U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                   FORM 10-QSB

                QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934




For the quarter period ended October 31, 1998                 File #: 001-09703
                                                                      ---------

                                 SKOLNIKS, INC.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


         DELAWARE                                                13-3074492
-------------------------------                              ------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)



7755 E. Gray Road, Scottsdale, Arizona                              85260
---------------------------------------                          ----------
(Address of principal executive office)                          (Zip code)


                                 (602) 443-9640
                ------------------------------------------------
                (Issuer's telephone number, including area code)


         Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $ 0.001 Par Value
              SERIES A Convertible Preferred Stock, $.01 Par Value
   SKNS-M Warrants to Purchase Common Stock, $.001 Par Value (Expired 6/7/98)
   --------------------------------------------------------------------------
                                (Title of Class)


Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 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 [ ]

Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13, 15(d) of the Exchange Act after the  distribution  of securities
under a plan confirmed by a court YES [ ] NO [X]

The number of shares  outstanding of issuer's Common Stock,  $.001 par value per
share, as of October 31, 1998 was 9,328,176.

Transitional Small Business Disclosure Format (check one):  YES [ ]  NO [X]
<PAGE>
                                 SKOLNIKS, INC.
                         QUARTERLY REPORT ON FORM 10-QSB
                     FOR THE QUARTER ENDED OCTOBER 31, 1998


                                TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements

             Condensed Consolidated Balance Sheets -
             October 31, 1998 and July 31, 1998.............................  2

             Condensed Consolidated Statements of Operations -
             Three Month Periods Ended October 31, 1998 and 1997............  3

             Condensed Consolidated Statements of Cash Flows -
             Three Month Periods Ended October 31, 1998 and 1997............  4

             Notes to Consolidated Financial Statements.....................  5

     Item 2. Management's Discussion and Analysis of Financial
             Condition and Results of Operations............................  7

PART II. OTHER INFORMATION

     Item 1. Legal Proceedings..............................................  9

     Item 2. Changes in Securities..........................................  9

     Item 3. Defaults Upon Senior Securities................................  9

     Item 4. Submission of Matters to a Vote of Securities Holders..........  9

     Item 5. Other Information..............................................  9

     Item 6. Exhibits and Reports of Form 8-K............................... 10

SIGNATURES.................................................................. 11

                                       2
<PAGE>
                                 SKOLNIKS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                OCTOBER 31, 1998
                                   (unaudited)

                                                 October 31, 1998
                                                   (Unaudited)     July 31, 1998
                                                   -----------     -------------
                                     ASSETS
CURRENT ASSETS
  Cash                                            $      2,453    $     31,625
  Accounts Receivable, Net                             146,581         130,519
  Inventory, Net                                        28,311          36,322
  Other Current Assets                                  43,392          58,139
                                                  ------------    ------------
TOTAL CURRENT ASSETS                                   220,737         256,605

  Property & Equipment, Net                            239,295         227,672
                                                  ------------    ------------
TOTAL ASSETS                                      $    460,032    $    484,277
                                                  ============    ============

                     LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
  Accounts Payable and
  Accrued Liabilities                             $    393,999    $    350,297
  Notes Payable - Related Parties                       20,005          20,005
                                                  ------------    -----------
TOTAL CURRENT LIABILITIES                         $    414,004    $    370,302

  Notes Payable - Related Parties                    1,271,000       1,271,000
                                                  ------------    ------------
                                                     1,685,004       1,641,302
Commitments and Contingencies

STOCKHOLDERS' DEFICIT:
  Series A Convertible Preferred Stock,
    $0.01 par value, 2,000,000 shares
    authorized; shares issued: October
    and July 1998 - 427,328                       $      4,273    $      4,273
  Common Stock, $0.001 par value,
    10,000,000 shares authorized; shares
    issued: October and July 1998 - 9,328,176            9,328           9,328
  Additional Paid in Capital                        21,118,836      21,118,835
  Accumulated Deficit                              (21,454,868)    (21,386,920)
                                                  ------------    ------------
                                                      (322,431)      (254,484)
  Less Treasury Stock, at cost                        (902,541)       (902,541)
                                                  ------------    ------------
TOTAL STOCKHOLDERS' DEFICIT                       $ (1,224,972)   $ (1,157,025)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT       $    460,032    $    484,277
                                                  ============    ============

                 The accompanying notes are an integral part of
                          these financial statements.

                                       3
<PAGE>
                                 SKOLNIKS, INC.
                   CONDENSED CONSOLIDATED STATEMENT OF INCOME
                                   (unaudited)


                                                     THREE-MONTHS ENDED
                                             -----------------------------------
                                             OCTOBER 31, 1998   OCTOBER 31, 1997
                                             ----------------   ----------------
REVENUE:
  Product sales (net)                          $   479,382        $   367,715

EXPENSES:
  Plant operating costs                            415,708            389,006
  General & administrative expenses                 96,468            108,719
                                               -----------        -----------

LOSS FROM OPERATIONS                               (32,794)          (130,011)

OTHER INCOME (EXPENSE):
  Interest Expense                                 (35,154)           (20,100)
                                               -----------        -----------

NET LOSS                                       $   (67,948)       $  (150,111)
                                               ===========        ===========


Net Loss per Share                             $     (0.01)       $     (0.02)
                                               ===========        ===========

Weighted Average Shares Outstanding              9,328,176          9,076,983
                                               ===========        ===========

                 The accompanying notes are an integral part of
                          these financial statements.

                                       4
<PAGE>
                                 SKOLNIKS, INC.
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (unaudited)

                                                     THREE-MONTHS ENDED
                                             -----------------------------------
                                             OCTOBER 31, 1998   OCTOBER 31, 1997
                                             ----------------   ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Loss                                         $(67,948)       $(150,111)
  Adjustments to reconcile net income to
  net cash used in operating activities:
    Depreciation and Amortization                    19,844           19,581
    Increase in Accounts Receivable                 (16,062)         (26,450)
    Decrease (Increase) in Inventory                  8,011          (11,345)
    Decrease (Increase) in Other Current Assets      14,747           (6,396)
    Increase (Decrease) in Accounts Payable
     and Accrued Liabilities                         43,702          (34,719)
                                                   --------        ---------

NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES                                  2,294         (209,439)



CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property and equipment             (31,466)            (560)
                                                   --------        ---------

NET CASH USED IN INVESTING ACTIVITIES               (31,466)            (560)



CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from Borrowing                                 0          210,000
                                                   --------        ---------

NET CASH PROVIDED BY FINANCING ACTIVITIES                 0          210,000


NET INCREASE (DECREASE) IN CASH                     (29,172)               1
CASH, BEGINNING OF PERIOD                            31,625               68
                                                   --------        ---------

CASH, END OF PERIOD                                $  2,453        $      69
                                                   ========        =========


                 The accompanying notes are an integral part of
                          these financial statements.

                                       5
<PAGE>
                                 SKOLNIKS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE PERIOD ENDED OCTOBER 31, 1998

(a)  The  accompanying  unaudited  consolidated  financial  statements have been
     prepared  by  the  Company  without  audit,   pursuant  to  the  rules  and
     regulations  of the  Securities and Exchange  Commission.  These  financial
     statements reflect all adjustments (consisting of normal recurring accruals
     and  adjustments)  which are, in the opinion of  management,  necessary  to
     fairly  state  the  financial  position  as of  October  31,  1998  and the
     operating  results  and cash  flows for the  periods  presented.  Operating
     results for the interim periods presented are not necessarily indicative of
     the  operating  results  that may be expected  for the entire  year.  These
     financial  statements should be read in conjunction with the Company's July
     31, 1998 financial statements and accompanying notes thereto.

(b)  At a hearing held in bankruptcy court on March 20, 1995, the Company agreed
     to an order for relief  under  Chapter 11 of the United  States  Bankruptcy
     Code.  The Company  submitted  a plan to the  bankruptcy  court,  which was
     approved.  The plan was mailed to the  creditors  and  shareholders  May 2,
     1996. The Court confirmed the plan of  reorganization  at the  Confirmation
     Hearing held on July 10, 1996, at the United States Bankruptcy Court in the
     Western  District of Oklahoma.  The Company raised  $1,000,000 by selling 1
     million  shares of  Common  Stock to fund the Plan of  Reorganization.  The
     creditor's  trust received a cash payment of $800,000 and 500,000 shares of
     Common  Stock.  The Company  completed all  requirements  under the Plan of
     Reorganization  on December  18,  1996.  The Court issued a Final Decree in
     connection  with the Company's  Reorganization  in Bankruptcy on October 8,
     1998.

(c)  During 1998 and the first  quarter of fiscal  1999,  the  Company  incurred
     operating  losses of $355,944 and $32,794  respectively.  In addition,  the
     Company  has a deficit in working  capital of $113,697 at July 31, 1998 and
     $193,267 at October 31, 1998 and a deficit in equity for both time periods.
     The  significance  of the  combined  losses  with the  deficits  in working
     capital and equity raises  substantial doubt about the Company's ability to
     continue as a going concern

     The financial  statements of the Company have been prepared on the basis of
     principles  applicable  to a continuing  business.  The basis  presumes the
     realization  of assets and the  settlement of  liabilities  in the ordinary
     course of  business.  The  Company's  ability to  operate  as a  continuing
     business is dependent upon the attainment of future  profitable  operations
     and/or the Company's ability to acquire  additional  capital or other forms
     of  financing.  The  accompanying  financial  statements do not reflect any
     adjustments  relating to the  recoverability and classification of recorded
     asset amounts or amounts or  classification  of  liabilities  that might be
     necessary should the Company be unable to continue as a going concern.

     Management  is  pursuing  new  business  opportunities,  primarily  in  the
     geographic  Southwest,  with customers in the retail  grocery,  convenience
     store,  vending,  military,  food  service,  and club  store  segments.  In
     addition, new customers are being added for daily deliveries of fresh bread
     products  within the  Arizona  market.  While the  product  line  presently
     includes  bagels,  breadsticks,  and Italian  specialty  breads,  a line of
     upscale,   European   Artisan  breads  has  been  developed  and  is  being
     introduced.  Management is also  considering  the  opportunity  to acquire,
     merge, or strategically  align with other  synergistic  baked goods or food
     manufacturers  for enhanced product  offerings,  geographic  coverage,  and
     customer leverage.

                                       6
<PAGE>
(d)  At October  31,  1998,  the Company  had  approximately  $20 million of net
     operating loss  carryforwards  available for both  financial  statement and
     federal income tax purposes.  These  carryforwards  expire through 2018. No
     deferred tax asset has been recorded as the  realization  of the benefit is
     in substantial doubt.

(e)  Since March 1995  through  October  1998,  certain  members of the Board of
     Directors and three  shareholders  have loaned the Company  $1,291,005.  In
     connection with these loans, the Board members have been issued warrants to
     purchase a total of 4,674,009 shares of Common Stock.

                Number of Shares      Exercise Price
                ----------------      --------------
                    1,430,009............$0.500

                    1,524,000............$0.250

                      920,000............$0.125

                      800,000............$0.100
                    ---------
                    4,674,009
                    =========

     The Board members were issued  warrants (50% vest  immediately and 50% vest
     in two years) to purchase  2,100,000 shares at $0.375 and 300,000 shares at
     $0.10 upon joining the Board.  Also,  350,000 warrants have been granted to
     certain  members of management:  200,000 shares at $1.00 and 150,000 shares
     $0.375.

     Holders of  warrants  to  purchase  7,409,009  shares of common  stock have
     agreed to  refrain  from  exercising  their  warrants  until the  Company's
     authorized shares capital is increased.

(f)  Net Income per share for the  periods  ended  October 31, 1998 and 1997 was
     determined by dividing net income  available to common  shareholders by the
     weighted-average number of common and common equivalent shares outstanding.
     Common stock  equivalents  recognize the potential  dilutive effects of the
     future  exercise of common stock options.  The  weighted-average  number of
     common  equivalent  shares assumes the exercise of all outstanding  options
     and the corresponding  repurchase of shares using the treasury stock method
     as of the beginning of each period presented. The common stock warrants for
     the periods presented do not quality as common stock equivalents.

                                       7
<PAGE>
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The  statements  contained  in this  Report on Form  10-QSB  that are not purely
historical are  forward-looking  statements within the meaning of Section 27A of
the  Securities  Act of 1933 and Section 21E of the  Securities  Exchange Act of
1934,   including    statements   regarding   the   Company's    "expectations",
"anticipation",  "intentions",  "beliefs", or "strategies" regarding the future.
Forward-looking   statements  include  statements  regarding  revenue,  margins,
expenses, and earnings analysis for fiscal 1999 and thereafter;  future products
or  product  development;   the  Company's  product  development  strategy;  and
liquidity  and  anticipated  cash needs and  availability.  All  forward-looking
statements  included in this Report are based on  information  available  to the
Company on the date of this Report,  and the Company  assumes no  obligation  to
update any such  forward-looking  statement.  It is  important  to note that the
Company's   actual   results  could  differ   materially   from  those  in  such
forward-looking statements. Among the factors that could cause actual results to
differ  materially  are the  factors  discussed  in Item 1,  "Business - Special
Considerations" of the Company's Form 10-KSB for the year ended July 31, 1998.

BASIS OF PRESENTATION

The  following  discussion  should  be read in  conjunction  with the  condensed
consolidated  financial  statements  included  elsewhere  within this  quarterly
report.  Fluctuations in annual and quarterly  operating  results may occur as a
result  of  certain  factors  such as the size and  timing of  customer  orders,
competition,  and general  economic  conditions.  The  customer  base is located
primarily in Arizona,  which experiences an economic downturn in the hospitality
industry during the hot summer months due to decreased tourism.  Because of such
fluctuations,   historical   results  and  percentage   relationships   are  not
necessarily indicative of the results for any future period.

RESULTS OF OPERATIONS

Three Months Ended October 31, 1998 and 1997

The  following  table  summarizes  the  operating  results  of the  Company as a
percentage of revenue for the periods indicated.

                                                              Three Months Ended
                                                                  October 31,
                                                1998                 1997
                                                ----                 ----
     Revenue                                    100%                 100%
     Plant operating costs                       87%                 106%
     General and administrative expenses         20%                  30%
                                                ---                  ---
          Operating Loss                         (7%)                (36%)
     Interest Expense                             7%                   5%
                                                ---                  ---
          Net Loss                              (14%)                (41%)
                                                ===                  ===

     REVENUE

Revenue was $479,382  for the first  quarter of fiscal 1999 and $367,715 for the
first quarter of fiscal 1998.  The increase of $111,667or  30% can be attributed
to the continued  success of an aggressive  sales plan focused on  multiple-unit
restaurant locations, retail grocery chain accounts, and club stores.

     OPERATING EXPENSES

Operating Expenses were 87% of sales on October 31, 1998 and 106% on October 31,
1997. As a percentage of sales this category's  expenditures  decreased 19%. The
decrease is  attributable  to an on-going  cost  reduction  program,  changes in
administrative processes, and the discontinuance of non-profitable products.

                                       8
<PAGE>
     GENERAL AND ADMINISTRATIVE

General and  administrative  expenses were $96,468 for the quarter ended October
31, 1998 and $108,719  for the quarter  ended  October 31, 1997,  an decrease of
$12,251 or 11%. The most significant  reason for the decrease was a cost control
program.

     INTEREST EXPENSE

Interest  expense  was  $35,154 in the first  quarter of 1998,  an  increase  of
$15,054  over the first  quarter of 1997.  The increase is  attributable  to the
increased borrowings and higher interest rate.

LIQUIDITY AND CAPITAL RESOURCES

At  October  31,   1998,   the  Company  had  a  working   capital   deficit  of
$193,267compared  to $113,697 at July 31,  1998.  The decrease of $79,570 in the
deficit  resulted  from  an  increase  in the net  cash  provided  by  operating
activities and improved operating results.

Net cash provided by operating  activities  was $2,294 in the first three months
of 1998  compared to net cash used in  operating  activities  of $209,439 in the
first three months of 1997. The most  significant  reason for this change is the
difference  in net loss. A secondary  reason is the extension of credit terms to
the Company by its trade  vendors,  which  provided  operating  capital  thereby
increasing net cash provided by operations.

Net cash used in investing  activities  was $31,466 in the first quarter of 1998
compared  to $560 for the  first  quarter  of 1997.  The  Company  purchased  an
additional proof box in September 1998.

The Company did not have any cash  provided by or used in  financing  activities
for the quarter  ended  October 31, 1998.  Due to the deficit in operating  cash
flows,  the Company relied on proceeds from  borrowings in an amount of $210,000
for the quarter ended October 31, 1997.

 As of July 31,  1998,  the Company was in default on all  payments to the notes
payable that are matured in an aggregate  amount of $20,005.  These  obligations
have been classified as current on the balance sheet.  Furthermore,  the Company
was in arrears on  dividends  on its  Preferred  Stock in the amount of $564,073
payable in shares of Preferred Stock.

As of October 31,  1998,  the  Company's  sources of external  financing  remain
limited.  The Company does not expect that  internal  sources of liquidity  will
improve until net cash is consistently  provided by operating  activities,  and,
until such time, the Company will rely upon external sources for liquidity.  The
Company  has not  established  any  lines of  credit  or any  other  significant
financing  arrangements  with any third party  lenders.  From March 1995 through
October  1998,  certain  members of the  Company's  Board of Directors  and four
shareholders  have provided  operating  capital in exchange for interest bearing
notes  totaling an  aggregate  amount of  $1,291,005  and stock  warrants in the
aggregate of 4,674,009  warrants.  The Company has been unable to identify other
sources  regarding  securing  working  capital,  a function  of the  involuntary
bankruptcy experienced in 1994 and continuing business losses.

The Company's independent accountants have issued an opinion with an explanatory
paragraph with respect to the Company's financial statements for the years ended
July 31, 1998 and 1997 to reflect recurring losses from operations and a working

                                       9
<PAGE>
capital  deficit and deficit in equity  that raise  substantial  doubt about the
ability of the  Company to  continue  as a going  concern.  See "Part I, Item 1,
Notes to Consolidated  Financial Statements,  Note (c)." In addition, the report
notes that the Preferred Stock of the Company has a total liquidation preference
and  accumulated  dividends of  approximately  $1,987,000,  which may effect the
Company's ability to raise funds.

                           PART II - OTHER INFORMATION

ITEM 1   LEGAL PROCEEDING

         None

ITEM 2   CHANGES IN SECURITIES

         None

ITEM 3   DEFAULTS UPON SENIOR SECURITIES

         Not applicable

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not Applicable

ITEM 5   OTHER INFORMATION

         Not applicable

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K

       (a) EXHIBITS

               2    Certificate of Owner and Merger (1)
               2.1  Second Amended Plan of Reorganization and Disclosure
                    Statement (4)
               2.2  Modification of Second Amended Plan of Preorganization (4)
               3.1  Certificate of Incorporation, as amended, (included as annex
                    to Exhibit 2); Amendment to Certificate of Incorporation (1)
               3.2  Bylaws, as amended (1)
               4    Amended Certificate of Designations, Preferences, and Rights
                    of Series A Convertible Preferred Stock (2)
               4.6  Warrant  Agreement  covering  506,250  Common Stock Purchase
                    Warrants (M Warrants) (3)
               27   Financial Data Schedule
----------
(1)  Filed as exhibit to  Registrant's  Form S-18  Registration  Statement  (No.
     33-16869) which is incorporated herein by reference.
(2)  Incorporated by reference to the Registration  Statement on Form S-1 of the
     Registrant as filed with the SEC on March 8, 1993 (File No. 33-59116)
(3)  Incorporated by reference to the Registration  Statement on Form S-1 of the
     Registrant as filed with the SEC on March 1, 1993 (File No. 33-58858).
(4)  Incorporated  by  reference  to the Form 10-KSB of the  Registrant  for the
     fiscal  year  ended July 31,  1997 as filed with the SEC on April 22,  1998
     (File No. 0-9703).

       (b) EXHIBITS REPORTS ON FORM 8-K

           None

                                       10
<PAGE>

SIGNATURES


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

                                           Skolniks, Inc.


                                           /s/ Russell K. Swartz
Dated: December 11, 1998                   -------------------------------------
                                           Russell K. Swartz
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)



                                           /s/ Gary D. Mallery
Dated: December 11, 1998                   -------------------------------------
                                           Gary D. Mallery
                                           Chief Financial Officer
                                           (Principal Financial and Accounting
                                           Officer)