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 quarterly period ended March 31, 1997.

                        Commission File Number: 0-27382.

                            SC&T International, Inc.
                      ------------------------------------
           (Exact name of small business as specified in its charter)

                Arizona                                 86-0737579
     ----------------------------            -----------------------------
     (State or other jurisdiction            (IRS Employer Identification)
   of incorporation or organization)

                 15695 North 83rd Way, Scottsdale, Arizona 85260
                 -----------------------------------------------
                    (Address of principal executive offices)

                                 (602) 368-9490
                            -------------------------
              (Registrant's telephone number, including area code)

                   3837 East Lasalle Street, Phoenix, AZ 85040
                   -------------------------------------------
             (Former name, former address and former fiscal year, if
                           changed since last report)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act 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 
                                                                      ---   ---

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 22,935,263 shares of Common
Stock, par value $0.01 per share.

         Transitional Small Business Disclosure Format (Check one): Yes    No X
                                                                       ---   ---
                                       1
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY



                                                                           Page
Part I Financial Information

Item 1 Financial Information                                                 3

       Consolidated Balance Sheet as of March 31, 1997                       3

       Consolidated Statements of Operations for the Three and Nine
           Months Ended March 31, 1997 and March 31, 1996                    5

       Consolidated Statement of Shareholders' Equity for the Nine
           Months Ended March 31, 1997                                       6

       Consolidated Statements of Cash Flows for the Nine Months
           Ended March 31, 1997 and March 31, 1996                           7

       Notes to Consolidated Financial Statements                            8

Item 2 Management's Discussion and Analysis                                 14

Part II    Other Information

Item 1 Litigation                                                           21

Item 2 Change in Securities                                                 21

Item 3 Defaults Upon Senior Securities                                      21

Item 4 Submission of Matters to a Vote of Security-Holders                  21

Item 5 Other Information                                                    21

Item 6 Exhibits & Reports on Form 8-K                                       21
                                       2
<PAGE>
                         PART I - FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET
                                 March 31, 1997
                                   (Unaudited)
<TABLE>
<S>                                                                                <C>            
                                     ASSETS

  Current assets:
         Cash                                                                      $     2,677,636

         Receivables (Note 2&7)                                                          1,491,929

         Inventory (Note 3)                                                              3,924,376

         Other current assets                                                              273,943
                                                                                   ---------------

                 Total current assets                                                    8,367,884

  Product development costs, less accumulated amortization of $122,266                     542,918

  Property and equipment, less accumulated depreciation of $190,939 (Note 4)             1,142,028

  Other assets                                                                             129,314
                                                                                   ---------------

                                                                                   $    10,182,144
                                                                                   ===============
</TABLE>
        The accompanying notes are an integral part of these consolidated
                             financial statements.
                                       3
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET
                                 March 31, 1997
                                   (Unaudited)
<TABLE>
<S>                                                                     <C>           
                      LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:
       Notes payable, bank (Note 5)                                     $            -


       Accounts payable                                                        416,586

       Accrued expenses                                                        150,687
                                                                        --------------

               Total current liabilities                                       567,273
                                                                        --------------

Commitments and contingencies (Note 6)                                               -

Shareholders' equity:
       Common stock, $0.01 par; authorized 25,000,000 shares;
            23,135,263 shares issued and 22,935,263 shares                     231,353
            outstanding (Note 8)

       Series  A preferred stock, $0.01 par; authorized 5,000,000
            shares; 718 shares issued and  outstanding (Note 9)                      7

       Additional paid-in capital                                           14,894,834

       Treasury stock - at cost, 200,000 shares (Note 7)                       (29,415)

       Currency translation                                                    (73,663)

       Accumulated deficit                                                  (5,408,245)
                                                                        --------------

                       Total shareholders' equity                            9,614,871
                                                                        --------------

                                                                        $   10,182,144
                                                                        ==============
</TABLE>
        The accompanying notes are an integral part of these consolidated
                             financial statements.
                                       4
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
    For the Three Month and Nine Month Periods Ended March 31, 1997 and 1996
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                Three Months Ended                    Nine Months Ended
                                                                     March 31,                             March 31,
                                                         ---------------------------------    -------------------------------
                                                              1997                 1996            1997                1996
                                                         --------------       ------------    --------------    -------------
<S>                                                      <C>                  <C>             <C>               <C>          
Net sales                                                $    1,676,211       $    832,460    $    6,530,022    $   2,745,533

Cost of goods sold                                            1,370,025            502,582         4,648,735        1,871,188
                                                         --------------       ------------    --------------    -------------

Gross profit                                                    306,186            329,878         1,881,287          874,345

Selling, general and administrative expenses:
    Payroll and payroll taxes                                   302,265            220,904           764,238          536,571
    Selling and promotion                                       792,391            126,377         1,356,270          397,529
    Office and administrative                                   269,726            108,390           681,209          305,973
    Research and development                                     67,961             48,444           196,768          137,297
    Consulting fees                                              56,023                  -           143,841                -
    Other                                                       145,426             92,441           405,372          171,314
                                                         --------------       ------------    --------------    -------------
                                                              1,633,792            596,556         3,547,698        1,548,684
                                                         --------------       ------------    --------------    -------------

Loss from operations                                         (1,327,606)          (266,678)       (1,666,411)        (674,339)

Other income (expense):
    Interest income                                              41,360             15,472           223,570           21,132
    Interest expense                                             (8,429)           (30,369)          (30,038)        (111,861)
                                                         ---------------      ------------    --------------    -------------

Income (Loss) before income tax & financing costs            (1,294,675)          (281,575)       (1,472,879)        (765,068)

Interest associated with short-term bridge financing                  -                  -                 -          (56,011)

Loan amortization cost resulting from repayment of                    -                  -                 -         (244,136)
debt
Income tax expense                                                    -                  -                 -                -
                                                         --------------       ------------    --------------    -------------

Net Income (Loss)                                        $   (1,294,675)      $   (281,575)   $   (1,472,879)   $  (1,065,215)
                                                         ===============      ============    ==============    =============

Net Income (Loss) from operations per common share       $        (0.06)      $      (0.06)   $        (0.12)   $       (0.16)
                                                         ==============       ============    ==============    =============

Weighted average common shares outstanding                   22,935,263          4,236,029        13,717,587        4,236,029
                                                         ==============       ============    ==============    =============
</TABLE>
                 The accompanying notes are an integral part of
                          these financial statements.
                                       5
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

               CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY 
                    For the Nine Months Ended March 31, 1997
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                       
                                      Common Stock    Preferred Stock  Additional   Treasury Stock                     Accumulated
                                      ------------    ---------------   paid-in     --------------        Currency     -----------
                                   Shares      Amount  Shares  Amount   capital    Shares     Amount     translation     deficit
                                   ------      ------  ------  ------   -------    ------     ------     -----------     -------
<S>                              <C>         <C>         <C>  <C>    <C>          <C>        <C>         <C>         <C>          
Balance at June 30, 1996          5,085,415  $ 50,854  1,051  $  11  $15,097,557  (200,000)  $ (29,415)  $ (23,271)  $ (3,963,305)

Preferred stock issuance costs                                           (49,726)
Issuance of common stock             18,332       184                     27,314
Preferred stock conversion       18,031,516   180,315   (333)    (4)    (180,311)
Currency translation                                                                                       (50,392)
Net loss                                                                                                               (1,444,940)
                                 ---------   -------- ------  -----  ----------   ---------  ---------   ---------   ------------

Balance at  March 31, 1997       23,135,263  $231,353    718  $   7  $14,894,834  (200,000)  $ (29,415)  $ (73,663)  $ (5,408,245)
                                 ==========  ======== ======  =====  ===========  ========   =========   ==========  ============
</TABLE>
                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       6
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the Nine Months Ended March 31, 1997 and 1996
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                    1997               1996
                                                                            ------------------  -----------------
<S>                                                                         <C>                 <C>               
Cash flows from operating activities:
     Net loss                                                               $      (1,472,879)  $      (1,065,215)
     Adjustments to reconcile net loss to net cash used in operating
         activities:
         Depreciation and amortization                                                283,888             396,806
         (Increase) decrease in accounts receivable                                  (719,475)            428,090
         Increase (decrease) in allowance for doubtful accounts                       (32,000)            (98,000)
         (Increase) decrease in inventories                                        (2,126,576)           (249,181)
         (Increase) decrease in advances on purchases of
              inventory                                                              (365,719)           (143,289)
         (Increase) decrease in other current assets                                 (199,000)           (197,164)
         (Increase) decrease in other assets                                          (92,538)            (13,367)
         Increase (decrease) in accounts payable                                     (677,225)           (300,349)
         Increase (decrease) in accrued expenses                                     (102,811)              7,561
                                                                            ------------------  -----------------
              Net cash used in operating activities                                (5,504,325)         (1,234,108)
                                                                            ------------------  ------------------

Cash flows from investing activities:
     Purchase of property and equipment                                            (1,050,848)            (33,148)
     Development costs                                                               (450,364)           (165,222)
     Loans to related parties                                                               -             (17,485)
                                                                            -----------------   ------------------
              Net cash used in investing activities                                (1,501,212)           (215,855)
                                                                            ------------------  ------------------

Cash flows from financing activities:
     Currency translation                                                             (50,392)                  -
     Net repayments under line of credit agreement                                    (78,528)            (67,829)
     Principal payments on debentures                                                       -            (875,000)
     Principal payments on short-term debt                                             (5,556)                  -
     Principal payments on long-term debt                                              (1,266)            (17,614)
     Net repayments on related party loans                                                  -          (1,000,000)
     Proceeds from stock issuance                                                     (22,228)          4,551,210
     Stock issuance costs                                                                   -            (884,629)
     Stock issued for related party services                                                -                   -
     Proceeds from sale of debentures                                                       -             875,000
     Repayments to factor                                                            (121,368)           (324,691)
                                                                            ------------------  ------------------
              Net cash (used in)provided by financing activities                     (279,338)          2,155,348
                                                                            ------------------  -----------------
Net increase (decrease) in cash                                                    (7,284,875)            705,385
Cash, beginning of period                                                           9,962,511             289,707
                                                                            -----------------   -----------------
Cash, end of period                                                         $       2,677,636   $         995,092
                                                                            =================   =================
</TABLE>
                                       7
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)


1.       Interim financial reporting:

         The accompanying  unaudited  Consolidated Financial Statements for SC&T
International,  Inc. (the  "Company")  have been prepared in accordance with the
generally accepted accounting  principles for interim financial  information and
the  instructions  to Form 10-QSB.  Accordingly,  they do not include all of the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(which include only normal  recurring  adjustments)  necessary to present fairly
the financial  position,  results of  operations  and cash flows for the periods
presented  have been made.  The results of operations  for the nine month period
ended March 31, 1997 are not  necessarily  indicative of the  operating  results
that may be expected  for the entire  fiscal year  ending June 30,  1997.  These
financial  statements  should be read in  conjunction  with the  Company's  Form
10-KSB filed with the Securities Exchange Commission on September 27, 1996.

         Reclassification:

         Certain prior period amounts have been  reclassified  to conform to the
current period presentation.

2.       Receivables:

         Receivables at March 31, 1997 consist of the following:

              Trade accounts receivable                            $  1,494,013
              Related party (Note 7)                                     64,914
              Allowance for returns and doubtful accounts               (67,000)
                                                                   ------------
                                                                   $  1,491,929
                                                                   ============

3.       Inventory:

         Inventory at March 31, 1997 consists of the following:

              Finished goods                                       $  3,752,311
              Advances on purchases of inventory                        453,925
              Reserve for obsolescence                                 (281,861)
                                                                   -------------
                                                                   $  3,924,376
                                                                   ============

         Inventories  are  stated  at the  lower  of  cost  or  market.  Cost is
determined by the first-in,  first-out  (FIFO) method.  Advances on purchases of
inventory are for inventory  currently  being  manufactured or anticipated to be
manufactured  in  the  near  future.  Reserve  for  obsolescence  exists  due to
continual changes in the consumer electronic products industry.

4.       Property and Equipment:

         Property and equipment at March 31, 1997 consists of the following:
                                       8
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)


              Land                                                 $    362,746
              Construction in Progress                                  481,498
              Office Furniture & Equipment                              189,629
              Tools & Dies                                              217,378
                                                                   ------------
                                                                   $  1,332,967

              Less Accumulated Depreciation                            (190,939)
                                                                   ------------ 
                                                                   $  1,142,028
                                                                   ============


         Depreciation  expense  totaled  $90,458 for the nine months ended March
31, 1997.

5.       Notes Payable, Bank:

            The Company  has a  revolving  line of credit with a bank in Arizona
secured  by a  certificate  of  deposit.  The  line  of  credit  is used to back
international  letters  of  credit  issued  to  manufacturers  of the  Company's
products. The Company has a line of credit due on demand with a bank in Belgium.
In  addition,  the Company  has a second line of credit with a Belgian  bank for
account receivable financing.  The bank advances approximately 93% of a specific
invoice.  Repayment is due 10 days after the due date of the accounts receivable
invoice.

           The Company has no outstanding  balances for these lines of credit at
March 31, 1997.

6.       Commitments and Contingencies:

         Operating Leases:

         The Company  leases an office and  warehouse  from an  unrelated  third
party under an operating  lease that expired in March 1997. In October 1996, the
Company purchased  approximately 1.24 acres of land, for approximately $363,000,
located at the Scottsdale Airpark in Scottsdale,  Arizona. The Company completed
construction  of  approximately  12,000  square  feet  of  warehouse  space  and
approximately  6,000  square feet of executive  office space in April 1997.  The
Company's commitment for completion of the building is approximately $420,000.

         The Company  leased its office  location in Belgium  through  April 30,
1996 from a former director, who was a shareholder and owned 50% of the building
where the office was located, for a monthly rental of approximately  $3,700. The
Company  exercised its cancellation  rights described in the lease and relocated
to a temporary  facility,  effective May 1, 1996.  As of September 1, 1996,  the
Belgian office relocated to Gent, Belgium.  The new operating lease provides for
a  monthly  rental  rate  of  approximately  $1,600  per  month,  with  a 60 day
cancellation clause effective after December 31, 1996.
                                       9
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)



         The Company leases a corporate  apartment from an unrelated third party
under an  operating  lease  which  expires  July 7, 1997.  Under the lease,  the
monthly rental is approximately $740, and the Company is responsible for certain
expenses.

         The  Company  leases  office  equipment  under three  operating  leases
requiring monthly payments of approximately $ 500. The leases expire in November
1997 and November 1998.

         Future minimum rental  payments  required under  operating  leases that
have initial or remaining noncancellable lease terms in excess of one year as of
March 31, 1997 are as follows:

                                  1997                       $    32,000
                                  1998                             3,000
                                  1999                                 0
                                                             -----------
                                                             $    35,000
                                                             ===========

         Total  rental  expenses  for the three  months ended March 31, 1997 and
March 31, 1996 were approximately $ 21,000 and $29,000, respectively.

         Promotional Programs:

         In  October  1996,  SC&T  Racing  Enterprises,  Ltd.  entered  into  an
approximate  $600,000  agreement to sponsor a Formula  Atlantic Team in the 1997
Kool Toyota Racing Series. The Company intends to use the racing team to promote
its products and increase brand awareness throughout the 1997 selling season.

         Pending or Threatened Litigation:

         The Company, from time to time, is a party to various legal proceedings
which are incidental to its business. In the opinion of management, the ultimate
resolution of these proceedings will not have a materially adverse affect on the
Company's financial position or results of operations.

         The Company is currently  suing a competitor,  who competes in the same
industry.  Any  potential  benefit  of this  lawsuit is not  reflected  in these
financial statements.

         Inventory:

         The Company has advanced funds against  purchase  commitments  totaling
approximately $454,000.


7.       Related Party Transactions:

         Related Party Receivables:
                                       10
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)


         The Company has a related  party  receivable  from its  Chairman of the
Board,  who is also a shareholder.  The note receivable  bears interest at 8.25%
annually.  The  repayment  terms  provide for 36 principal  payments of $500 per
month,  with a balloon  payment of $33,814  plus  interest due at the end of the
term. The  receivable  balance was $40,897 at March 31, 1997, of which $6,000 is
current and $34,897 is long-term.

         The Company also advances  funds to employees  for traveling  purposes.
The balance at March 31, 1997 was approximately $21,000.

         Treasury Stock:

         In June 1996,  the Company  entered  into a separation  and  settlement
agreement with the former General  Director of the Belgian  subsidiary,  whereby
the former General Director resigned as an officer, director and employee of the
Company. Under the terms of the agreement,  the former General Director received
$29,415.  In addition,  the former General Director  forfeited 200,000 shares of
common stock of the Company owned by him on the date of the agreement.

         Employment Agreement:

         In September  1995,  the Company  entered into an employment  agreement
with its Chairman of the Board, who is also a shareholder,  for a period of five
years.  The  agreement  provides  for an annual  salary of $104,000 and contains
certain provisions regarding the repurchase of the Chairman of the Board's stock
and guaranteed  salary  payments.  In January 1997, the Company  entered into an
amendment to its agreement with its Chairman of the Board  providing for certain
payments in the event of termination,  as a result of a change in control of the
Company's  board of  directors.  As of  January 1, 1997 the  Company's  board of
directors increased the Chairman of the Board's salary by $46,000 per year.

         Short-term Bridge Financing:

         In December  1995,  the Company used  approximately  $1,875,000  of the
proceeds  from its  initial  public  offering  to repay  two  short-term  bridge
financing  arrangements  with  shareholders and all accrued interest  associated
with the debt.

8.       Issuance of Common Stock:

         As of December 31, 1996,  333 shares of preferred  stock were converted
into  18,031,516  shares of common stock.  As a result of these  conversions the
Company does not have sufficient  authorized common stock available for issuance
upon future  conversions.  The Company  has 718 shares of  preferred  stock that
remain  unconverted.  Therefore,  no additional shares of preferred stock may be
converted without a vote of the Company's shareholders to increase the Company's
authorized share capital.  There is no assurance that the shareholders will vote
to increase the amount of authorized share capital.
                                       11
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)


         In January  1996,  the Company  issued 67,500  Redeemable  Common Stock
Purchase Warrants for which the Company received cash of approximately $6,750.

         During the quarter  ended  December 31, 1995,  the Company  completed a
public  offering  of  Common  Stock.   The  Company  received  net  proceeds  of
approximately $3,615,000 and issued a total of 900,000 shares of Common Stock.

         The Company  also  issued  450,000  Redeemable  Common  Stock  Purchase
Warrants.  Each  Warrant  represented  the right to purchase  one-half  share of
Common Stock at a price of $7.00 per share,  subject to adjustment under certain
circumstances. The Warrants expire in December 1998. Each warrant is immediately
exercisable.  The Warrants are  redeemable  by the Company for $0.05 per Warrant
upon 30 days  notice  mailed  within 20 days after the  closing bid price of the
Common  Stock  has  equaled  or  exceeded  $8.00  per  share  for a period of 20
consecutive trading days. The Company received cash of approximately $45,000 for
the Purchase Warrants.

         In October 1995, the Company  increased its authorized share capital to
25,000,000  shares of common stock and authorized  5,000,000 shares of preferred
stock.

         During the quarter ended  September 30, 1995,  the Company  completed a
private placement for short-term bridge financing of 8% Subordinated Debentures,
due at the earlier of September  30, 1996,  or upon  completion of the offering.
The Company  issued  87,500  shares of Common Stock at $1.00 per share to obtain
the short-term bridge financing.

         In September  1995,  the Chairman of the Board was issued 15,822 shares
of Common Stock at a value of $1.00 per share for past services  provided to the
Company.

9.       Issuance of Preferred Stock:

         In June 1996,  the Company  issued  1,051  shares of Series A Preferred
Stock,  $0.01 par value per share,  for $10,000 per share with an accretion rate
of 8% per annum up to the date of conversion.  The Company received net proceeds
of approximately $9,669,000 for the 1,051 shares. The shares may be converted to
Common Stock at a conversion  price which shall be the lesser of $7.75 per share
or 85% of the average  closing bid price of the  Company's  Common Stock for the
ten  trading  days  preceding  the  conversion  date.  There  is no floor on the
potential  conversion  price  of the  stock.  The  Series A  Preferred  Stock is
convertible as follows:  one-third of the shares of Series A Preferred  Stock on
or  subsequent  to August 20, 1996;  one-third of the shares on or subsequent to
September  19, 1996;  and the  remaining  shares on or subsequent to October 19,
1996. All  conversions  are subject to the Company's  right of  redemption.  The
Series A Preferred Stock will bear no dividends and have no voting rights except
as otherwise required by Arizona statute.

         Upon dissolution of the Company the holders of Series A Preferred Stock
are entitled to  distributions  in the sum of the original  Series A issue price
for each  outstanding  share,  plus 8% of the original  Series A issue price per
annum since purchase. At any time commencing 12 months and one day
                                       12
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)


after the last closing  date,  the Company shall have the right to redeem any or
all of the Series A Preferred  Stock subject to certain  conditions set forth in
the Certificate of Designation.

10.      Significant Customers:

         There was one significant  customer which  accounted for  approximately
12% of the  Company's  total  revenues for the nine months ended March 31, 1997.
The accounts receivable balance for this customer totaled approximately $110,000
at March 31, 1997.  The Company had no customers for the nine months ended March
31, 1996 that accounted for more than 10% of total revenues.
                                       13
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS


         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 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 the  remainder of fiscal 1997 and  thereafter;  future  products or
product development;  future research and development spending and the Company's
product  development  strategy;  and  liquidity and  anticipated  cash needs and
availability. All forward looking statements included in this document 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 this
Report  as well as in the  "Risk  Factors"  section  included  in the  Company's
Registration Statement on Form SB-2, as declared effective by the Securities and
Exchange Commission on November 8, 1996 (Reg. No. 333-07019).

Overview

         SC&T  International,  Inc. (the "Company") was formed in June 1993. The
Company  develops  and  markets  accessory  and  peripheral   products  for  the
multimedia,  interactive  and  communication  segments of the PC  industry.  The
Company's products include fully-integrated  multimedia stereo keyboards, CD-ROM
storage systems,  various after market  equalizer/amplifiers,  sound enhancement
products,  sub-woofer sound systems, PC volume controllers,  CD-ROM audio cables
and a line of PC and video  arcade  racing  wheels and pedals for use with Sega,
Sega Saturn, Nintendo 64, Sony Playstation and IBM-PC's.

         Revenues  for the nine months  ended march 31, 1997 have  increased  to
approximately $6,530,000 from approximately $2,745,000 for the nine months ended
March 31,  1996.  Despite  the  expansion  in the  number of  customers  and the
corresponding  increase in revenue since  commencing  operations,  the Company's
total  operating  expenses  have  exceeded  revenue,  resulting in a net loss of
approximately $1,473,000 for the nine months ended March 31, 1997. The Company's
primary  costs are for  research  and  development,  tooling  for new  products,
inventory,  trade  shows  and  selling  and  promotion  activities,  such as the
Company's  sponsorship of a Formula Atlantic Team in the 1997 Kool Toyota Racing
Series.  In addition,  operating  results may be  influenced  by factors such as
turnover  in the  Company's  sales  personnel,  the  demand  for  the  Company's
products,  the timing of new product  introductions  by both the Company and its
competitors, pricing by both the Company and its competitors,  inventory levels,
the Company's ability to develop and market new products,  the Company's ability
to  manufacture  its  products  at  high  quality  levels  and  at  commercially
reasonable costs, the timing and levels of sales and marketing  expenditures and
general economic conditions.

---------
Sega, Nintendo,  Sony Playstation and IBM are trademarks and are the property of
their owners, which Companies are not affiliated with SC&T International, Inc.
                                       14
<PAGE>
Results of Operations of the Company for the Nine-Month  Periods Ended March 31,
1997 and 1996

Net Sales

         Net  sales  for the nine  months  ended  March 31,  1997  increased  to
approximately $6,530,000 or approximately $3,784,000 more than net sales for the
nine months  ended March 31,  1996.  This  increase  resulted  from a variety of
factors,   including  growing  acceptance  of  the  Company's  products  in  the
marketplace,  a  broadening  of the  Company's  distribution  channels  and  the
expansion of the Company's overall product lines.

Gross Profit

         The Company's  gross profit  percentage  decreased  from 31.85% for the
nine months  ended  March 31, 1996 to 28.8% for the nine months  ended March 31,
1997. Gross profit margins are affected by several factors, including the mix of
sales  between the  Company's  products,  which  typically  sell at gross profit
margins  ranging from 25% to 40%. In addition,  the gross profit  margin for the
nine months was affected by an increase to the inventory obsolescence reserve of
approximately  $227,000. The reserve for inventory obsolescence was increased to
reflect  concern about  increased  inventory and possible  price  adjustments to
improve market  acceptance of the Company's  products.  The Company  anticipates
that new products will initially sell at higher profit margins.  However,  there
can be no  assurance,  nor does the  Company  expect that such  margins  will be
maintained over the life of the product.

Payroll and Payroll Taxes

         The  Company's   payroll  and  payroll  tax  expense   increased   from
approximately  $536,000 in the nine months ended March 31, 1996 to approximately
$764,000  in the nine months  ended  March 31,  1997,  or  approximately  42.4%.
Although  the total  dollar  amount  increased,  payroll and payroll tax expense
decreased as a percentage  of sales,  from 19.5% for the nine months ended March
31, 1996 to 11.7% for the nine months ended March 31, 1997.

Selling and Promotion

         The  Company's   selling  and   promotion   expenses   increased   from
approximately  $398,000 in the nine months ended March 31, 1996 to approximately
$1,356,000  in  the  nine  months  ended  March  31,  1997,  or an  increase  of
approximately  241%. Selling and promotion expenses increased as a percentage of
sales, from 14.5% for the nine months ended March 31, 1996 to 20.8% for the nine
months  ended  March 31,  1997.  A portion of these  expenses  were  utilized to
continue  promoting  and  creating  packaging  for new  products  in addition to
exhibiting the Company's products at several trade shows, in an effort to expand
their brand name awareness and market penetration.  The majority of the increase
was due to the Company's sponsorship of a Formula Atlantic Team in the 1997 Kool
Toyota Racing Series.  The sponsorship  represents a major  advertising  program
undertaken  to promote the  Company's  PER4MER(TM)  Turbo  Racing  Wheel and the
Company's Platinum Sound(R) product line.
                                       15
<PAGE>
Office and Administration

         The  Company's  office  and  administrative   expenses  increased  from
approximately  $306,000 in the nine months ended March 31, 1996 to approximately
$681,000 in the nine months ended March 31, 1997, or approximately  122.5%. As a
percentage of net sales, office and administrative expenses decreased from 11.1%
for the nine months  ended  March 31,  1996 to 10.4% for the nine  months  ended
March 31, 1997.

Research and Development

         Expenditures for research and development  increased from approximately
$137,000 in the nine months ended March 31, 1996 to  approximately  $197,000 for
the nine months ended March 31, 1997.  The Company's  expenditures  for research
and development vary from period to period depending upon the number of products
under  development  and the stage of the development and vary as a percentage of
sales  depending  upon sales achieved in that period.  Research and  development
includes an  amortization  cost of $116,228  for the nine months ended March 31,
1997.

Net Loss

         As a result of the factors  described  above,  the  Company's  net loss
increased from approximately $765,000 in the nine months ended March 31, 1996 to
approximately $1,472,000 in the nine months ended March 31, 1997.

Net Loss Per Share

         Net loss per share decreased from $0.25 for the nine months ended March
31, 1996 to $0.11 for the nine months ended March 31,  1997.  The loss per share
of $0.25 for the nine months ended March 31, 1996 includes  $0.07 loss per share
resulting  from a  non-recurring  financing  charge  incurred in the nine months
ended March 31,  1996.  The loss per share for the nine  months  ended March 31,
1997 includes a $0.02 per share loss due to a $227,000 increase to the inventory
obsolescence  reserve. The decrease in net loss per share during the nine months
ended  March 31,  1997 as  compared to the same period in the prior year was due
primarily  to the  effect  of  additional  shares  of  common  stock  issued  in
connection with the Company's private  placements and the conversion of Series A
Preferred Stock.
                                       16
<PAGE>
Results of Operations of the Company for the Three Month Periods Ended March 31,
1997 and 1996

Net Sales

         Net sales for the three  months  ended  March  31,  1997  increased  to
approximately  $1,676,000 or approximately  $844,000 more than net sales for the
three months  ended March 31, 1996.  This  increase  resulted  from a variety of
factors,   including  growing  acceptance  of  the  Company's  products  in  the
marketplace,  a  broadening  of the  Company's  distribution  channels  and  the
expansion of the Company's overall product lines.

Gross Profit

         The  Company's  gross profit  percentage  decreased  from 39.6% for the
three  months ended March 31, 1996 to 18.3% for the three months ended March 31,
1997. Gross profit margins are affected by several factors, including the mix of
sales  between the  Company's  products,  which  typically  sell at gross profit
margins  ranging from 25% to 40%.  The primary  factor for the decrease in gross
profit  margin  during the three  months ended March 31, 1997 was an increase in
the  inventory  reserve of  $227,000  to  reflect  concern  about the  increased
inventory  and possible  price  adjustment to improve  market  acceptance of the
Company's  products.  The Company  anticipates  that new products will initially
sell at higher profit margins.  However, there can be no assurance, nor does the
Company  expect  that  such  margins  will be  maintained  over  the life of the
product.

Payroll and Payroll Taxes

         The  Company's   payroll  and  payroll  tax  expense   increased   from
approximately $220,000 in the three months ended March 31, 1996 to approximately
$302,000 in the three  months  ended March 31,  1997,  or  approximately  37.3%.
Although  the total  dollar  amount  increased,  payroll and payroll tax expense
decreased as a percentage of sales,  from 26.5% for the three months ended March
31, 1996 to 18.0% for the three months ended March 31, 1997.

Selling and Promotion

         The  Company's   selling  and   promotion   expenses   increased   from
approximately $126,000 in the three months ended March 31, 1996 to approximately
$792,000  in  the  three  months  ended  March  31,  1997,  or  an  increase  of
approximately  529%.  This  represents  an  increase  in selling  and  promotion
expenses,  as a percentage  of sales from 15.2% for the three months ended March
31, 1996 to 47.3% for the three  months ended March 31, 1997. A portion of these
expenses  were  utilized to continue  promoting  and creating  packaging for new
products in addition  to  exhibiting  the  Company's  products at several  trade
shows, in an effort to expand their brand name awareness and market penetration.
Approximately  $600,000  of the  increase  was  associated  with  the  Company's
sponsorship  of a Formula  Atlantic Team in the 1997 Kool Toyota Racing  Series.
This includes  approximately  $284,000 of cost incurred and  capitalized  in the
second  quarter.  Management has since  determined to expense the entire cost of
the sponsorship as incurred.
                                       17
<PAGE>
Office and Administration

1997,  or  approximately  150%.  As  a  percentage  of  net  sales,  office  and
administrative  expenses  increased  from 13.0% for the three months ended March
31, 1996 to 16.1% for the three months ended March 31, 1997.

Research and Development

         Expenditures for research and development  increased from approximately
$48,000 in the three  months ended March 31, 1996 to  approximately  $68,000 for
the three months ended March 31, 1997. The Company's  expenditures  for research
and development vary from period to period depending upon the number of products
under  development  and the stage of the development and vary as a percentage of
sales  depending  upon sales achieved in that period.  Research and  Development
contains  approximately $48,000 of amortization for the three months ended March
31, 1997.

Net Loss

         As a result of the factors  described above, the Company's net loss for
the three months ended March 31, 1997  increased  to  approximately  $1,294,000,
this  compared to a net loss of $591,435  for the three  months  ended March 31,
1996.

Net Loss Per Share

         Net loss per share  decreased  from  $0.07 for the three  months  ended
March 31, 1996 to $0.06 for the three months ended March 31, 1997.  The loss per
share of $0.06 for the three  months  ended March 31, 1997  includes a $0.01 per
share loss due to a $227,000 increase in the inventory obsolescence reserve. The
net loss also reflects a $0.01 per share loss due to  approximately  $284,000 of
cost associated with the Company's sponsorship of a Formula Atlantic Team in the
1997 Kool Toyota  Racing  Series that was  initially  capitalized  in the period
ended  December 31, 1996.  The cost of the  sponsorship  will be recognized as a
period expense on a going forward basis. The decrease in the net loss during the
three  months  ended March 31, 1997 was affected by the increase in the weighted
average  common  shares  outstanding  from  approximately  4.2  million  to 22.9
million.  The increase in weighted  average  common shares was due to additional
shares  of  common  stock  issued  in  connection  with  the  Company's  private
placements and conversion of Series A Preferred Stock.

Liquidity and Capital Resources

         As a result of the Company's  initial  public  offering and its private
placement  of Series A  Preferred  Stock in June  1996,  the  Company's  working
capital is  approximately  $7,800,000 at March 31, 1997. The Company is required
to pay the costs of stocking  inventory  before the Company  receives orders and
payment from its customers.  Typically,  the Company's  customers do not pay the
Company for its products  until  approximately  60 days  following  delivery and
billing.  As a result,  the  receipt  of cash  from  operations  typically  lags
substantially  behind the payment of the costs for  purchase and delivery of the
Company's products.

         Through July 1996,  the Company  financed  operations  by factoring its
United  States  receivables.  Historically,  the Company's  European  subsidiary
financed operations through a line of credit of
                                       18
<PAGE>
Liquidity and Capital Resources, Continued

approximately  $182,000. In addition,  to raise funds to meet its expenses,  the
Company obtained  inventory  financing in April and May 1995 for an aggregate of
$1,000,000,  completed  a private  placement  in April  1995 of  $1,500,000  for
2,000,000 shares of Common Stock and completed a private  placement in September
1995 of $875,000 of 8%  Subordinated  Debentures.  In December 1995, the Company
used  approximately  $1,875,000 of the $4,500,000  gross proceeds of its initial
public  offering  to  repay  the  inventory  financing  and the 8%  Subordinated
Debentures.  In June 1996 the Company received gross proceeds of $10,510,000 for
an  issuance  of  1,051  shares  of  Series A  Preferred  Stock.  The  preferred
shareholders  earn 8%  accretion  per  annum  up to the date of  conversion.  In
addition,  the Company has  negotiated a $500,000  revolving  line of credit for
it's U.S. operations.

Business Outlook and Risk Factors

         The trends  indicated by the Company's  operating  results for the nine
months  ended March 31,  1997  reflect  the  Company's  belief that (i) there is
growing  acceptance in the global marketplace for the Company's expanded product
line  and  (ii)  the  Company's  success  in  entering  into  new  manufacturing
relationships that take advantage of savings due to economies of scale resulting
in decreases in manufacturing costs. The Company's total revenue and product mix
could be materially  and adversely  affected by many factors,  some of which are
beyond the control of the Company.  Those factors  include,  but are not limited
to,  turnover in the  Company's  sales force,  competition  from existing or new
products,  production delays, the Company's ability to penetrate new markets and
attract new customers,  unexpected  postponement  or cancellation of significant
orders,  lack of market  acceptance  of the  Company's  products,  manufacturing
defects and seasonality of sales and general economic conditions.

           The Company  continues  to invest in sales and  marketing in order to
enhance its image and brand  awareness.  In October,  1996, the Company became a
sponsor of a Formula  Atlantic Team in the 1997 Kool Toyota Racing  Series.  The
Company intends to tie this sponsorship into promotion of its PER4MER (TM) Turbo
Racing  Wheel and to  increase  visibility  of the  Company's  overall  range of
products.  Although the Company  believes that its increased sales and marketing
efforts will  contribute  to an  increased  number of  customers  and  increased
revenue  associated with sales of its products,  certain risk factors exist that
could have a material adverse effect on the Company's  operating results.  Those
risk  factors  include,  but are not  limited  to,  lack of  assurance  that its
products  will achieve or maintain  market share and the fact that the Company's
products compete with those of many major domestic and international  companies,
many  of  which  have  greater  market  recognition  and  substantially  greater
financial, technical and marketing resources than the Company possesses.

       Although the Company has focused on controlling  administrative costs, it
recognizes  the  added  costs  associated  with  attracting  and  retaining  key
personnel. Because it operates in an industry that is characterized by high cost
of recruiting and a current lack of qualified personnel,  the Company constantly
evaluates  employee  benefits  and the work  environment  that it  provides  its
employees.  The high cost associated with industry hiring practices could have a
material  adverse  affect on the  Company's  quarterly  operating  results.  The
Company intends to continue to moderate general and administrative costs so that
revenue  growth  will  begin  to  exceed  operating  expenses.  There  can be no
assurance,  however,  that the  Company  will be able to predict or respond to a
shortfall in sales during any given quarter in order to reduce its fixed general
and administrative expenses on a timely basis.
                                       19
<PAGE>
Business Outlook and Risk Factors, Continued

         The Company believes that the industry in which it markets its products
has  a  strong  outlook,   with  expanding   markets   characterized   by  rapid
technological  change,  frequent  introduction of product  upgrades and evolving
industry standards. The Company strives to provide market-leading solutions that
address the PC user interested in upgrading existing equipment.  Due to the risk
factors  discussed and to other factors that  generally  affect high  technology
companies,  there  can  be no  assurance  that  the  Company  will  be  able  to
successfully penetrate these markets in the future.
                                       20
<PAGE>
                           PART II - OTHER INFORMATION


ITEM I.  LITIGATION

         None


ITEM 2.  CHANGES IN SECURITIES

         In the nine month  period  ended March 31,  1997 the Company  issued an
         aggregate of 41,247 shares of Common Stock to Atom &  Associates,  Inc.
         in connection with the exercise of options  previously issued under the
         Company's  Stock Option Plan. The options were exercised at an exercise
         price of $1.50 per share.  The shares were issued without  registration
         under  the   Securities   Act  in  reliance  upon  the  exemption  from
         registration provided by Section 4(2) of the Securities Act.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None


ITEM 4.  SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         None


ITEM 5.  OTHER INFORMATION

         None


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         None
                                       21
<PAGE>
                                   SIGNATURES



         In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following  persons on behalf of the  registrant  and in
the capacities and on the date indicated.

       Signature                         Capacity                      Date
       ---------                         --------                      ----


SC&T INTERNATIONAL, INC.



/s/ Thomas S. Bednarik               President and                  May 15, 1997
-----------------------------        Chief Executive Officer
Thomas S. Bednarik                   





 /s/ William A. Pendley              Chief Financial Officer        May 15, 1997
------------------------------
William A. Pendley
                                       22