assets of the Company and the
     new agreement will include one financial covenant.  The Company
     anticipates closing on the new agreement by August 31, 1998.
               
(5)  COMMON STOCK AND STOCK OPTION TRANSACTIONS

     During the first half of 1998, the Company repurchased 784,000 of its Class
     A Common Stock ("Common Stock"), at an aggregate cost of approximately $7.6
     million.  This total includes the 400,000-share open-market repurchase
     program and a series of private transactions, as authorized by the
     Company's Board of Directors.  During the first six months of 1997, the
     Company repurchased 47,500 shares of Common Stock at an aggregate cost of
     approximately $363,000.

     On April 15, 1998, the Board of Directors and shareholders approved an
     amendment to the Company's 1991 Stock Option Plan, which increased the
     number of shares of the Company's Common Stock reserved for issuance to
     1,600,000.  On June 12, 1998, the Company granted, under this plan, options
     to selected employees of the Company to purchase approximately 157,000
     shares of the Company's Common Stock at $8.25 per share.  The options vest
     over three years and expire 10 years from the date of grant.

     On January 30, 1998, the Company granted to Mark A. Cohn an option to
     purchase 400,000 shares of the Company's Common Stock at $10.00 per share.
     The option vests in five equal annual installments beginning in 1999 and
     expires 10 years from the date of grant.

     On January 30, 1998, the Company's Board of Directors approved a stock
     purchase plan for non-employee directors consisting of 50,000 shares of the
     Company's Common Stock.  Under the plan, each director is limited to
     purchasing a maximum of 5,000 shares per month, at a price equal to an
     average of the last reported sale price for the Company's Common Stock for
     the twenty trading days prior to notification. 

                                       5
<PAGE>

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

(6)  UNUSUAL EXPENSES
               
     Operating income for the three and six-month periods ended June 27, 1998
     includes unusual expenses of approximately $767,000 ($.07 per share
     after-tax) related to the temporary closing in early May of the
     Company's Junction City call center as a result of a number of worker
     illnesses in the facility and resulting hospitalizations.  Included in
     the expenses are amounts incurred related to rerouting incoming calls to
     the Fayetteville and Brooklyn Center call centers, as well as to three
     external vendors, hiring temporary labor pools to handle the rerouted
     calls, setting up temporary-site locations in Junction City, including
     trailer rentals and electrical installations for computer and telephone
     equipment, and retention of health officials and environmental
     specialists.  The expenses also include the salaries, wages and
     commissions of Junction City employees, corresponding to the timeframe
     that the facility was closed, and overtime costs incurred at the other
     call centers as a result of the closing.
     
     Although a cause was never identified, in mid-May, the Company reopened
     the call center after the facility was declared safe for use by the
     Kansas Department of Health and Environment, physicians from a local
     hospital and an external environmental consulting firm.  The Company
     undertook several precautionary measures upon reopening the facility
     including the installation of various monitoring equipment, such as
     carbon monoxide detectors, air turnover units and activated charcoal
     filters, as well as the retention of on-site medical professionals, the
     costs of which are included above in the total of unusual expenses.

                                      6
<PAGE>

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
                            AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

The selected financial data below for each of the periods presented are derived
from the Company's Consolidated Statements of Operations.

<TABLE>
<CAPTION>
                                                        Three Months Ended
                                              --------------------------------------
                                                June 27, 1998        June 28, 1997
                                              --------------------------------------
<S>                                           <C>         <C>       <C>         <C>
  ($ in millions)
    Net revenues...........................   $  115.6    100.0%    $  147.5    100.0%
    Gross profit...........................       36.6     31.7         41.8     28.3
    Marketing and administrative expenses..       41.9     36.2         38.2     25.9
    Unusual expenses.......................        0.8      0.7           --       --
    Operating (loss) income................       (6.0)    (5.2)         3.6      2.4
    Net (loss) income......................   $   (4.6)    (4.0)%   $    2.1      1.5%
                                              --------    -----     --------    -----
                                              --------    -----     --------    -----
</TABLE>

<TABLE>
<CAPTION>
                                                         Six Months Ended
                                              --------------------------------------
                                                June 27, 1998        June 28, 1997
                                              --------------------------------------
<S>                                           <C>         <C>       <C>         <C>
  ($ in millions)
    Net revenues...........................   $  250.8    100.0%    $  276.1    100.0%
    Gross profit...........................       80.6     32.2         77.2     27.9
    Marketing and administrative expenses..       84.8     33.8         72.8     26.4
    Unusual expenses.......................        0.8      0.3           --       --
    Operating (loss) income................       (4.9)    (1.9)         4.4      1.6
    Net (loss) income......................   $   (4.5)    (1.8)%   $    2.5      0.9%
                                              --------    -----     --------    -----
                                              --------    -----     --------    -----
</TABLE>

NET (LOSS) INCOME

The Company reported a net loss of $4.6 million, or $.62 per share for second 
quarter 1998 as expected, compared to net income of $2.1 million, or $.25 per 
share for second quarter 1997.  The Company reported a net loss of $4.5 
million, or $.58 per share year-to-date, compared to net income of $2.5 
million, or $.30 per share for the comparable period in the prior year.

NET REVENUES

Net revenues of $115.6 million for the quarter ended June 27, 1998 decreased 
$31.8 million, or 21.6% from net revenues for the comparable period last 
year, reflecting a 22% reduction in catalog circulation as well as increased 
credit card and installment plan denials.  In addition, the ten-day closing 
of one of the Company's call centers in May negatively impacted second 
quarter results, as service levels were unable to be maintained during this 
period, resulting in lost product revenues and lost opportunities to convert 
customers to members. The second quarter decline in net revenues from the 
Company's retail business was partially offset by an increase in  membership 
revenues, reflecting the Company's continued success in expanding its 
membership portfolio through its client services marketing channel. On a 
year-to-date basis, 1998 net revenues of $250.8 million reflected a 9.2% 
decline from net revenues for the first six months of 1997. Net revenues 
include membership fees earned from the Company's clubs, net product sales, 
shipping and handling revenue and list revenue.

                                      7
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
                            AND FINANCIAL CONDITION
                                  (CONTINUED)

NET REVENUES (CONTINUED)

MEMBERSHIP SERVICES FEE REVENUES

Membership fees increased 26.2% to $18.9 million in second quarter 1998, as 
compared to $15.0 million for second quarter 1997.  For the six-month period 
then ended, membership fees of $40.9 million increased 40.6% over membership 
fees of $29.1 million for the comparable period in the prior year, largely 
due to the Company's continued strategic advancements in the client 
membership services arena.  The increased revenues were partially offset by 
higher credit card denials and membership returns, in addition to an 
unfavorable impact on membership conversions as a result of the temporary 
closing of the Junction City call center in May. 
                                          
In total, approximately 433,000 and 750,000 net new members were added to the 
Company's clubs during the second quarter and first half of 1998, 
representing a significant increase over the net new members acquired during 
the comparable periods in the prior year.  Of this total, approximately 
283,000 new club members were added in the direct-to-consumer channel during 
second quarter 1998, almost 100,000 more members than were added in second 
quarter 1997. Despite significant reductions in catalog mailings, the Company 
was able to attract more new members in this channel through strategically 
increasing its usage of outbound telemarketing and an expanded suite of 
membership products.  In addition, as a result of these initiatives, the 
Company has retained more members as evidenced by strengthened renewal rates. 
Although the Company has been successful in obtaining new members through 
the direct-to-consumer channel, the Company's long-term strategic growth 
vehicle in the membership services business is through the client services 
channel, in which the Company markets its membership programs on behalf of 
large customer list-owning clients.  Since this channel's inception, the 
Company has secured client relationships with nationally recognized financial 
institutions, such as Wachovia Bank Card Services, Associates Financial 
Services Company, Inc. and Capital One Bank. Approximately 35% of the net new 
members added during second quarter were obtained through the nascent client 
service channel as compared to 29% for the first half of 1998.  During second 
quarter 1998, DAMARK's fifth shopping club, VALUE PLUS, was launched.  This 
club was designed to attract the value conscious shopper and give members 
access to the lowest prices available on select DAMARK merchandise as well as 
savings coupons from nationally known companies. 
                                          
During second quarter 1998, club membership renewals of 271,000 increased 
36.9% over the prior year comparable period, while renewals for the first six 
months of 1998 increased 26.3% over renewals for the first half of 1997.  As 
of June 27, 1998, club membership totaled 1,443,000 members, including 
approximately 106,000 free-trial members.
                                          
Following is a summary of membership statistics for the three and six months 
ended June 27, 1998 and June 28, 1997:

<TABLE>
<CAPTION>
                                                  Three Months Ended      Six Months Ended
                                                 -------------------------------------------
                                                 June 27,    June 28,    June 27,   June 28,
                                                   1998        1997        1998       1997
                                                 --------    --------    --------   --------
<S>                                              <C>         <C>         <C>        <C>
     (In thousands)
     DIRECT-TO-CONSUMER CHANNEL:
     New club members added...................     283         185          533        365
     Club members renewed.....................     271         198          499        395
     Membership expirations & cancellations...    (652)       (332)      (1,106)      (670)
                                   
     Net membership, at period end............   1,272       1,134        1,272      1,134
                                                 -----       -----       ------      -----
                                                 -----       -----       ------      -----
     CLIENT SERVICES CHANNEL:
     New club members added...................     150          --          217         --
     Club members renewed.....................      --          --           --         --
     Membership expirations & cancellations...     (51)         --          (58)        --
     
     Net membership, at period end............     171          --          171         --
                                                 -----       -----       ------      -----
                                                 -----       -----       ------      -----
     TOTAL COMPANY MEMBERSHIP, AT PERIOD END..   1,443       1,134        1,443      1,134
                                                 -----       -----       ------      -----
                                                 -----       -----       ------      -----
</TABLE>
                                      8
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
                              AND FINANCIAL CONDITION
                                    (CONTINUED)

NET REVENUES (CONTINUED)

RETAIL SERVICES REVENUES

Pursuant to a revised circulation strategy, approximately 31.6 million and 
69.3 million catalogs were mailed during the three and six months ended June 
27, 1998 as compared to 40.4 million and 75.0 million catalogs for the 
comparable periods in the prior year. Sales per catalog mailed for second 
quarter 1998 were $3.52, reflecting a 6.4% decline from second quarter 1997.  
On a year-to-date basis, sales per catalog mailed of $3.53 declined 9% from 
sales per catalog mailed of $3.88 for the first half of 1997.  The decrease 
in sales productivity reflects continued soft response to the members only 
catalogs, which have the highest sales productivity rates, partially offset 
by improved response from front-end prospects.  The decline additionally 
reflects the ten-day closing of the Junction City call center during the 
month of May, as the closing of the facility occurred within days of mailing 
one of the Company's catalogs. Although the Company attempted to reroute 
incoming calls to the Fayetteville and Brooklyn Center locations as well as 
to three external vendors, the Company's overall service levels suffered for 
May, resulting in a loss of product sales as well as opportunities to convert 
customers to members.

The following table reflects catalog statistics for the three and six months 
ended June 27, 1998 and June 28, 1997:

<TABLE>
<CAPTION>
                                                       Three Months Ended        Six Months Ended
                                                      ---------------------------------------------
                                                      June 27,     June 28,    June 27,    June 28,
                                                        1998         1997        1998        1997
                                                      --------     --------    --------    --------
<S>                                                   <C>          <C>         <C>         <C>
     Number of catalogs mailed (in thousands).....      31,600       40,400      69,300      75,000
                         
     Response rate - total company................        2.11%        2.09%       2.12%       2.21%
                         
     Sales per catalog:
       Front-end prospect.........................    $   1.94     $   1.86    $   2.02    $   1.93
       Back-end customers.........................    $   3.51     $   3.57    $   3.37    $   3.57
       Back-end members...........................    $   7.82     $   9.71    $   7.15    $   9.01
         Total company............................    $   3.52     $   3.76    $   3.53    $   3.88
                                                      --------     --------    --------    --------
                                                      --------     --------    --------    --------

     Average order - total company................    $    168     $    180    $    168    $   176
                                                      --------     --------    --------    --------
                                                      --------     --------    --------    --------
</TABLE>

As a result of the change made to the Company's return policy in 1997, the 
Company continues to realize improvement in its product return rates, as the 
return rate of 12.1% for second quarter 1998 compared favorably to the rate 
of 14.3% for second quarter 1997.  The product return rate for the first half 
of 1998 was 12.7% compared to 15.0% for the first half of 1997.

GROSS PROFIT

Despite a 21.6% decline in net revenues for the quarter, gross profit margin 
dollars decreased by only 12.3%, reflecting a shift to the higher margin 
membership sales.  The overall gross profit margin as a percentage of net 
revenues for second quarter 1998 increased to 31.7%, as compared to a gross 
profit margin of 28.3% for second quarter 1997.  On a year-to-date basis, 
1998's gross profit margin of 32.2% compared favorably to a gross profit 
margin of 27.9% for the prior year comparable period.  The improvement was 
primarily the result of increased membership revenues, partially offset by 
the underperformance of the Company's retail business.  Gross profit was also 
impacted by the liquidation of certain inventories from the consummation, in 
second quarter, of a new liquidator agreement and the recording of additional 
reserves for anticipated future liquidations.  

The Company's overall product profit margin is affected by the mix of sales 
among the Company's six primary product segments, the mix of sales to 
Preferred Buyers' Club and Insiders members who receive a 10% discount, and 
shipping and handling revenue generated from product shipments.  Products 
such as computers, consumer electronics and home office products typically 
have higher price points and lower percentage profit margins, yet provide 
higher actual dollar margin contribution per unit.  Conversely, product 
categories with lower price points, such as home decor, home improvements and 
sporting goods/fitness products, generally have higher percentage profit 
margins, but provide less actual dollar margin contribution per unit.

                                      9
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
                              AND FINANCIAL CONDITION
                                    (CONTINUED)

GROSS PROFIT (CONTINUED)

The following table illustrates the customer and product mix for the three 
and six months ended June 27, 1998 and June 28, 1997:

<TABLE>
<CAPTION>
                                                      Three Months Ended        Six Months Ended
                                                    -----------------------------------------------
                                                    June 27,     June 28,     June 27,     June 28,
                                                      1998         1997         1998         1997
                                                    --------     --------     --------     --------
<S>                                                 <C>          <C>          <C>          <C>
     Percentage of Sales by Customer Segment:
       Front-end prospect.......................      30.0%       28.0%        30.0%        26.0%
       Back-end customers.......................      22.0        23.0         22.0         24.0
       Back-end members.........................      48.0        49.0         48.0         50.0
                                                     -----       -----        -----        -----
                                                     100.0%      100.0%       100.0%       100.0%
                                                     -----       -----        -----        -----
                                                     -----       -----        -----        -----

     Percentage of Sales by Product Segment:
       Computers................................      28.5%       31.7%        29.8%        32.1%
       Consumer electronics.....................      17.3        17.9         17.4         17.8
       Home decor...............................      15.4        13.2         15.6         13.6
       Home improvements........................      18.8        16.8         16.9         15.2
       Home office..............................      13.8        13.7         14.5         14.9
       Sporting goods/fitness...................       6.2         6.7          5.8          6.4
                                                     -----       -----        -----        -----
                                                     100.0%      100.0%       100.0%       100.0%
                                                     -----       -----        -----        -----
                                                     -----       -----        -----        -----
</TABLE>

As indicated by the table above, 1998's percentage of sales derived from the 
home decor and home improvements product segments reflected a substantial 
increase over 1997's mix.  This increase reflects the Company's successful 
introduction of the HOME COMFORTS catalog and related home product offerings, 
in conjunction with the recently introduced Essentials for Home club program.

MARKETING AND ADMINISTRATIVE EXPENSES

Excluding unusual expenses related to the temporary closing of the Junction 
City call center of approximately $767,000, marketing and administrative 
expenses totaled $41.9 million in second quarter 1998, compared to $38.2 
million for second quarter 1997.  For the six-month period ended June 27, 
1998,  marketing and administrative expenses, excluding the unusual expenses, 
totaled $84.8 million as compared to $72.8 million for the comparable period 
for the prior year.  The increase in marketing and administrative expenses 
reflects certain costs incurred as the Company continues its expansion into 
the membership services industry, including an increased usage of outbound 
telemarketing, the opening of the Company's client service telemarketing 
center, and costs associated with the enhancement of the Company's 
infrastructure capabilities and information technology resources.

                                      10
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
                           AND FINANCIAL CONDITION
                                  (CONTINUED)

UNUSUAL EXPENSES

During the month of May, the Company's Junction City call center was abruptly 
closed as a result of a number of worker illnesses in the facility and 
resulting hospitalizations.  As a result of the closing the Company incurred 
expenses related to rerouting incoming calls to the Fayetteville and Brooklyn 
Center call centers, as well as to three external vendors, hiring temporary 
labor pools to handle the rerouted calls, setting up temporary-site locations 
in Junction City, including trailer rentals and electrical installations for 
computer and telephone equipment, and retention of health officials and 
environmental specialists.  During the shutdown, the Company continued to pay 
the salaries, wages and commissions of Junction City employees, and incurred 
overtime costs at the other call centers.
                                                    
Although a cause was never identified, in mid-May, the Company reopened the 
call center after the facility was declared safe for use by the Kansas 
Department of Health and Environment, physicians from a local hospital and an 
external environmental consulting firm.  The Company undertook several 
precautionary measures upon reopening the facility including the installation 
of various monitoring equipment, such as carbon monoxide detectors, air 
turnover units and activated charcoal filters, as well as the retention of 
on-site medical professionals.

For the quarter and six month period ended June 27, 1998, in addition to the 
incurrence of additional expenses related to the shutdown, the closing of the 
facility negatively impacted product sales and membership revenues, resulting 
in a decline in service levels, in less calls being handled and, 
correspondingly, less opportunities to convert customers to members.

INTEREST EXPENSE

Net interest expense for second quarter 1998 of $797,000 increased $519,000 
over second quarter 1997, while net interest expense of $1.7 million for the 
first six months of 1998 was $1.2 million higher than the prior year 
comparable period.  These increases reflect increased borrowings under the 
Company's revolving credit facility necessary to fund working capital 
requirements related to its installment billing plans.  The Company has begun 
to limit its offerings of the longer-duration installment billing plans and, 
as a result, the Company realized interest reductions from first quarter.

INCOME TAX (BENEFIT) PROVISION

The Company's effective tax rate was 34.0% for second quarter 1998 and 1997, 
as well as for the six-month periods then ended.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity, as measured by its net working capital, was $11.5 
million at June 27, 1998, as compared with $24.3 million at December 31, 
1997.  The Company's current ratio was 1.1 to 1.0 at June 27, 1998 as 
compared to 1.2 to 1.0 at December 31, 1997.  The decline in the Company's 
net working capital and current ratio from year-end reflects reductions of 
inventory levels and receivables, in addition to increased capital 
expenditures and purchases under the Company's Common Stock repurchase 
program.  

Cash provided by operations totaled $22.8 million for the first half of 1998, 
as compared with cash used for operations of $6.8 million for the same period 
in 1997, reflecting the reductions in receivables and merchandise 
inventories, partially offset by decreases in accounts payable. Net deferred 
membership income and initial direct acquisition-related costs, decreased 
to $17.3 million at June 27, 1998 from $20.9 million at year-end 1997.

During the first six months of 1998, the Company made capital expenditures of 
approximately $6.8 million, compared with $4.6 million for the first six 
months of 1997.  Capital expenditures in 1998 included costs associated with 
the closing of an existing telemarketing center and the opening of a new 
client services telemarketing center in Brooklyn Center, MN and improvements 
made to the Company's corporate headquarters. The Company has invested and 
will continue to evaluate its needs for additional investments in information 
technology and infrastructure capabilities to achieve operational 
efficiencies.  Management currently anticipates that it will spend 
approximately $10 to $12 million on capital expenditures during 1998.

                                      11
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
                              AND FINANCIAL CONDITION
                                    (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

The Company's computer systems and those of third parties with whom it does 
business will be affected when the year changes to 2000, commonly known as 
the "year 2000 issue."  The Company is currently conducting an internal study 
to determine the full scope and related costs of modifying its computer 
systems to ensure proper processing of transactions into and beyond the year 
2000.  The Company has begun to incur costs associated with addressing the 
year 2000 issue. Although the total costs to be incurred are not expected to 
be significant, failure to achieve timely completion of required 
modifications or conversions or failure of the third parties with whom the 
Company has relationships (vendors, clients, credit card processors and 
others) to be year 2000 compliant could have a material adverse impact on the 
operations and financial condition of the Company.  Maintenance or 
modification costs incurred by the Company will be expensed and costs of new 
software (whether purchased or internally developed) will be capitalized and 
amortized over its applicable useful life.

For the quarter and six-month period ended June 27, 1998, the Company 
obtained financing through a $60 million revolving line of credit and letter 
of credit facility.  The entire facility was available for stand-by and 
documentary letters of credit and working capital requirements, in each case, 
subject to a defined borrowing base.  Borrowings outstanding under the line 
of credit bore interest, at the Company's option, at the reference rate of 
interest or LIBOR plus 1.50% and were collateralized by receivables, 
inventories, intangible assets and property and equipment other than 
buildings, land and vehicles. At June 27, 1998, the Company had borrowings of 
$34.8 million outstanding under this revolving line of credit and $1.8 million 
of letters of credit outstanding, issued primarily for the purchase of 
inventory from foreign sources.

The agreement with respect to the credit facility included covenants, which, 
among other matters, required the Company to satisfy certain financial tests 
and ratios and placed certain limitations on incurring additional 
indebtedness and on the level of capital expenditures.  The Company was not 
in compliance with the tangible net worth, fixed charge coverage ratio and 
restricted payments requirements at June 27, 1998; however, the Company had 
obtained waivers of such technical defaults effective for the period from and 
including June 27, 1998 to and including August 31, 1998.  In addition, the 
agreement was amended such that borrowings outstanding under the line of 
credit subsequent to June 27, 1998 would bear interest, at the Company's 
option, at the reference rate of interest or LIBOR plus 1.75%. 

On July 29, 1998 the Company obtained a signed commitment letter from a 
financial institution to provide a new $75 million revolving line of credit 
and letter of credit facility, to be used for general working capital and 
other corporate purposes.  Up to $20 million of the facility will be 
available for stand-by and documentary letters of credit.  Borrowings 
outstanding under the line of credit will bear interest, at the Company's 
option, at the reference rate or LIBOR plus an interest rate spread, which 
will be based on the Company's excess availability.  Borrowings under the 
facility will be secured by certain assets of the Company and the new 
agreement will include one financial covenant.  The Company anticipates 
closing on the new agreement by August 31, 1998.  The Company believes 
that this new credit facility will provide it with the liquidity and the 
financial flexibility necessary to support its current and future operations 
growth.

The Company offers its customers varying installment-billing plans with no 
finance charges payable to the Company.  As a result, the Company supported 
installment plan receivables aggregating $35.5 million and $50.5 million at 
June 27, 1998 and December 31, 1997, respectively.  The Company's receivable 
balance at any time is generally reflective of sales volume fluctuations, as 
approximately 30% to 40% of its net revenues are financed by customers on one 
of the Company's installment billing plans.  The decline in installment plan 
receivables from year-end reflects a revised strategy, which limits the 
offerings of the longer-duration installment billing plans.  The Company will 
continue to offer certain short-term installment billing plans to its 
customers, requiring the allocation of capital resources expected to be 
funded from internal operations as well as availability under the revolving 
credit facility.

During the first half of 1998, the Company repurchased 784,000 of its Class A 
Common Stock, at an aggregate cost of approximately $7.6 million.  This total 
includes the 400,000-share open-market repurchase program and a series of 
private transactions, as authorized by the Company's Board of Directors.  
During the first six months of 1997, the Company repurchased 47,500 shares of 
Common Stock at an aggregate cost of approximately $363,000.

On April 15, 1998, the Board of Directors and shareholders approved an 
amendment to the Company's 1991 Stock Option Plan, which increased the number 
of shares of the Company's Common Stock reserved for issuance to 1,600,000.  
On June 12, 1998, the Company granted, under this plan, options to selected 
employees of the Company to purchase approximately 157,000 shares of the 
Company's Common Stock at $8.25 per share.  The options vest over three years 
and expire 10 years from the date of grant.

                                      12
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
                              AND FINANCIAL CONDITION
                                    (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

On January 30, 1998, the Company granted to Mark A. Cohn an option to 
purchase 400,000 shares of the Company's Common Stock at $10.00 per share.  
The option vests in five equal annual installments beginning in 1999 and 
expires 10 years from the date of grant.

On January 30, 1998, the Company's Board of Directors approved a stock 
purchase plan for non-employee directors consisting of 50,000 shares of the 
Company's Common Stock.  Under the plan, each director is limited to 
purchasing a maximum of 5,000 shares per month, at a price equal to an 
average of the last reported sale price for the Company's Common Stock for 
the twenty trading days prior to notification. 

The Company expects to fund its operations, expected working capital 
requirements and capital expenditures for the remainder of 1998 from cash 
generated from operations and available borrowing capacity under its credit 
facility.  

SEASONALITY

The Company's business is subject to significant seasonal variations in 
consumer demand, which the Company believes are generally associated with the 
direct marketing and retail industries.  Historically, the Company's net 
revenues have been the largest during the fourth calendar quarter and a 
significant portion of its earnings have been realized during that period.  
The Company's operating results during this period may be affected by holiday 
spending patterns, as well as the timing and effectiveness of catalog 
mailings and general economic and other conditions.  In anticipation of its 
peak selling season, the Company hires additional flex-time employees in its 
telemarketing, order processing and distribution areas, increases its 
merchandise inventories, and incurs significant catalog production and 
mailing costs.  The Company's annual operating results could be adversely 
affected if, among other factors, the Company's revenues were to be 
substantially below seasonal expectations during the October through December 
timeframe, or if a sufficient number of qualified employees would not be 
available on a flex-time or other non-permanent basis.

INFLATION

Excluding increases in postage and paper costs, inflation has not had, and 
the Company does not expect it to have, a material impact on operating 
results. There can be no assurances, however, that the Company's business 
will not be affected by inflation in the future. The Company could be 
adversely impacted by substantial cost increases for paper and postage, as 
significant cost increases in these areas could have a material impact on 
advertising and other promotional costs in future periods.  For the remainder 
of fiscal year 1998, no such increases are anticipated. 

FORWARD-LOOKING INFORMATION

Forward-looking statements contained herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.  Certain
important factors exist that could cause results to differ materially from those
anticipated by some of the statements made above.  Investors are cautioned that
all forward-looking statements involve risks and uncertainty.  The factors,
among others, that could cause actual results to differ materially include:
consumer spending and debt levels; interest rates; failure of the Company or
significant third parties to achieve year 2000 compliance, including material
costs being incurred in connection with such compliance; changes or consumer
perceptions of changes in the domestic and/or international economic and
political climates; continuity of relationships with or purchases from major
vendors; the Company's ability to retain existing clients and attract new
clients, the Company's dependence on membership renewals, the Company's
continuing ability to develop new programs which generate consumer interest,
arrangements with list owners; changes in marketing strategy; labor shortages;
changes in product mix; telemarketing center integration; competitive pressures
on sales, pricing and membership services; availability of financing on
favorable terms; higher than expected installment plan default rates; and
increases in catalog production, product, postage, shipping and other costs
which cannot be recovered through improved pricing of products and services.

                                      13
<PAGE>

                            PART II.  OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         a. The Company held its annual meeting of shareholders on April 15, 
            1998. Pursuant to Regulation 14 of the Securities Exchange Act 
            of 1934, proxies for such meeting were solicited.  The following 
            matters were voted on at the meeting:

<TABLE>
<CAPTION>
                                                                                       Votes
                                                                       Votes For      Withheld
                                                                       ---------      --------
<S>                                                                    <C>            <C>
         b. (1) To elect the following individuals to
                serve as members of the Company's Board of Directors
                until the Annual Meeting of Shareholders in the year
                2000:

                Mark A. Cohn                                           6,732,249      439,048
                Stephen J. Hemsley                                     6,731,289      440,008
                Ralph Strangis                                         6,725,989      445,308

                                                                         Votes         Votes       Broker        Votes
                                                                          For        Abstained    Non-Votes     Against
                                                                       ---------     ---------    ---------    ---------
<S>                                                                    <C>           <C>          <C>          <C>
         c. (2) To approve the amendment increasing to 1,600,000 
                the shares authorized under the DAMARK 
                International, Inc. 1991 Stock Option Plan.            5,008,588     16,865       1,107,014    1,038,830

            (3) To ratify the appointment of Arthur Andersen LLP 
                as independent public accountants of the Company 
                for 1998.                                              7,155,758      6,461            --          9,078
</TABLE>

ITEM 5.  OTHER INFORMATION

         By an action of the Board of Directors effective as of August 10, 1998,
         the Board of Directors of the Company has adopted an amendment to the 
         Company's bylaws, which amendment provides that no business shall be 
         considered at an annual meeting of the shareholders except business 
         identified (a) pursuant to the Company's Notice of Meeting, (b) by or 
         at the direction of the Board of Directors, or (c) by any shareholder
         of the Company who (i ) was a shareholder of record at the time of 
         giving of the notice specified in clause (iii) below, (ii) is 
         entitled to vote at the meeting, and (iii) gives notice of the matter,
         which must otherwise be a proper matter for shareholder action, in a 
         writing received by the Secretary of the Company not less than 120 
         calendar days in advance of the date the Company's proxy statement 
         and notice was released to shareholders in connection with the 
         Company's previous year's annual shareholder meeting.
         
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         a.   EXHIBITS:

                Exhibit 3 - Amended and Restated Bylaws effective as of 
                            August 10, 1998.

                Exhibit 27 - Financial Data Schedule.

         b.   REPORTS ON FORM 8-K:

                Registrant did not file any reports on Form 8-K during the 
                quarter ended June 27, 1998.

                                      14
<PAGE>

                                   SIGNATURE


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.

                                       DAMARK INTERNATIONAL, INC.



Date:  August 11, 1998                 By:  /s/ Kim H. Plahn
                                            -------------------------
                                            Kim H. Plahn
                                            Vice President - Finance

                                      15