US SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10-QSB


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

         For the quarterly period ended September 30, 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 of         (IRS Employer Identification)
    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)

--------------------------------------------------------------------------------
              (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    No X
                                                                      ---   ---

                      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: 23,135,263 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

       Consolidated Balance Sheet as of September 30, 1997                3

       Consolidated Statements of Operations for the Three Months
           Ended September 30, 1997  and September 30, 1996               5

       Consolidated Statement of Shareholders' Equity for the Three
           Months Ended September 30, 1997                                6

       Consolidated Statements of Cash Flows for the Three Months
           Ended September 30, 1997 and September 30, 1996                7

       Notes to Consolidated Financial Statements                         8

Item 2 Management's Discussion and Analysis                              11

Part II    Other Information

Item 1 Litigation                                                        16

Item 2 Change in Securities                                              17

Item 3 Defaults Upon Senior Securities                                   17

Item 4 Submission of Matters to a Vote of Security-Holders               17

Item 5 Other Information                                                 17

Item 6 Exhibits & Reports on Form 8-K                                    17
                                       2
<PAGE>
                         PART I - FINANCIAL INFORMATION



       ITEM 1.  FINANCIAL STATEMENTS



                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                      UNAUDITED CONSOLIDATED BALANCE SHEET
                               September 30, 1997


                                     ASSETS

Current assets:
       Cash                                                           $  460,729

       Receivables                                                       761,933

       Inventory                                                       2,699,347

       Other current assets                                              226,316
                                                                      ----------

               Total current assets                                    4,148,325

Product development costs, less accumulated amortization of $573,863     327,833

Property and equipment, less accumulated depreciation of $468,132        482,915

Other assets                                                             158,266
                                                                      ----------

                                                                      $5,117,339
                                                                      ==========

        The accompanying notes are an integral part of these consolidated
                             financial statements.
                                       3
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET
                               September 30, 1997


                 UNAUDITED LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:

       Accounts payable                                           $  168,425

         Common stock payable                                        103,130

       Accrued expenses                                              241,686
                                                                  ----------

               Total current liabilities                             513,241
                                                                  ----------

Commitments and contingencies                                              -

Shareholders' equity:
       Common stock, $0.01 par; authorized 25,000,000 shares;  
             23,135,263 shares issued and 22,940,823 shares
            outstanding                                              231,353

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

       Additional paid-in capital                                 14,932,461

       Treasury stock - at cost, 194,440 shares                      (29,166)

        Currency translation                                         (74,539)

       Accumulated deficit                                       (10,456,018)
                                                                  ----------

                       Total shareholders' equity                  4,604,098
                                                                  ----------

                                                                  $5,117,339
                                                                  ==========


        The accompanying notes are an integral part of these consolidated
                             financial statements.
                                       4
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
             For the Three Months Ended September 30, 1997 and 1996

                                                     1997            1996
                                                ------------    ------------

Net sales                                       $  1,070,785    $  1,727,947

Cost of goods sold                                   959,156       1,178,717
                                                ------------    ------------

Gross profit                                         111,629         549,230

Selling, general and administrative expenses:
    Payroll and payroll taxes                        386,780         229,062
    Selling and promotion                            491,876         262,893
    Office and administrative                        395,811         149,432
    Research and development                          70,531          59,987
    Consulting fees                                   72,839          36,653
    Other                                             37,351          79,080
                                                ------------    ------------
                                                   1,455,188         817,107
                                                ------------    ------------

Loss from operations                              (1,343,559)       (267,877)

Other income (expense):
    Interest income                                   10,743          95,655
    Interest expense                                  (5,476)        (17,642)
                                                ------------    ------------

Loss before income tax                            (1,338,292)       (189,864)

Income tax expense                                      --              --
                                                ------------    ------------

Net loss                                        $ (1,338,292)   $   (189,864)
                                                ============    ============ 

Net loss from operations per common share       $      (0.06)   $      (0.05)
                                                ============    ============

Net loss per common share                       $      (0.06)   $      (0.04)
                                                ============    ============ 

Weighted average common shares outstanding        22,940,823       4,961,564
                                                ============    ============ 

              The accompanying notes are an integral part of these
                             financial statements.
                                       5
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

            UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                 For the Three Months Ended September 30, 1997

<TABLE>
<CAPTION>
                                                                       
                                     Common Stock      Preferred Stock  Additional    Treasury Stock                
                                     ------------      ---------------   paid-in      --------------     Currency      Accumulated
                                 Shares       Amount   Shares  Amount    capital    Shares      Amount  translation      deficit
                                 ------       ------   ------  ------    -------    ------      ------  -----------      -------

<S>                             <C>          <C>         <C>   <C>     <C>         <C>        <C>        <C>          <C>         
Balance at June 30, 1997        23,135,263   $231,353    718   $  7    $14,932,461 (194,440)  $(29,166)  $(45,660)   $ (9,117,726)
                                                               

Currency translation                     -          -       -     -              -        -          -    (28,879)              -
Net loss                                 -          -       -     -              -        -          -          -      (1,338,292)
                                ----------   --------    ---   ----    ----------- --------   --------   --------    ------------ 

Balance at  September 30, 1997  23,135,263   $231,353    718   $  7    $14,932,461 (194,440)  $(29,166)  $(74,539)   $(10,456,018)
                                ==========   ========    ===   ====    =========== ========   ========   ========    ============ 
</TABLE>

                     The accompanying notes are an integral
                part of these consolidated financial statements.
                                       6
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the Three Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
                                                                           1997           1996
                                                                       -----------    -----------
<S>                                                                    <C>            <C>         
Cash flows from operating activities:
     Net loss                                                          $(1,338,292)   $  (189,864)
     Adjustments to reconcile net loss to net cash used in operating
         activities:
         Depreciation and amortization                                     107,206         50,534
         (Increase) decrease in accounts receivable                      1,288,515       (531,423)
         Decrease in allowance for doubtful accounts                        12,265           --
         Increase (decrease) in inventories                                435,255        (98,325)
         Increase in advances on purchases of                             
              inventory                                                   (313,871)      (621,014)
         Increase in other current assets                                     --          (73,981)
            Loan amortization                                                1,950           -- 
            Increase in prepaid expenses                                   (44,823)          --  
         (Increase) decrease in other assets                                   463        (38,902)
         Decrease in accounts payable                                     (611,892)      (246,971)
         (Decrease) increase in  accrued expenses                           24,980        (65,404)
                                                                       -----------    ----------- 
              Net cash used in operating activities                       (438,244)    (1,815,350)
                                                                       -----------    -----------

Cash flows from investing activities:
     Purchase of property and equipment                                   (109,412)      (217,560)
     Development costs                                                     (98,235)      (122,113)
     Loans to related parties                                                 --            9,374
                                                                       -----------    ----------- 
              Net cash used in investing activities                       (207,647)      (330,299)
                                                                       -----------    ----------- 

Cash flows from financing activities:
     Currency translation                                                   50,127        (12,430)
     Net borrowings under line of credit agreement                            --            7,885 
     Principal payments on short-term debt                                    --           (5,556)
     Principal payments on long-term debt                                     --           (1,266)
     Proceeds from note payable, related party                                --             --   
     Net repayments on related party loans                                    --          (29,166)
     Net borrowings on notes payable, bank                                    --             --
     Preferred stock issuance costs                                           --          (20,570)
     Repayments to factor                                                     --         (121,368)
                                                                       -----------    ----------- 
              Net cash (used in)provided by financing activities            50,127       (182,471
                                                                       -----------    -----------
Net decrease in cash                                                      (595,764)    (2,328,120)
Cash, beginning of period                                                1,056,493      9,962,511
                                                                       -----------    -----------
Cash, end of period                                                    $   460,729    $ 7,634,391
                                                                       ===========    ===========
</TABLE>
                     The accompanying notes are an integral
                part of these consolidated financial statements.
                                       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.  Under a 10-Q filing,  it is not necessary to
include all of the information and footnotes  required in a 10-K filing.  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 three  month  period  ended  September  30,  1997 is not
necessarily  indicative  of the  operating  results that may be expected for the
entire fiscal year ending June 30, 1998.  These financial  statements  should be
read in conjunction with the Company's Form 10-KSB, which will be filed with the
Securities  Exchange  Commission  in a few weeks.  An amended 10-Q will be filed
after the 10-K  filing,  which will  reflect any  remaining  adjustments  to the
financial statements for the three months ended September 30, 1997.

         Reclassification:

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


2. Related party transactions:

         Related party receivables:

         The Company had a related party  receivable from its President,  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.  This note
was forgiven by the Board of Directors  effective 7/1/97. The receivable balance
was $0 at September 30, 1997.


3.       Common Stock:

         On October 22, 1997,  the Company's  shares of common stock,  which was
traded under the symbol SCTI,  were  delisted  from the Nasdaq Small cap market.
This action was taken as a direct  result of the  Company's  failure to meet the
filing  requirement as stated in marketplace  Rule  4310(c)(14).  The failure to
meet the filing  requirement  was the result of the untimely  resignation of the
Company's accounting firm, Toback & Company. This action by Toback & Company, as
noted by the Nasdaq,  caused the delisting of the Company,  and the Company will
pursue all legal  options  regarding  Toback &  Company's  actions.  The Company
followed the appropriate policy of Nasdaq by filing its form 8-K, began a search
                                       9
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)




for a new  accounting  firm,  retaining  Evers  &  Company,  who is now  working
diligently to complete the 10-K filing.

         The Company has entered into  agreements with the holders of 94% of the
Series A Preferred Stock whereby all of their shares of Series A preferred Stock
are tendered for conversion at a fixed  conversion price of $1.00 per share (the
"Fixed  Conversion").  The holders of Series A  Preferred  Stock waive all other
conversion rights which they may have pursuant to any agreement.

In addition to Fixed  Conversion,  the holders of Series A Preferred  Stock will
also receive  warrants to purchase one third (1/3) of the number of shares which
they receive  pursuant to Section I of the Fixed Conversion at a price of $1.25,
subject to ordinary anti-dilution provisions (the "Warrant Shares"). The Warrant
Shares will be subject to ordinary  registration  rights and a warrant agreement
and registration  rights agreement will be forwarded as promptly as is possible.
All such  documents  shall contain  ordinary and reasonable  terms,  conditions,
presentations and warranties.

4. Commitments and contingencies:

            Operating leases:

             In October 1996, the Company purchased  approximately 1.24 acres of
land  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 has  subsequently  sold the facility on June 30, 1997 and effective July
1, 1997 leased the  facility  back from the buyer.  The facility was sold by the
Company for a profit exceeding 20% of cost.
                                       10
<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 year 1998 and  thereafter;  future products
or  product  development;  future  research  and  development  spending  and the
Company's product development strategy; and liquidity and acticipated 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.

Overview

         SC&T  International,  Inc. (the "Company") was formed in June 1993. The
Company develops and markets accessory and peripheral  products for the computer
and video game industries under its PLATINUM SOUND name. The Company's  products
include sub-woofer and speaker sound enhancement systems, PC volume controllers,
CD-ROM audio  cables,  and a line of PC and video arcade racing wheels for SEGA,
Nintendo, Sony Playstation and IBM-PC's. The Company's multimedia keyboards line
has been  discontinued,  in favor of a second generation product targeted at the
corporate market. This second generation, features an enhanced Voice Recognition
product,  has been completed but at this time has not been  introduced  into the
market.

         Since  July  1993,  the  Company's   monthly  revenue  has  grown  from
approximately $8,000 to approximately $ 448,000 in September,  1997. On December
31, 1994,  the Company  purchased  SC&T  Europe,  a marketing  and  distribution
company  located in Antwerp,  Belgium.  The Company,  in an effort to reduce its
European operating costs, has consolidated its European distribution  operations
into one central facility located in the United Kingdom in May 1997. The Company
formed SC&T Europe Limited,  located in Portsmouth  England.  The Belgium office
remains open at this time,  solely as a sales office for  mainline  Europe.  All
current  marketing  and  distribution  operations,  including  a United  Kingdom
domestic sales force, is now being handled out of the United Kingdom operations.

         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  revenues,  resulting  in a net  loss of  approximately
$1,338,000 for the three months ended September 30, 1997. The Company's  primary
costs are for research and  development,  tooling for new  products,  inventory,
trade shows, selling and promotion activities,  writedown of obsolete inventory,
and legal expenses, which increased significantly for the period ended September
30, 1997 due to the resolution of the preferred  shareholder  issue described in
Note 3. The Company  expects  certain of these  costs to increase in  connection
with the anticipated  expansion of sales. In addition,  operating results may be
influenced by factors such as 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.
                                       11
<PAGE>
Results of Operations of the Company for the Three-Month Periods Ended September
30, 1997 and 1996

Net Sales

         Net sales for the three months ended  September  30, 1997  decreased to
approximately  $1,070,785 or approximately  $657,000 less than net sales for the
three months ended  September 30, 1996. Net sales for the month ended  September
30, 1997 were  negatively  impacted by a delay in the manufacture and release of
new products the Company is bringing to the market.

Gross Profit

         The  Company's  gross  profit  percentage  for the three  months  ended
September  30,  1997  reflects  the  Company's  decision  to reduce the price of
certain of its first generation  products remaining in inventory in anticipation
of the introduction of second generation products. In addition, the gross profit
percentage  also  reflects  the  Company's  encounter  with  the  purchase  of a
defective  wheel pedal product.  The Company bore the cost of the replacement of
these pedals,  including freight charges.  The Company's gross profit percentage
for the three months ended  September 30, 1997,  prior to these  adjustments for
the price reductions and pedal problem,  was 26%.  However,  the Company's gross
profit  percentage  after  the  adjustments  for the price  reduction  and pedal
problem declined from 32% for the three months ended September 30, 1996 to 10.4%
for the three months ended September 30, 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 20% to 40%.  The
Company  anticipates  that new products  will  initially  sell at higher  profit
margins. However, there can be no assurance 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  $229,000  in  the  three  months  ended  September  30,  1996  to
approximately  $387,000  in the  three  months  ended  September  30,  1997,  or
approximately  68.8%.  Payroll  and  payroll tax  expense  also  increased  as a
percentage of sales,  from 13% for the three months ended  September 30, 1996 to
36% for the three months ended  September 30, 1997.  This represents an increase
in sales and operations  personnel.  In addition,  a significant  portion of the
increase in payroll and payroll taxes is a result of additional employees due to
operations  of SC&T  Europe.  The  Company is required to employ a base staff of
qualified personnel to maintain its operations.

Selling and Promotion

         The  Company's   selling  and   promotion   expenses   increased   from
approximately  $263,000  in  the  three  months  ended  September  30,  1996  to
approximately  $492,000 in the three  months  ended  September  30,  1997,  or a
increase  of  approximately  87%.  This  represents  an  increase in selling and
promotion expenses, as a percentage of sales from 15% for the three months ended
September  30, 1996 to 46% for the three  months  ended  September  30,  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  $255,000 of the increase was associated with
the Company's  sponsorship  of a Formula  
                                       12
<PAGE>
Atlantic  Racing  Team in the 1997 Kool Toyota  Racing  Series.  Management  has
determined to expense the entire cost of the sponsorship as incurred.

Office and Administration

         The  Company's  office  and  administrative   expenses  increased  from
approximately  $149,000  in  the  three  months  ended  September  30,  1996  to
approximately  $396,000  in the  three  months  ended  September  30,  1997,  or
approximately  164%.  As a percentage  of net sales,  office and  administrative
expenses  increased from 9% for the three months ended September 30, 1996 to 36%
for the three months ended  September  30,  1997. A  significant  portion of the
increase in office and  administrative  expenses  is a result of legal  expenses
relating to the resolution of the preferred shareholder issue, described in Note
3, which exceeded approximately $140,000.

Development Cost Amortization

         Development cost amortization  increased from approximately $60,000 for
the three months ended September 30, 1996 to approximately $71,000 September 30,
1997. Development cost amortization  represents amortization of costs associated
with  development  of new  products.  Such costs are  amortized  over a 12 month
period commencing with the first sale of the product.

Consulting Fees

         Expenditure  for consulting fees increased from  approximately  $37,000
for the three  months ended  September  30, 1996 to $73,000 for the three months
ended  September 30, 1997, or  approximately  98%. A significant  portion of the
increase  in  consulting  fees is a result of the  resolution  of the  preferred
shareholder issue described in Note 3.

Net Loss

         As a result of the factors  described  above,  the Company's  loss from
operations  increased  from  approximately  $268,000 in the three  months  ended
September  30,  1996 to  approximately  $1,343,559  in the  three  months  ended
September 30, 1997. The Company's net loss increased from approximately $190,000
in the three months ended September 30, 1996 to approximately  $1,338,292 in the
three months ended September 30, 1997.

Net Loss Per Share

         Net loss per share from  operations  increased from $0.05 for the three
months ended  September  30, 1996 to $0.06 for the three months ended  September
30,  1997.  Net loss per share  increased  from $0.04 for the three months ended
September 30, 1996 to $0.06 for the three months ended  September 30, 1997.  The
loss per share of $0.02 is due to the increase in expenses and the  reduction of
the gross profit margin as described above. In addition, the decrease in the net
loss  during the three  months  ended  September  30,  1997 was  affected by the
increase in the weighted average common shares  outstanding  from  approximately
4.9 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.
                                       13
<PAGE>
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 improved to approximately  $3,635,084 at September 30, 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  approximately   $182,000
denominated in Belgian francs. 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,  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.

Business Outlook and Risk Factors

Management  believes that there is growing  acceptance in the global marketplace
for the Company's expanded product line and that the Company success in entering
into new  manufacturing  relationships  that take  advantage  of savings  due to
economies  of scale  will  result  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.

       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.
                                       14
<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.

The Company has been advised by it's independent  certified  public  accountants
that the audit  report  for the year ended  June 30,  1997 will  include a going
concern qualification.  The Company does not dispute this qualification.  Due to
the large  number of  preferred  shares  outstanding,  the Company was unable to
raise additional equity funds in the past year. It is currently anticipated that
the Company  will  require  additional  working  capital to continue to fund its
operations.  Management  intends  to  actively  explore  both  debt  and  equity
financing as well as holding  discussions  with  potential  merging  partners in
order to obtain  such  debt or  equity  financing.  There is no  assurance  that
management will be able to obtain any such financing.
                                       15
<PAGE>
                           PART II - OTHER INFORMATION


ITEM I.  LITIGATION

Pending or Threatened Litigation

a.  The Company v. Maxi Switch

         In May of 1995,  the Company  filed suit against Maxi Switch in Tucson,
Arizona,  and its corporate affiliates for misappropriation of trade secrets and
breach of contract in connection with Company's  multimedia keyboard technology.
In May of 1997, a Tucson jury awarded the Company $3 million,  plus  $125,000 in
attorneys' fees. The defendants had filed counterclaims for defamation,  but the
jury denied  those  counterclaims  in their  entirety.  In October of 1997,  the
defendants  filed a timely  Notice of Appeal.  Management  intends to vigorously
pursue  collection of this Judgment  through appeal.  The appeal may take one to
two years.

b.  Network Technical Services v. the Company

      In August of 1995,  Network  sued the  Company in  Phoenix,  Arizona,  for
approximately  $150,000 in a breach of contract action  alleging  failure of the
Company to pay for  certain  cables  delivered  by Network.  The  Company  filed
counterclaims for breach of confidentiality and other torts.  Management intends
to vigorously defend  plaintiff's  claims on the basis that the cables delivered
by the  Network  were  defective.  Management  further  intends  to  pursue  the
counterclaims  and accomplish a net recovery for the Company in this litigation.
This litigation is expected to be concluded within one year.

c.  Home Arcade v. the Company

     In  September  of 1997,  Home  Arcade  filed suit in San Jose,  California,
against the Company for breach of contract seeking  $43,250.  This dispute arose
out of a nonexclusive distribution agreement between Activision and the Company.
The  Company  has  denied  breaching  the  contract  and  instructed  counsel to
vigorously  defend the case.  Due to the recent filing of the case,  undersigned
counsel has not yet been able to develop an opinion with regard to the timing or
likely results of this litigation. However, management believes it has committed
no wrongdoing.

e.  Lake Management v. the Company

     In June of 1997, Lake Management filed suit against the Company in Phoenix,
Arizona,  seeking  specific  performance  requiring  the Company to issue common
stock to Lake  pursuant to a preferred  shareholder  conversion  agreement.  The
Company has resolved a similar problem with 94% of the entities in Lake's class.
Lake has refused to  negotiate  a  reasonable  settlement  and,  therefore,  the
Company will  continue to defend this  litigation  on the basis of Lake's market
manipulation.  It is anticipated  that this litigation will be concluded  within
two years.

f.  Jack Of All Games v. the Company

     In June of 1997, Jack Of All Games Entertainment, Inc., sued the Company in
Cincinnati,  Ohio,  for breach of contract  regarding a purchase order for 5,000
steering  wheel  accessories.  Jack Of All Games is  seeking  $179,272.80,  plus
interest and attorneys fees.  Management  intends to vigorously defend this case
or settle it based on the  provision  of  replacement  product.  The parties had
previously  agreed  to a  product  exchange  and the  Company  expects a product
exchange  to  occur.  This  litigation  should  be  concluded  within  one year.
Management  has honored all it's  obligations  under the terms of this agreement
and firmly  defends this action by Jack Off All Games as  frivolous  and without
merit.

Unasserted Claims and Assessments
                                       16
<PAGE>
The Company has a wheel product which includes "force-feedback"  technology as a
new version to its racing  wheel.  The Company was recently  contacted by Atari.
Atari expressed a desire to evaluate the Company's force-feedback  technology to
determine  whether  it  violates a patent  possessed  by Atari.  The  Company is
presumptively  protected under the circumstances  because the Company obtained a
license  for the  force-feedback  technology  from  another  company,  Immersion
Corporation.  Immersion  Corporation  has  indemnified  the  Company  for patent
infringement  liability.  However,  should Atari successfully  enjoin Immersion,
sales of the  Company's  force-feedback  racing wheel would be impacted,  or the
Company would have to seek a license from Atari.

ITEM 2.  CHANGES IN SECURITIES

         None


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

         On  October  9,  1997,  the  Company  filed an 8-K form  reporting  the
resignation of Toback & Company as the Company's  independent  certified  public
accountant and the appointment of Evers and Company as the principal  accountant
to  provide  audit  services  to the  Company.  In  addition,  the form 8-K also
reported  the  resignation  of Tom  Bednarik as Chief  Executive  Officer of the
Company.
                                       17
<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/ James L. Copland           Chairman of the Board          November 14, 1997
-----------------------------   and Chief Executive Officer



 /s/ Thomas Carlini             Director of Finance            November 14, 1997
-----------------------------
                                       18