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 December 31, 1996.

                        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)


                 3837 E. LaSalle Street, Phoenix, Arizona 85040
                 ----------------------------------------------
                    (Address of principal executive offices)


                                 (602) 470-1334
                                 --------------
              (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  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

       Consolidated Balance Sheet as of December 31, 1996                     3

       Consolidated Statements of Operations for the Three and Six
           Months Ended December 31, 1996  and December 31, 1995              5

       Consolidated Statement of Shareholders' Equity for the Six
           Months Ended December 31, 1996                                     6

       Consolidated Statements of Cash Flows for the Six Months
           Ended December 31, 1996 and December 31, 1995                      7

       Notes to Consolidated Financial Statements                             9

Item 2 Management's Discussion and Analysis                                  15

Part II    Other Information

Item 1 Litigation                                                            22

Item 2 Change in Securities                                                  22

Item 3 Defaults Upon Senior Securities                                       22

Item 4 Submission of Matters to a Vote of Security-Holders                   22

Item 5 Other Information                                                     22

Item 6 Exhibits & Reports on Form 8-K                                        22
                                       2
<PAGE>
                         PART I - FINANCIAL INFORMATION



       ITEM 1.  FINANCIAL STATEMENTS



                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET
                                December 31, 1996
                                   (Unaudited)
<TABLE>
                                     ASSETS
<S>                                                                                <C>
  Current assets:
         Cash                                                                      $     5,432,203

         Receivables (Note 2 & 7)                                                        2,120,918


         Inventory (Note 3 )                                                             2,492,629

         Other current assets                                                              474,461
                                                                                   ---------------

                 Total current assets                                                   10,520,211

  Product development costs, less accumulated amortization of $78,346                      454,357

  Property and equipment, less accumulated depreciation of $156,882 (Note 4 )              886,622

  Other assets                                                                              97,062
                                                                                   ---------------
                                                                                   $    11,958,252
                                                                                   ===============
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.
                                       3
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET
                                December 31, 1996
                                   (Unaudited)

                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<S>                                                                                  <C>
Current liabilities:
       Notes payable, bank (Note 5 )                                                 $

       Accounts payable                                                                     890,682

       Accrued expenses                                                                     157,959
                                                                                     --------------

               Total current liabilities                                                  1,048,641
                                                                                     --------------
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                                                                 (45,659)

       Accumulated deficit                                                               (4,141,509)
                                                                                     --------------
                       Total shareholders' equity                                        10,909,611
                                                                                     --------------
                                                                                     $   11,958,252
                                                                                     ==============
</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 Six Month Periods Ended December 31, 1996 and 1995
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                   Three Months Ended                       Six Months Ended 
                                                                      December 31,                            December 31,   
                                                          -----------------------------------     ----------------------------------
                                                                1996                1995                1996                1995    
                                                          ----------------    ---------------     -----------------   --------------
<S>                                                       <C>                 <C>                <C>                 <C>            
Net sales                                                 $      3,125,865    $      875,366     $       4,853,811   $    1,913,073 
                                                                                                                                    
Cost of goods sold                                               2,099,993           723,600             3,278,710        1,368,606 
                                                          ----------------    ---------------     -----------------   --------------
                                                                                                                                    
Gross profit                                                     1,025,872           151,766             1,575,101          544,467 
                                                                                                                                    
Selling, general and administrative expenses:                                                                                       
    Payroll and payroll taxes                                      232,911           148,679               461,973          315,667 
    Selling and promotion                                          300,986           164,107               563,879          271,152 
    Office and administrative                                      262,051            70,484               411,483          175,467 
    Research and development                                        24,621            12,630                57,633            8,859 
    Development cost amortization                                   44,200            44,128                71,174           79,994 
    Consulting fees                                                 51,165            13,254                87,818           22,116 
    Other                                                          180,866            10,692               259,946           78,873 
                                                          ----------------    ---------------     -----------------   --------------
                                                                 1,096,800           463,974             1,913,906          952,128 
                                                          ----------------    ---------------     -----------------   --------------
                                                                                                                                    
Loss from operations                                               (70,928)         (312,208)             (338,805)        (407,661)
                                                                                                                                    
Other income (expense):                                                                                                             
    Interest income                                                 86,555             5,660               182,210            5,660 
    Interest expense                                                (3,967)          (36,221)              (21,609)         (81,492)
                                                          -----------------   ----------------    -----------------   --------------
                                                                                                                                    
Income (Loss) before income tax & financing costs                   11,660          (342,769)             (178,204)        (483,493)
                                                                                                                                    
Interest associated with short-term bridge financing                                 (37,511)                               (56,011)
                                                                                                                                    
Loan amortization cost resulting from repayment of debt                             (211,155)                              (244,136)
                                                                                                                                    
Income tax expense                                                   -                   -                     -                -   
                                                          ----------------    ---------------     -----------------   --------------
                                                                                                                                    
Net Income (Loss)                                         $         11,660    $     (591,435)             (178,204)        (783,640)
                                                          ================    ===============     =================   ==============
                                                                                                                                    
Net Income (Loss) from operations per common share        $           0.00    $        (0.07)                (0.04)           (0.10)
                                                          ================    ===============     =================   ==============
                                                                                                                                    
Net Income (Loss) per common share                        $           0.00    $       (0.14)                 (0.02)           (0.19)
                                                          ================    ===============     =================   ==============
                                                                                                                                    
Weighted average common shares outstanding                       9,022,062         4,166,961             9,022,062        4,166,961 
                                                          ================    ===============     =================   ==============
</TABLE>                                                  
              The accompanying notes are an integral part of these
                       consolidated financial statements.
                                       5
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                   For the Six Months Ended December 31, 1996
                                   (Unaudited)
<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, 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                                                                                           (22,388)
Net loss                                                                                                                   (178,204)
                              ----------  ---------  ------   --------  -----------  --------  ---------  ------------  ------------

Balance at December 31, 1996  23,135,263  $ 231,353     718   $      7  $14,894,834  (200,000) $ (29,415) $    (45,659) $(4,141,509)
                              ==========  =========  ======   ========  ===========  ========  =========  ============= ===========
</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 Six Months Ended December 31, 1996 and 1995
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                   1996                1995
                                                                            -----------------   -----------------
<S>                                                                         <C>                 <C>
Cash flows from operating activities:
     Net loss                                                               $        (178,204)  $        (783,640)
     Adjustments to reconcile net loss to net cash used in operating
     activities:
         Depreciation and amortization                                                128,328             248,981
         (Increase) decrease in accounts receivable                                (1,465,200)            740,348
         Increase (decrease) in allowance for doubtful accounts                        81,414             (83,000)
         Increase in inventories                                                     (833,963)           (104,315)
         (Increase) decrease in advances on purchases of
              inventory                                                              (226,587)           (130,981)
         Increase in other current assets                                            (399,518)            (16,110)
         Increase in other assets                                                     (60,286)               (729)
         Decrease in accounts payable                                                (203,129)           (380,325)
         Decrease in  accrued expenses                                                (38,874)            (32,388)
                                                                            ------------------  ------------------
              Net cash used in operating activities                                (3,196,019)           (542,159)
                                                                            ------------------  ------------------

Cash flows from investing activities:
     Purchase of property and equipment                                              (714,091)            (16,273)
     Development costs                                                               (315,522)           (105,468)
     Loans to related parties                                                           3,322              (8,095)
                                                                            -----------------   ------------------
              Net cash used in investing activities                                (1,026,291)           (129,836)
                                                                            ------------------  ------------------

Cash flows from financing activities:
     Currency translation                                                             (22,388)                  -
     Net repayments under line of credit agreement                                    (78,528)           (116,316)
     Principal payments on debentures                                                       -            (875,000)
     Principal payments on short-term debt                                             (5,556)                  -
     Principal payments on long-term debt                                              (1,266)            (11,731)
     Net repayments on related party loans                                            (29,166)         (1,000,000)
     Proceeds from stock issuance                                                           -           4,545,000
</TABLE>
                                       7
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               For the Six Months Ended December 31, 1996 and 1995
                                  (Unaudited)
<TABLE>
<S>                                                                         <C>                 <C>               

     Stock issuance costs                                                             (49,726)           (884,629)
     Stock issued for related party services                                                -              15,822
     Proceeds from sale of debentures                                                       -             875,000
     Repayments to factor                                                            (121,368)           (196,198)
                                                                            ------------------  ------------------
              Net cash (used in)provided by financing activities                     (307,998)          2,351,948
                                                                            ------------------  -----------------
Net (decrease)increase in cash                                                     (4,530,308)          1,679,953
Cash, beginning of period                                                           9,962,511             289,707
                                                                            -----------------   -----------------
Cash, end of period                                                         $       5,432,203   $       1,969,660
                                                                            =================   =================
</TABLE>





                Supplemental Disclosure of Cash Flow Information

                                                    1996                1995
                                             ---------------     ---------------

Interest paid                                $21,609             $137,503

     Supplemental Information of Noncash Investing and Financing Activities

On  September  12,  1995,  the  Company  issued  87,500  shares of Common  Stock
associated with short-term  bridge financing raised with a private  placement of
8% Subordinated Debentures (Note 7 ).


                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       8
<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 six month period
ended December 31, 1996 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 December 31, 1996 consist of the following:

              Trade accounts receivable                           $   2,167,151
              Related party (Note 7)                                     61,181
              Allowance for returns and doubtful accounts              (107,414)
                                                                  --------------
                                                                  $   2,120,918
                                                                  ==============

3.       Inventory:

         Inventory at December 31, 1996 consists of the following:

              Finished goods                                      $   1,620,581
              Advances on purchases of inventory                        926,909
              Reserve for obsolescence                                  (54,861)
                                                                  --------------
                                                                  $   2,492,629
                                                                  ==============
                                       9
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)


3.       Inventory, Continued:

         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 & equipment:

         Property and equipment at December 31, 1996 consists of the following:


         Land                                          $    362,760

         Building                                      $    205,463
         Office Furniture & Equipment                       262,903
         Tools & Dies                                       212,378
                                                       ------------
                                                          1,043,504
         Less Accumulated Depreciation                     (156,882) 
                                                       ------------
                                                       $    886,622
                                                       ============

         Depreciation  expense  totaled  $57,154  and $29,727 for the six months
         ended December 31, 1996 and December 31, 1995, respectively.

5.       Notes payable, bank:

         The  Company  has a  revolving  line of credit  with a bank in  Arizona
secured  by a CD.  The line of credit is used to back  international  letters of
credit issued  manufacturer's 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
December 31, 1996.

6.       Commitments and contingencies:

         Operating leases:

         The Company  leases an office and  warehouse  from an  unrelated  third
party under an operating lease that expires in August 1997. Under the lease, the
monthly  rental is  approximately  $4,800,  and the Company is  responsible  for
certain  expenses.  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 commenced construction of a warehouse facility
and executive  offices on this site pursuant to an agreement calling for payment
of $800,000  over a seven month period  ending in April 1997.  The facility will
contain approximately 12,000 sq. ft. of warehousing facilities and approximately
6,000 sq. ft. of executive offices.

         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.
                                       10
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

         6.       Commitments and contingencies, Continued:

         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 January
1997, 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
December 31, 1996 are as follows:


                               1997             $      52,000
                               1998                     3,000
                               1999                         0
                                                -------------
                                                $      55,000
                                                =============

         Total rental  expenses for the three months ended December 31, 1996 and
December 31, 1995 were approximately $23,170 and $27,052, 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.
                                       11
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)


6.       Commitments and contingencies, continued:

         Inventory:

         At December 31, 1996, the Company has outstanding  purchase commitments
for inventory acquisitions of approximately $3,238,000. The Company has advanced
funds against the purchase commitments totaling approximately $414,000.

7.       Related party transactions:

         Related party receivables:

         The Company has a related party  receivable  from its prior  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.  The
receivable  balance was $42,398 at December 31, 1996, of which $6,000 is current
and $36,398 is long-term.

         The Company also advances  funds to employees  for traveling  purposes.
These advances are due on demand and are  non-interest  bearing.  The balance at
December 31, 1996 was approximately $17,000.

         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.
Upon compliance  with the terms of the agreement,  25,000 shares of common stock
may be issued to the former General Director.

         Employment agreement:

         In September  1995,  the Company  entered into an employment  agreement
with its prior President, 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  prior  President's  stock  and
guaranteed salary payments. 
                                       12
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

7.       Related party transactions, continued:

In January 1997 the Company  entered into an amendment to its agreement with its
prior President 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 prior President'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.
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 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.

         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 three years from December 1995. 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
                                       13
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

8.       Issuance of Common Stock, Continued:

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 prior  President  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
convertable 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 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
11% of the Company's  total revenues for the six months ended December 31, 1996.
The accounts receivable balance for this customer totaled  approximately $37,000
at December  31,  1996.  The Company had no  significant  customers  for the six
months ended December 31, 1995.

11.      Subsequent Events:

         In January 1997 the Company  hired a new  president and CEO pursuant to
an offer of Employment providing for a salary of $150,000 per year.
                                       14
<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 for use with SEGA,  Sega Saturn,
Nintendo 64, Sony Playstation and IBM-PC's.

         Since  July  1996,  the  Company's   monthly  revenue  has  grown  from
approximately  $580,000  to  approximately  $1,178,000  in  December,  1996.  On
December  31,  1994,  the  Company   purchased  SC&T  Europe,  a  marketing  and
distribution  company  located in  Antwerp,  Belgium.  Revenue  from SC&T Europe
represented 48% of the Company's  consolidated  revenue for the six months ended
December 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
$178,204 for the six months ended December 31, 1996. The Company's primary costs
are for research and  development,  tooling for new products,  inventory,  trade
shows, and selling and promotion activities.  The Company expects these costs to
increase in connection  with the  anticipated  expansion of sales.  In addition,
operating results may be influenced by factors such as turnover in the Company's
sales personel, 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.
                                       15
<PAGE>
Results of Operations of the Company for the  Six-Month  Periods Ended  December
31, 1996 and 1995

Net Sales

         Net sales for the six months  ended  December  31,  1996  increased  to
approximately $4,854,000 or approximately $2,941,000 more than net sales for the
six months ended  December 31, 1995.  In addition,  the Company has a backlog of
orders totaling approximately $695,000 at December 31, 1996. In comparison,  the
Company had no backlog of orders as of December 31, 1995. 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.  Net sales during the
six months  ended  December 31, 1996  reflect  seasonally  high sales during the
Christmas  season  and are not  necessarily  indicative  of net sales for future
quarters.

Gross Profit

         The Company's gross profit percentage  increased from 28.5% for the six
months ended  December  31, 1995 to 32.5% for the six months ended  December 31,
1996. 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 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   $316,000  in  the  six  months   ended   December  31,  1995  to
approximately   $462,000  in  the  six  months  ended   December  31,  1996,  or
approximately  46.2%.  Although the total dollar amount  increased,  payroll and
payroll tax expense  decreased as a percentage of sales,  from 16.5% for the six
months ended  December  31, 1995 to 9.5% for the six months  ended  December 31,
1996.  

Selling and Promotion

         The  Company's   selling  and   promotion   expenses   increased   from
approximately   $271,000  in  the  six  months   ended   December  31,  1995  to
approximately $564,000 in the six months ended December 31, 1996, or an increase
of approximately 108.1%. Although the total dollar amount increased, selling and
promotion  expenses  decreased as a percentage of sales,  from 14.2% for the six
months ended  December  31, 1995 to 11.6% for the six months ended  December 31,
1996.  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 Company  expects  selling and promotion
expense to increase  during the nine  months  ending  September  1997 due to the
Company's  sponsorship of a Formula Atlantic Team in the 1997 KOOL Toyota Racing
Series.  The Company  expects to offset a portion of these  additional  costs by
reducing other expenditures for selling and promotion.
                                       16
<PAGE>
Office and Administration

         The  Company's  office  and  administrative   expenses  increased  from
approximately   $175,000  in  the  six  months   ended   December  31,  1995  to
approximately   $411,000  in  the  six  months  ended   December  31,  1996,  or
approximately  134.9%. As a percentage of net sales,  office and  administrative
expenses  decreased from 9.1% for the six months ended December 31, 1995 to 8.5%
for the six months ended December 31, 1996.

Research and Development

         Expenditures for research and development  increased from approximately
$8,900 in the six months ended  December 31, 1995 to  approximately  $58,000 for
the six months ended December 31, 1996. 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.

Development Cost Amortization

         Development cost amortization  decreased from approximately $80,000 for
the six months  ended  December  31, 1995 to  approximately  $71,000 for the six
months  ended  December  31,  1996.  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.

Net Loss

         As a result of the factors  described  above,  the Company's  loss from
operations  decreased  from  approximately  $408,000  in the  six  months  ended
December 31, 1995 to approximately $339,000 in the six months ended December 31,
1996. However,  the Company's net loss decreased from approximately  $784,000 in
the six months  ended  December  31, 1995 to  approximately  $178,000 in the six
months ended December 31, 1996.

Net Loss Per Share

         Net loss per share  from  operations  decreased  from $0.10 for the six
months ended  December  31, 1995 to $0.04 for the six months ended  December 31,
1996.  The loss per share from  operations for the six months ended December 31,
1995,  includes a $0.03 per share loss due to a $116,000 adjustment to inventory
as a result of a reduction in price of certain of the  Company's  products.  The
effect of this  adjustment was an increase in net loss per share from operations
from $0.07 per share to $0.10 per share for the six months  ended  December  31,
1995.
                                       17
<PAGE>
Net Loss Per Share, continued

         Net loss per  share  decreased  from  $0.19  for the six  months  ended
December 31, 1995 to $0.02 for the six months ended  December 31, 1996. The loss
per share of $0.19 for the six months ended December 31, 1995 includes the $0.03
per share loss due to adjustments to inventory and an additional  $0.07 loss per
share resulting from a non-recurring financing charge incurred in the six months
ended  December 31,  1995.  The  aggregate  effect of these  adjustments  was an
increase  in net loss per share  from $0.09 per share to $0.19 per share for the
six month  period  ended  December  31, 1995. The decrease in net loss per share
during the six months ended  December 31, 1996 as compared to the same period in
the prior year was due primarily to an increase in interest  income,  a decrease
in interest expense,  and the effect of additional shares of common stock issued
in connection with the Company's private  placements and initial public offering
in December 1995 and June 1996, respectively.

Results of Operations of the Company for the Three-Month  Periods Ended December
31, 1996 and 1995

Net Sales

         Net sales for the three  months ended  December  31, 1996  increased to
approximately $3,126,000 or approximately $2,251,000 more than net sales for the
three months ended December 31, 1995. In addition,  the Company has a backlog of
orders totaling  approximately  $695,000 at December 31, 1996, and approximately
$656,000 as of January 31, 1997.  In  comparison,  the Company had no backlog of
orders as of  December  31,  1995.  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.  Net sales during the three
months ended December 31, 1996 reflect  seasonally  high sales for the Christmas
season and are not necessarily indicative of net sales for future quarters.

Gross Profit

         The  Company's  gross profit  percentage  increased  from 17.3% for the
three  months  ended  December  31,  1995 to 32.8%  for the three  months  ended
December  31,  1996.  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 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   $149,000  in  the  three  months  ended  December  31,  1995  to
approximately  $233,000  in  the  three  months  ended  December  31,  1996,  or
approximately  56%.  Although the total  dollar  amount  increased,  payroll and
payroll tax expense decreased as a percentage of sales, from 17.0% for the three
months ended  December 31, 1995 to 7.5% for the three months ended  December 31,
1996.

Selling and Promotion

         The  Company's   selling  and   promotion   expenses   increased   from
approximately   $164,000  in  the  three  months  ended  December  31,  1995  to
approximately  $301,000  in the three  months  ended  December  31,  1996, or an
increase of approximately 84%. This represents a decrease in selling and
                                     18
<PAGE>
Selling and Promotion, continued

promotion  expenses,  as a  percentage  of sales from 18.7% for the three months
ended  December 31, 1995 to 9.6% for the three months ended December 31, 1996. 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 Company expects  selling and  promotional  expenses to
increase  during the nine  months  ending  September  1997 due to the  Company's
sponsorship  of a Formula  Atlantic Team in the 1997 KOOL Toyota Racing  Series.
The Company  expects to offset a portion of these  additional  costs by reducing
other expenditures for selling and promotion.

Office and Administration

         The  Company's  office  and  administrative   expenses  increased  from
approximately   $70,000  in  the  three  months  ended   December  31,  1995  to
approximately  $262,000  in  the  three  months  ended  December  31,  1996,  or
approximately  274%.  As a percentage  of net sales,  office and  administrative
expenses  increased  from 8.0% for the three months  ended  December 31, 1995 to
8.4% for the three months ended December 31, 1996.

Research and Development

         Expenditures for research and development  increased from approximately
$13,000 in the three months ended December 31, 1995 to approximately $25,000 for
the three  months  ended  December  31, 1996.  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.

Development Cost Amortization

         Development  cost  amortization   remained  constant  at  approximately
$44,000 for the three  months  ended  December  31, 1995 and  December 31, 1996.
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.

Net Loss

         As a result of the factors  described  above,  the Company's  loss from
operations  decreased  from  approximately  $312,000 in the three  months  ended
December 31, 1995 to  approximately  $71,000 in the three months ended  December
31, 1996. In addition, the Company generated approximately $12,000 of net income
for the three months ended  December  31, 1996.  This  compares to a net loss of
$591,435 for the three months ended December 31, 1995.

Net Loss Per Share

         Net loss per share from  operations  decreased from $0.07 for the three
months ended  December 31, 1995 to $0.0 for the three months ended  December 31,
1996. The loss per share of $0.07 for the
                                       19
<PAGE>
Net Loss Per Share, continued

three  months ended  December 31, 1995  includes a $0.03 per share loss due to a
$116,000  adjustment to inventory as a result of a reduction in price of certain
of the Company's products.  The effect of this adjustment was an increase in net
loss per share from  operations  from $0.04 per share to $0.07 per share for the
three month period ended  December 31, 1995.  Net loss per share  decreased from
$0.14 for the three months ended  December 31, 1995 to $0.0 for the three months
ended  December 31, 1996. The loss of $0.14 per share for the three months ended
December  31, 1995  includes the $0.03 per share loss due to the  adjustment  to
inventory and an additional  $0.06 loss per share  resulting from  non-recurring
financing  charges  incurred in the three  months ended  December 31, 1995.  The
aggregate effect of these adjustments was an increase in net loss per share from
$0.05 per share to $0.14 per share for the three month period ended December 31,
1995.  The decrease in net loss per share during the three months ended December
31, 1996 as compared to the same period in the prior year was due  primarily  to
an increase in interest income, a decrease in interest  expense,  and the effect
of  additional  shares of common stock issued in  connection  with the Company's
private  placements and initial public  offering in December 1995 and June 1996,
respectively.

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  $9,454,000 at December 31, 1996. 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.  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 six
months ended  December 31, 1996 reflect the  Company's  belief that (i) there is
growing  acceptance in the 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.  In addition,  the results of  operations  for the six
months ended December 31, 1996 reflect an increase in seasonal orders leading up
to the Christmas  selling  season.  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,  seasonality  of
sales, and general economic conditions.
                                       20
<PAGE>
Business Outlook and Risk Factors, Continued.

         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 the 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  acceptance,   delays  in  product
development  and/or  delivery  of product  that  could  result in loss of market
acceptance,  loss of sales,  reduction  of 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 a 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.

         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 interesed in updating  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.
                                       21
<PAGE>
                           PART II - OTHER INFORMATION


ITEM I.  LITIGATION

         None


ITEM 2.  CHANGES IN SECURITIES

         In the six month period ended  December 31, 1996 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
                                       22
<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 Chief Executive      February 13, 1997
------------------------           Officer
Thomas S. Bednarik                 



 /s/ James L. Copland      Chairman of the Board              February 13, 1997
------------------------    
James L. Copland            



 /s/ Timothy J. Stocker    Chief Financial Officer            February 13, 1997
------------------------
Timothy J. Stocker
                                       23