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 July 31, 1998.
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 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 September 10, 1998, latest  practicable date:  24,553,684
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 July 31,1998                      3
                                                                            
          Consolidated Statements of Operations for the Three Months        
                 Ended July 31,1998 and July 31,1997                         5
                                                                            
          Consolidated Statement of Shareholders' Equity for the Three      
                 Months Ended July 31,1998                                   6
                                                                            
          Consolidated Statements of Cash Flows for the Three Months        
                 Ended July 31,1998 and July 31, 1997                        7
                                                                            
          Notes to Consolidated Financial Statements                         8
                                                                           
Item 2    Management's Discussion and Analysis                              10
                                                                              
Part II   Other Information                                                   
                                                                              
Item 1    Litigation                                                        14
                                                                              
Item 2    Change in Securities                                              14
                                                                              
Item 3    Defaults Upon Senior Securities                                   14
                                                                              
Item 4    Submission of Matters to a Vote of Security-Holders               15
                                                                              
Item 5    Other Information                                                 15
                                                                              
Item 6    Exhibits & Reports on Form 8-K                                    15
                                       2
<PAGE>                                                                      
                         PART I - FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET
                                  July 31,1998


                                     ASSETS

Current assets:
           Cash                                                       $   13,528
                                                                     
           Receivables                                                 1,249,381
                                                                     
           Inventory                                                   1,741,215
                                                                     
           Other current assets                                          178,385
                                                                      ----------
                                                                     
                        Total current assets                           3,182,509
                                                                     
Product development costs, less accumulated amortization of $           
                                                                     
Property and equipment, less accumulated depreciation of $               728,265
                                                                     
Other assets                                                             152,989
                                                                      ----------
                                                                     
                                                                      $4,063,763
                                                                      ==========
                                                             

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

                           CONSOLIDATED BALANCE SHEET
                                  July 31,1998


                      LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:
     Accounts payable                                              $  1,250,001
                                                                   
                                                                   
     Common stock payable                                               103,130
     Advances From Factor                                               409,608
     Accrued expenses                                                   297,766
                                                                    -----------
                                                                   
                  Total current liabilities                           2,060,505
                                                                   
                                                                   
                                                                   
                                                                   
                                                                   
Long term liabilities - Deferred Income-Long Term                       187,646
                                                                   
Shareholders' equity:                                              
     Common stock, $0.01 par; authorized 25,000,000 shares;        
         23,135,263 shares issued and 22,935,263 shares
         outstanding                                                    231,536
                                                                   
     Series  A preferred stock, $0.01 par; authorized 5,000,000    
         shares; 153 shares issued and outstanding                            2
     Series B preferred stock, $100,000 Stated Value, 15 shares    
         issued and outstanding                                       1,500,000
                                                                   
     Additional paid-in capital                                      13,280,028
                                                                   
                                                                   
                                                                   
     Currency translation                                                58,782
                                                                   
     Accumulated deficit                                            (13,254,736)
                                                                   ------------ 
                                                                   
                  Total shareholders' equity                          1,815,612
                                                                   ------------
                                                                   
                                                                   $  4,063,763
                                                                   ============
                                                                  

              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 Months Ended July 31, 1998 and 1997


                                                        1998            1997
                                                   -------------   ------------

Net sales                                          $  1,079,982    $  1,178,685
                                                  
Cost of goods sold                                      950,840       1,266,824
                                                   ------------    ------------
                                                  
Gross profit                                            129,142         (88,139)
                                                  
Selling, general and administrative expenses:     
      Payroll and payroll taxes                         325,464         517,687
      Selling and promotion                             215,535         757,065
      Office and administrative                         352,375         573,282
      Research and development                           21,952          55,623
      Consulting fees                                       427         106,580
      Other                                             133,603         157,958
                                                   ------------    ------------
                                                  
                                                  
                                                      1,049,356       2,168,195
                                                   ------------    ------------
                                                  
Loss from operations                                   (920,214)     (2,256,334)
                                                  
Other income (expense):                           
      Interest income                                     3,720          39,177
      Interest expense                                     (595)         30,968
                                                   ------------    ------------
                                                  
Loss before income tax                                 (917,089)     (2,186,189)
                                                  
Income tax expense                                           --              --
                                                   ------------    ------------
                                                  
Net loss                                           $   (917,089)   $ (2,186,189)
                                                   ============    ============ 
                                                  
Net loss from operations per common share          $      (0.04)   $      (0.08)
                                                   ============    ============ 
                                                  
Net loss per common share                          $      (0.04)   $      (0.08)
                                                   ============    ============ 
                                                  
Weighted average common shares outstanding           23,568,516      23,135,273
                                                   ============    ============ 

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

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                     For the Three Months Ended July 31,1998

                                                                             
<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  April 30,1998          23,153,684  $231,538    188   $1,500,002  $13,280,028         $        $            $(12,146,254)

Prior period inventory valuation
    adjustment                                                                                                             (191,393)

Preferred stock issuance costs             --        --     --           --           --     --        --           --           --
Issuance of common stock                   --        --     --           --           --     --        --           --           --
Preferred stock conversion                 --        --     --           --           --     --        --           --           --
Currency translation                       --        --     --           --           --     --        --       58,782           --

Net loss                                   --        --     --           --           --     --        --           --     (917,089)
                                   ----------  --------  -----   ----------  ----------- ------  -------- ------------ ------------

Balance at  July 31,1998           23,153,684  $231,536    188   $1,500,002  $13,280,028         $        $     58,782 $(13,254,736)
                                   ==========  ========  =====   ==========  =========== ======  ======== ============ ============
</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 Three Months Ended July 31, 1998 and 1997
<TABLE>
<CAPTION>

                                                                                         1998              1997
                                                                                      ---------       -----------
<S>                                                                                   <C>             <C>         
Cash flows from operating activities:
        Net loss                                                                      $(917,089)      $(2,186,189)

        Adjustments to reconcile net loss to net cash used in operating
        activities:
               Depreciation and amortization                                            156,797           430,828
               (Increase) decrease in accounts receivable                              (507,672)          929,207

               Decrease in allowance for doubtful accounts                                   --                --
               (Increase )decrease in inventories                                       306,424           867,651
               (Increase) decrease in advances on purchases of
                      inventory                                                              -- 
               (Increase)decrease in other current assets                               (42,348)         (157,383)
               Consigned Inventory                                                      187,646                --
               Increase in prepaid expenses                                              11,800                --
               Increase in other assets                                                      --           (27,632)
               Increase (Decrease) in accounts payable                                  (74,570)          (28,612)
               Increase (Decrease) in accrued expenses                                 (253,166)          178,976
                                                                                      ---------       -----------
                      Net cash used in operating activities                            (215,089)        2,193,035
                                                                                      ---------       -----------

Cash flows from investing activities:
        Purchase of property and equipment                                                   --           (29,666)
        Development costs                                                                    -- 
        Loans to related parties                                                             -- 
                                                                                      ---------       -----------
                      Net cash used in investing activities                                               (29,666)
                                                                                      ---------       -----------

Cash flows from financing activities:
        Currency translation                                                             58,782
        Net borrowings under line of credit agreement                                        -- 
        Principal payments on short-term debt                                                -- 
        Principal payments on long-term debt                                                 -- 
        Proceeds from note payable, related party                                            --                --
        Net repayments on related party loans                                                -- 
        Net borrowings on notes payable, bank                                                --                --
        Preferred stock issuance costs                                                       -- 
        Change in advances from factor                                                  225,364
                                                                                      ---------       -----------
                      Net cash (used in)provided by financing activities                284,146                --
                                                                                      ---------       -----------
Net (decrease)increase in cash                                                         (848,032)          (22,820)

Cash, beginning of period                                                               861,560         1,890,694
                                                                                      ---------       -----------

Cash, end of period                                                                   $  13,528       $ 1,867,874
                                                                                      =========       ===========
</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.  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 three month period
ended July 31,1998 is not necessarily  indicative of the operating  results that
may be expected for the entire fiscal year ending April 30,1999.

         Reclassification:

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


2..      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.  The Company has complied with all reporting
requirements  in a timely  manner  since  retaining  Evers & Company in October,
1997.  The  company  has  completed  and filed its 10K report for the year ended
April 30,1998.

The company has entered into  agreements with the holders of 98% of the Series A
Preferred  Stock  hereby  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
the fixed  conversion  price,  the holders of the Series A Preferred  Stock will
also receive  warrants to purchase  one-third of the number of shares which they
receive  pursuant  to the Fixed  Conversion  price at a price of $1.75 per share
subject to  ordinary  anti-dilution  provisions  ( the  "Warrant  Shares").  The
Company  did not have an  adequate  number  of  authorized  shares  to cover the
warrants,  employee stock options and the remaining preferred  shareholders.  In
order to allow the Company to have sufficient shares for these transactions, the
President  of the  Company  returned  1,648,444  of his  shares to the  Company.
Subsequent  to year end,  the Board of  Directors  approved  the  issuance of 15
shares of Series B  Preferred  Stock at $100,000  stated  value per share to the
President  in  exchange  for  1,500,000  shares of common  stock  returned.  The
preferred  shares are convertible into common stock at the rate of 12 shares for
                                       8
<PAGE>
                            SC&T INTERNATIONAL, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)


every $1 of face  value of the  Series  B  Preferred  stock.  In  addition,  the
President  received $150,000 in cash for the additional 148,444 shares returned.
The transaction has been retroactively applied to the 1998 financial statements.


3. Proxy Approval

In July, 1998  shareholders of the Company  approved two motions.  The first, to
increase the number of  authorized  shares by  50,000,000  bringing the total to
75,000,000.  The  second  motion  approved  was to  authorize  a reverse  split.
Management's current intent is not to reverse the stock until the Company' share
price has  increased  and the Company  reaches  profitability.  At this time the
Company  has not set a date for a reverse  split,  but does not expect a reverse
split until early in calendar  year or until such time as the common share value
has improved.


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 building on June 30, 1997 and effective July
1, 1997 leased the building back from the buyer.
                                       9
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

         The  statements  contained  in this  report  on form  10SB that are not
purely  historical  are  forward-looking  statements  within the  meaning of the
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 the fiscal year 1999 and
thereafter;  future products or 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.

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 and  PER4MER  registered
trademarks..  The  Company's  products  include  sub-woofer  and  speaker  sound
enhancement  systems, PC volume  controllers,  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,  featuring an
enhanced Voice Recognition  product, has been completed but at this time has not
been introduced into the market.

         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,  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  was  closed  in  August,   1998.  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  revenue,  resulting  in a net  loss  of  approximately
$917,000 for the three months ended July 31,1998.  The  Company's  primary costs
are for research and  development,  tooling for new products,  inventory,  trade
shows, and selling and promotion  activities.  Although these expenses were kept
to a minimum during the quarter,  the Company expects these costs to increase at
a reduced  rate when  compared to the  expected  rate of  increase in 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.
                                       10
<PAGE>
Operating  results of the Company for the three month  period ended July 31,1998
and 1997.

Net Sales

         Net  sales  for the  three  months  ended  July  31,1998  decreased  to
approximately  $1,079,000 or  approximately  $99,000 less than net sales for the
three months ended July 31,1997. The net change in sales was approximately 8%.

Gross Profit

         The Company's  gross profit  percentage for the three months ended July
31,1998  before  special  inventory   adjustments  was  approximately  25%.  The
Company's  cost of sales  includes  inventory  write-downs,  returns and special
adjustments.  The Company charged  operations over $400,000 for the period ended
July 31,1997.  Gross profit for the period before inventory write downs was 26%.
Gross profit margins are affected by several factors,  including the product mix
between the Company's products. Typically, products sell at gross profit margins
ranging  from  20% to 40%.  The  Company  anticipates  that  new  products  will
initially  sell  at  higher  gross  profit  margins.  However,  there  can be no
assurance that higher margins will be maintained over the life of the product.


Payroll and Payroll Taxes

         The  Company's   payroll  and  payroll  tax  expense   decreased   from
approximately  $517,000 in the three months ended July 31,1997 to  approximately
$325,000  for the  three  months  ended  July  13,1998,  or  approximately  37%.
Substantial  cost reductions were made in executive  salaries,  relocation costs
and employment expenses for advertising and fees.

Selling and Promotion

         The  Company's   selling  and   promotion   expenses   decreased   from
approximately  $757,000 for the three months ended July 31,1997 to approximately
$215,000 for the three months ended July 31,1998, or a decrease of approximately
71%.  This  represents  an  decrease  in selling and  promotion  expenses,  as a
percentage  of sales from 64% for the three months ended July 31,1997 to 20% for
the three months ended July 31,1998. Approximately one-third of the decrease was
due to a reduction in expenses for packaging new products,  decreased trade show
expenses  and  discontinuance  of  sponsorship  expenses of Kool  Toyota  Racing
Series.
                                       11
<PAGE>
Office and Administration

         The  Company's  office  and  administrative   expenses  decreased  from
approximately  $573,000 for the three months ended July 31,1997 to approximately
$352,000 for the three months ended July  31,1998,  or  approximately  39%. As a
percentage of net sales,  office and administrative  expenses decreased from 48%
to 32%. Major cost  reductions  were made in legal expense  $193,000 and general
office overhead expenses $28,000.

Development Cost Amortization

         Development cost amortization  decreased from approximately $55,000 for
the three  months  ended July 31,  1997 to  approximately  $21,000 for the three
month period  ended July 31,  1998.  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 decreased from  approximately  $106,000
for the three  months  ended  July 31,  1997 to less than  $1,000  for the three
months  ended  July  31,1998.  Most of the  consulting  fees  for  1997  were in
conjunction with the conversion of Series A preferred stock to common stock.

Net Loss

         As a result of the factors  described  above,  the Company's  loss from
operations  decreased from  approximately  $2,186,000 for the three months ended
July 31,1997 to approximately  $917,000 for the three months ended July 31,1998.
The operating  results for the period ended July 31,1997  include  extraordinary
expenses recorded in June, 1997 which was formerly the fiscal year end.

Net Loss Per Share

         Net loss per share from  operations  decreased from $0.08 for the three
months ended July 31,1997 to $0.04 for the three months ended July 31,1998.

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.
                                       12
<PAGE>
         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 there is a growing acceptance in the global marketplace for
the Company's  expanding  product line. SC&T products are currently sold in over
25 countries worldwide.  The Company plans four to six new product introductions
over the next six months. The Company has developed new manufacturing  alliances
which have reduced costs due to economies of scale production environments.  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.

Business Outlook and Risk Factors, Continued

The Company  believes the  accessory  and  peripheral  products  markets for the
personal  computer  and video  gaming  industries  has a strong  outlook.  These
markets are characterized by sales growth, rapid technological change,  frequent
introduction of new products,  product upgrades and evolving industry standards.
The  Company  strives to  provide  market-leading  solutions  that  address  the
personal computer 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's  10K report for the year ended  April  30,1998  contained a going
concern qualification. The Company does not dispute this qualification.  Without
a substantial  increase in revenues the Company will require  additional working
capital through external sources to continue to fund its operations.  Management
plans  to  actively  explore  debt  and  equity  financing  as well  as  holding
discussions with potential merging partners to obtain required financing.
                                       13
<PAGE>
                           PART II - OTHER INFORMATION


ITEM I.  LITIGATION

Pending or Threatened Litigation

A. Home Arcade v SC&T

In 1997, Home Arcade filed suit for breach of a license agreement,  a suit which
alleges bad faith and fraud  claims.  The  compliant  seeks damages in excess of
$900,000,  however,  the principal  amounts are far less.  The requested  relief
includes trebling and punitive damages.  Management has positively evaluated the
issues of breech  and  vigorously  disputes  the  principal  amount.  Management
intends to vigorously defend the case. Further,  management is in the process of
filing counterclaims  alleging that SC&T, among other things,  actually incurred
significant losses as a result of Home Arcade's misrepresentations and breach of
the licensing  agreement.  The litigation is pending in Santa Clara County,  San
Jose, California. It is expected to last approximately two years.

B. SC&T V. Brian Johnson

In 1998 SC&T filed suit  against a former  sales  person for  recovery of moving
expenses  pursuant to the moving expense  agreement.  These expenses  became due
when Mr. Johnson  resigned  prior to one year from the  agreement.  SC&T , also,
alleges  that Mr.  Johnson  submitted  fraudulent  reimbursement  vouchers.  Mr.
Johnson  filed a  counterclaim  alleging  he did not receive  full  compensation
during his tenure. Management has evaluated the claims and intends to vigorously
prosecute its claims against Mr. Johnson and expects a positive  judgment within
one to one and one half years.

C. Jack of All Games v. SC&T

In June,  1997  Jack of All  Games  Entertainment,  Inc.,  sued the  Company  in
Hamilton  County,  Ohio for breach of contract  regarding  the purchase of 5,000
steering wheel accessories.  Jack of All Games is seeking approximately $180,000
in  damages.   Plaintiff  claims  the  steering  wheels  it  received  were  not
merchantable  for the  purpose  for which they were  intended  The  Company  has
answered the compliant and denied all material  allegations.  It is  anticipated
that the litigation of these issues will be concluded within one year.

ITEM 2.  CHANGES IN SECURITIES

               None


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

               None
                                       14
<PAGE>
ITEM 4.  SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY-HOLDERS

In July, 1998 Shareholders  approved a motion to issue an additional  50,000,000
common stock from  25,000,000 to 75,000,000  and to allow the Company to reverse
common stock outstanding at a time deemed necessary by the Board of Directors.


ITEM 5.  OTHER INFORMATION

               None


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

On June 17,1998 the registrant filed with the Securities  Exchange Commission to
change its fiscal year from March 31 to April 30.
                                       15
<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               September 15, 1998
-----------------------   and Chief Executive Officer



 /s/ Richard W. Elwood    Director of Finance                 September 15, 1998
-----------------------
                                       16