SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K405

[ ] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
    of 1934

    For the fiscal year ended ______________ or

[X] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

    For the transition period from JULY 1, 1997 to JANUARY 31, 1998

    Commission file number 0-15194

                               SOUND ADVICE, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)
             

            FLORIDA                                             59-1520531
------------------------------                               -------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)


1901 TIGERTAIL BOULEVARD, DANIA, FLORIDA                             33004
----------------------------------------                           ----------
(Address of principal executive offices)                           (Zip Code)

Registrant's telephone number, including area code: (954) 922-4434

                         ------------------------------

Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                     --------------------------------------
                                 Title of class

                         ------------------------------

                          COMMON STOCK PURCHASE RIGHTS
                          ----------------------------
                                 Title of class

                         ------------------------------

        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]

        Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (17CFR 229.405) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [X]

        THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT ON APRIL 17, 1998, BASED UPON THE CLOSING
MARKET PRICE OF THE REGISTRANT'S VOTING STOCK ON THE NASDAQ NATIONAL MARKET ON
APRIL 17, 1998, AS REPORTED IN THE WALL STREET JOURNAL, WAS APPROXIMATELY
$11,885,000.

        THE REGISTRANT HAD 3,728,894 SHARES OF COMMON STOCK, $.01 PAR VALUE,
OUTSTANDING AS OF APRIL 17, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

(SPECIFIC SECTIONS INCORPORATED ARE IDENTIFIED UNDER APPLICABLE ITEMS HEREIN)

        CERTAIN PORTIONS OF THE REGISTRANT'S PROXY STATEMENT TO BE FILED IN
CONNECTION WITH ITS 1998 ANNUAL MEETING OF SHAREHOLDERS ARE INCORPORATED BY
REFERENCE IN PART III OF THIS REPORT.


<PAGE>


                                TABLE OF CONTENTS
                                                                       PAGE NO.
                                                                       --------
PART I

ITEM 1.   BUSINESS.......................................................1
                      General............................................1
                      Products...........................................2
                      Marketing Strategy.................................3
                      Advertising........................................4
                      Operations.........................................5
                      Expansion..........................................8
                      Seasonality........................................9
                      Servicemarks......................................10
                      Competition.......................................10
                      Employees.........................................11

ITEM 2.   PROPERTIES....................................................12

ITEM 3.   LEGAL PROCEEDINGS.............................................13

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF
          SECURITY HOLDERS..............................................13

ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT..........................14

PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY
          AND RELATED STOCKHOLDER MATTERS...............................16
                      Common Stock Information..........................16
                      Dividend Policy...................................16
                      Recent Sales of Unregistered Securities...........17

ITEM 6.   SELECTED FINANCIAL DATA.......................................18

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................20
                     Results of Operations..............................20
                     Liquidity and Capital Resources....................25
                     Year 2000..........................................27
                     Impact of Inflation and Foreign
                        Currency Fluctuations...........................27
                     Forward-Looking Statements.........................27

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................28

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
          ON ACCOUNTING AND FINANCIAL DISCLOSURE........................28

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS
          OF THE REGISTRANT.............................................29

ITEM 11.  EXECUTIVE COMPENSATION........................................29

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
          OWNERS AND MANAGEMENT.........................................29

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................29

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
          AND REPORTS ON FORM 8-K.......................................29

SIGNATURES..............................................................30

                                       

<PAGE>


                                     PART I

ITEM 1. BUSINESS.

GENERAL

        Sound Advice, Inc. (the "Registrant"), incorporated in Florida on March
12, 1974, is a full service specialty retailer of a broad range of selective
high-quality, upscale entertainment and consumer electronic products. As of
January 31, 1998, the Registrant operated 22 stores in Florida which sell home
and car audio systems, large screen projection and direct view televisions,
video products, cellular telephones and other personal electronics, such as home
telephones, answering machines and hand held audio systems, car security
systems, home entertainment furniture and related customized services and
accessories. In contrast to mass merchandisers and discounters of consumer
electronic products, the Registrant includes among its targeted customers those
consumers seeking informed advice concerning product selection and system
integration in conjunction with products incorporating the latest technology.

        The Registrant's marketing strategy is to build customer satisfaction
and loyalty through its customer support program which includes a technically
proficient sales force and custom design, installation and repair services. The
Registrant's showrooms provide comfortable surroundings and contain audition
rooms and demonstration areas where customers are encouraged to test and compare
products. In its stores, the Registrant emphasizes a broad selection of upscale
and specialty brand consumer electronic products.

     The Registrant's operating strategy is to cluster its stores in larger
markets and maximize selling space per store in order to achieve economies of
scale, as well as provide convenient locations for its customers. The
Registrant's stores are currently clustered in four areas in Florida, including
the Miami/Ft. Lauderdale/West Palm Beach area (the "East Coast Stores"), the
Tampa/St. Petersburg/Clearwater/Sarasota/Fort Myers/Naples area (the "West Coast
Stores"), the Orlando area (the "Central Florida Stores") and Jacksonville (the
"Jacksonville Stores"). In fiscal year 1998, the Registrant added one new West
Coast store by adding a store in Naples, Florida in November 1997. As of January
31, 1998, the Registrant operated 22 stores, which, except for one smaller
store, on average contain approximately 15,000 to 17,000 gross square feet. It
currently plans during fiscal year 1999 to add three additional stores which may
include the relocation of the remaining smaller West Coast Store to a larger
facility containing approximately 15,000 gross square feet. In February 1998,
the Registrant opened a mall based specialty store featuring the Bang & Olufsen
line of audio products and accessories. Such store contains approximately 1,600
square feet. See "Expansion" in this ITEM 1.

        In the transition period ended January 31, 1998, the Registrant's net
sales were approximately $97 million which was a decrease from its net sales of
approximately $101 million in the 

                                       1

<PAGE>


comparable transition period in the prior year (unaudited). See "Results of
Operations - Transition Period Ended January 31, 1998 Compared to Prior
Transition Period Ended January 31, 1997" in ITEM 7.

PRODUCTS

        The Registrant offers its customers an extensive selection of
high-quality, brand-name entertainment and consumer electronic products,
including products incorporating the latest technology which are generally not
available at most of its competitors. In a typical store a customer can choose
from more than 2,100 products from approximately 150 manufacturers.

        The Registrant's products and services may be grouped into home and car
audio, television and video, service, installation and product warranty and
miscellaneous products.

        The home and car audio product group includes receivers, speakers, audio
compact disc players, cassette decks, turntables, tuners, equalizers, signal
processors, mini and normal sized pre-packaged audio systems, amplifiers, car
AM-FM radios, car antennas, security systems, radar detectors and audio
accessories.

        The television and video product group includes projection televisions,
direct view televisions, video tape players/recorders, video camcorders, digital
video disk (DVD) players, video enhancement devices, home theater systems,
direct broadcast satellite dishes and video accessories.

        The service, installation and product warranty group includes car audio
installation, custom home installation, repair services, delivery and extended
warranty contracts offered by the Registrant on behalf of a third party provider
for most of its audio, video, car stereo and personal electronics merchandise.

        The miscellaneous product group includes personal and portable stereos,
answering machines, home telephones, hand held audio systems, equipment and
activation fees for cellular telephone service and home entertainment furniture.

        In fiscal 1995 and 1996, the Registrant also had a separate personal
computer product group which included personal computers, peripherals and
multi-media products.

                                       2

<PAGE>


        The table below shows the approximate percentage of the Registrant's
sales for the transition periods ended January 31, 1998 and 1997, and the fiscal
years ended June 30, 1997, 1996 and 1995 attributable to each of the foregoing
product groups. The personal computer product group, which was added in fiscal
year 1995, was discontinued in January 1996.

                              TRANSITION PERIODS ENDED    FISCAL YEARS ENDED
                                    JANUARY 31,                 JUNE 30,
                              ------------------------    -------------------
PRODUCT GROUP                     1998      1997          1997    1996   1995
-------------                     ----      ----          ----    ----  -----
                                        (unaudited)
Home and Car Audio . . . . . .     45%      44%           48%     44%    39%
Television and Video   . . . .     39       40            37      35     33
Service, Installation and
 Product Warranty  . . . . . .     12       12            12      11     10
Miscellaneous Products . . . .      4        4             3       5     12
Personal Computer  . . . . . .      -        -             -       5      6
                                  ---      ---           ---      --     --

Total  . . . . . . . . . . . .    100%     100%          100%    100%   100%
                                  ===      ====          ===     ===    ====

        The percentage of sales by each product group is affected by promotional
activities, consumer trends, store displays, the development of new products and
the elimination or reduction of existing products and, thus, the current mix may
not be indicative of the mix in future years.

MARKETING STRATEGY

        The Registrant views itself as being in a service business and
emphasizes to its sales personnel the need to provide personal attention and
assistance to each customer. The Registrant trains its sales personnel to assist
customers in their purchases by demonstrating products and providing information
with respect to features, price, quality and system integration. At each store,
audition rooms and segregated demonstration areas and displays of systems and
products promote sales by enabling sales personnel to demonstrate the use of
systems and products and by permitting customers to compare and test the
performance and features of similar products and systems (particularly higher
quality systems and products incorporating the latest technology and
fully-integrated audio/video systems). Consistent with this approach to
marketing, during fiscal year 1996, the Registrant commenced incorporating
audio, video and furniture combinations to demonstrate the technology of home
entertainment systems including home theater in a realistic setting. The
Registrant also has a full-service mobile electronics center in most of its
stores.

        The Registrant has pursued a strategy of building customer satisfaction
and loyalty by having (i) a broad range of top-quality products including
products incorporating the latest technology and not generally available at most
of its competitors; (ii) technically proficient sales personnel providing
extensive customer service; (iii) customer oriented showrooms where products can
be demonstrated to and tested by customers; and (iv) a support program including
custom design and installation and repair services.

                                       3

<PAGE>


        The Registrant builds customer satisfaction by offering a comprehensive
customer support program. This program seeks to assure that each customer has
the product or system best suited for that individual. Any merchandise sold by
the Registrant may be auditioned on the customer's premises and, if a customer
is not satisfied, may be returned within 60 days for a refund or exchanged for
credit toward the purchase of another product or system. Customers are
encouraged to upgrade speakers originally purchased from the Registrant by
trading in such speakers within the first year for credit at the original
purchase price toward the purchase of new speakers. Car audio products (if
installed by the Registrant) carry a one year "defective replacement guaranty"
and, once the Registrant installs car audio equipment, a customer will not be
charged for reinstallation into another car, for installing component upgrades
or reinstalling after repair service. The Registrant's custom department will
visit a customer's home to design and install audio and video products and
systems. The Registrant believes that the cost of its customer support program
is warranted in light of the additional sales and customer satisfaction created
by such ongoing program.

ADVERTISING

        To support its marketing strategy, the Registrant promotes its
merchandise through an advertising program which emphasizes the print media
(consisting of newspaper advertising, catalogs and other customer mailings) and,
to a lesser extent, television and radio advertising. Such advertising program
consists of name recognition advertising emphasizing the Sound Advice name and
its competitive prices, its broad and high-quality name brand product selection,
available financing arrangements, its technically proficient sales force, its
support program, its customer oriented showrooms and its customer service and
repair program. In addition, newspaper and catalog advertisements and customer
mailings highlight specific products and their prices and specific financing
plans in connection with specific sales events and promotions. The Registrant
has an extensive customer database which is used for targeting its mailings of
catalogs and other promotional advertisements and materials.

        The following table shows the Registrant's net advertising expense as a
percentage of net sales for the transition periods ended January 31, 1998 and
1997, and the fiscal years ended June 30, 1997, 1996 and 1995. Net advertising
expense represents gross advertising expense less market development funds,
cooperative advertising and other promotional amounts received from vendors for
incentive and promotional programs.

                                   TRANSITION               FISCAL
                                 PERIODS ENDED            YEARS ENDED
                                   JANUARY 31,               JUNE 30, 
                                 -------------         --------------------
                                 1998     1997         1997    1996    1995
                                 ----     ----         ----    ----    ----
                                      (unaudited)

                                             (Dollars in Thousands)

Net advertising expense ...     $3,149   $3,115        $4,086   $6,476  $4,745
Percentage of net sales ...       3.3%     3.1%          2.6%     3.8%    2.5%

                                       4

<PAGE>


        During the transition period ended January 31, 1998, net advertising
expense increased slightly as compared to the period ended January 31, 1997,
primarily due to increased holiday advertising expenses in the transition period
ended January 31, 1998.

        During fiscal year 1997, net advertising expense substantially decreased
as compared to fiscal 1996 primarily as a result of a reduction in advertising
expenditures associated with the cost reduction program initiated during the
latter part of fiscal 1996. A portion of the advertising expense reduction is
directly attributable to the elimination of personal computers from the product
mix. In addition, market development and other promotional amounts received by
the Registrant from vendors which offset advertising costs increased slightly in
the transition period ended January 31, 1998 and fiscal 1997 as compared to the
comparable periods in the prior year. The primary reason for the increase in
market development funds is additional vendor funds received in connection with
the new store opening in November 1997 and store relocation in November 1996.

        In fiscal year 1996, net advertising expense substantially increased as
compared to fiscal 1995 primarily as a result of a decrease in market
development funds and other promotional amounts received from vendors and
increased advertising expense incurred primarily during the first half of fiscal
year 1996 in connection with increased competition for customers. The increase
in net advertising expense as a percentage of net sales between fiscal years
1996 and 1995 was the result of the increase in total net advertising expense in
fiscal year 1996 for the reasons discussed above combined with the decrease in
net sales in fiscal year 1996.

        The Registrant handles the majority of its advertising through its
in-house advertising staff. The Registrant's use of an in-house staff allows it
to be more flexible in decisions regarding advertising, to make changes to
advertising copy on short notice, to publicize special product promotions and to
take advantage of new products and unexpected market developments on a timely
basis. During fiscal year 1997 and the transition period ended 1998, the
Registrant utilized the services of marketing consultants to assist in certain
advertising campaigns and image development programs.

OPERATIONS

        SUPPLIERS, PURCHASING AND DISTRIBUTION:

        The Registrant has no long-term merchandise purchase contracts or
commitments. The Registrant acquires its products from approximately 150
manufacturers, four of which manufacturers accounted for approximately 53% of
the Registrant's total product purchases during the transition period ended
January 31, 1998. Such four manufacturers were Bose, Mitsubishi, Sony and
Yamaha. Management believes that competitive sources of supply would be
available for most of the Registrant's products in the event that one or more of
its sources were no longer available. However, a loss of a primary source of
supply could have an adverse impact on

                                       5

<PAGE>


the Registrant and, to the extent that the unavailable source was for a product
line for which the Registrant was the primary distributor in its markets, the
Registrant most likely would only be able to replace these products with
products that were widely available in its markets.

        The Registrant's policy is to take advantage of cash or payment
discounts offered by manufacturers. The Registrant has also been able to obtain
substantial levels of manufacturers' rebates based on volume buying levels and
on occasion has been able to negotiate favorable terms on very large volume
purchases. Since March 1986, the Registrant has been a member of Progressive
Retailers Organization, Inc., a buying group comprised of 14 retailers of home
entertainment and consumer electronic products located throughout the country
("Progressive Retailers Organization"). Membership in the Progressive Retailers
Organization allows the members to combine their purchases in order to negotiate
more favorable terms from vendors.

        Substantially all inventory purchased by the Registrant is shipped
directly to its central distribution facility located in Deerfield Beach,
Florida. Such facility is currently the central distribution facility for its
stores. Inventory is also shipped to and distributed from the Registrant's
support warehouses located in Tampa and Orlando, Florida, which service the West
Coast Stores and Central Florida Stores, respectively. Each store receives
shipments of inventory from the central distribution and/or support warehouse
facilities at least three times a week and sometimes on a daily basis, thereby
increasing availability to customers by enabling each store to maintain
reasonable inventories of all products and to promptly replenish inventories of
fast moving products. The Registrant believes that its distribution system
allows it to support a broad selection of merchandise within the stores, while
minimizing store level inventory requirements. Inventory turn was approximately
4.0 and 3.9 times during the transition periods ended January 31, 1998 and 1997,
and 4.1, 4.3, and 4.2 times during the fiscal years ended June 30, 1997, 1996
and 1995, respectively.

        The Registrant's management information system tracks current levels of
sales, inventory, purchasing and other key information and provides management
with information which facilitates merchandising, pricing, sales management and
the management of warehouse and store inventories. This system enables
management to review and analyze the performance of each of its stores and sales
personnel on a periodic basis. The central purchasing department of the
Registrant monitors current sales and inventory at the stores on a daily basis.
In addition, the Registrant currently completes a physical inventory
approximately 4 times a year and in between such physical inventories it
periodically conducts a cycle count on selected types of inventory. The
purchasing department also establishes the level of inventory required at each
store and handles the replenishment of store inventory based on the current
delivery or replenishment schedule.

        During the first quarter of fiscal 1997, the Registrant upgraded its
computer hardware platform. In addition, the functionality of its management
information system ("MIS system") was upgraded to an enhanced version of the MIS
system from the same 

                                       6

<PAGE>


vendor designed for the new hardware platform. The cost to upgrade the hardware,
software and certain communications features was approximately $670,000. This
upgrade gives the Registrant the ability to add new stores and increase its
reporting and processing capabilities with only incremental upgrades of certain
components of the MIS system.

        SALES AND STORE OPERATIONS:

        Sales to customers are primarily made on a cash and bank credit card
basis. In addition, customers who qualify can obtain longer term financing by
obtaining a Sound Advice credit card, which the Registrant makes available to
its customers, without an annual fee, through a private label credit card
arrangement with an unrelated finance company without recourse to the
Registrant. The Registrant also periodically, as part of its promotional
activities, makes special financing programs available to its customers, some of
which programs utilize a vendor issued credit card. The cost of such special
financing programs is borne by the Registrant. However, certain of the
Registrant's vendors periodically participate with and support the Registrant in
the cost of financing promotions.

        Each store has its own management structure consisting of a full time
general showroom manager having overall responsibility at each location and a
full time operations manager under such general showroom manager. Most of the
Registrant's stores also have an individual in charge of the mobile electronics
department. Each general showroom manager's and operations manager's
compensation is dependent in part on the store's gross profit. As of April 17,
1998, approximately 304 sales personnel working at the stores were compensated
on a commission basis. Commission payment plans vary depending upon the type,
price and/or gross margin of the product.

        The Registrant's sales management group consists of two regional sales
vice presidents, each overseeing approximately one-half of the stores, both of
whom report to the Chief Executive Officer. This structure is designed to
improve decision making and communication throughout the Registrant's structure.
Historically, the Registrant has generally experienced employee stability with
many sales persons moving up to positions of greater responsibility, although
the Registrant does experience some turn-over of employees particularly during
the early term of their employment. See "Employees" in this ITEM 1.

        Merchandise sold at a store is generally delivered to the customer at
the store at the time of sale, with the exception of certain projection and
large direct view televisions, home entertainment furniture and integrated
systems for which the Registrant offers home delivery and installation service.
In addition, the Registrant offers custom home audio and video installation
service. The Registrant also installs car audio systems, cellular telephones and
car security systems at all but one of its stores.

                                       7

<PAGE>


        SERVICE AND REPAIR:

        The Registrant's service and repair facility is located at its corporate
headquarters in South Florida. The Registrant is an authorized manufacturer's
service representative for substantially all of its products and is reimbursed
by the manufacturer for the service or repair it performs on products still
covered by a manufacturer's warranty. Products brought to the stores by
customers for service or repair are shipped to the Registrant's service and
repair facility through its warehouse distribution system.

        The Registrant offers, through an unrelated insurance company on a
nonrecourse basis, an extended warranty contract for most of the audio, video
and other merchandise it sells, whereby a customer is provided coverage beyond
the warranty period covered by the manufacturer. The Registrant collects the
retail sales price of the extended warranty contract from the customer and
remits the customer information and the Registrant's cost for the contract to
the insurance company. The warranty obligation is solely the responsibility of
the insurance company, since the contract is between the customer and the
insurance company. As an authorized service center for the insurance company,
the Registrant may also perform the services required under the extended
warranty contracts for which it is separately paid by the insurer. Gross margins
from the sale of extended warranty contracts are higher than gross margins from
the sale of the Registrant's other products. Revenues from the sale of extended
warranty contracts have historically averaged 5% to 6% of sales. See note (1)(j)
of Notes to Consolidated Financial Statements.

        In connection with the promotion of the sale of extended warranty
contracts, the Registrant had offered prior to March 1, 1993, and again from
July 1994 through May 1997, the purchasers of such contracts the right to apply
the amount of the sales price for an extended warranty contract, which has
expired and has not been used for any repair or maintenance procedure, toward
the purchase of merchandise, subject to such purchaser providing appropriate
documentation verifying the purchase of such contract. Contracts issued between
July 1, 1994 and May 31, 1997, which are unused must be redeemed within a
certain time period from the date of contract expiration. The Registrant
recorded a liability at the time of sale for the estimated amount of redemptions
under this incentive program. See the Consolidated Financial Statements and
related notes appearing elsewhere in this report (in particular, note (1)(j)
thereto).

EXPANSION

        During the transition period ended January 31, 1998, the Registrant
opened one new West Coast Store in November 1997 and did not close any stores.
Accordingly, as of January 31, 1998, it operated 22 stores. The Registrant
opened a mall based concept store in February 1998. This concept store sells a
single vendor's high-end electronics and related accessories.

        During fiscal year 1999, the Registrant currently plans to open up to
three additional stores in Florida markets which have 

                                       8

<PAGE>


been determined to be of sufficient size and demographics to support the typical
15,000 square foot facility. In addition, the Registrant may relocate the
remaining smaller West Coast Store in order to increase the size of that
showroom to its current format. Each of the new facilities will contain
approximately 15,000 gross square feet. The Registrant is also exploring
additional sites for its concept store format. The Registrant expects to
continue to explore the opening of new stores in geographic areas within its
existing Florida distribution network and/or advertising radius in order to
realize efficiencies and cost benefits as a result of the Registrant's
clustering of stores.

        Management estimates that as of this time the cost (other than initial
inventory) of opening an additional store or relocating a store built to suit
for the Registrant by an owner or landlord is approximately $750,000 to
$950,000. Management also currently estimates that, if the Registrant acquires
an existing store location, it will cost between $900,000 and $1,200,000 to
retrofit such property. Management estimates initial inventory cost for a new
store to be approximately $1,000,000.

        The extent of any future expansion within or outside Florida is
dependent on the Registrant's operating performance and the availability of
sufficient financing, together with future general economic and business
conditions. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. - Liquidity and Capital Resources".

SEASONALITY

        Historically, the Registrant has realized greater sales and profits
during the holiday selling season which was the Registrant's second quarter
prior to the change in fiscal year end to January 31. The Registrant's marketing
strategy and, in particular, its year round use of newspaper, television and
radio advertising, catalogs and promotions (including, without limitation,
vendor specific promotional sales in selected months), attempts to minimize the
seasonality of the Registrant's business.

                                       9

<PAGE>


        The following tables set forth the Registrant's quarterly net sales in
dollars and as a percentage of annual net sales for the transition periods ended
January 31, 1998 and 1997, and the three fiscal years ended June 30, 1997:
<TABLE>
<CAPTION>
                                           NET SALES
                                           ---------

                     1ST          2ND           3RD           4TH                TOTAL
TRANSITION           QUARTER      QUARTER       QUARTER       QUARTER             FOR
PERIOD ENDED         (FEBRUARY-   (MAY-         (AUGUST-      (NOVEMBER-       TRANSITION
JANUARY 31,          APRIL)       JULY)*        OCTOBER)      JANUARY)           PERIOD
-----------          ---------    --------      --------      ---------        ----------
(unaudited)
                                        (Dollars in Thousands)

<S>                  <C>         <C>            <C>            <C>             <C>     
1998. . . . . .         N/A      $11,703        $36,282        $48,808         $ 96,793
    . . . . . .                    12.1%          37.5%          50.4%             100%

1997. . . . . .         N/A      $14,031        $38,418        $48,324         $100,773
    . . . . . .                    13.9%          38.1%          48.0%             100%
</TABLE>

* Due to the change in fiscal year, this partial quarter represents only the
month of July.
<TABLE>
<CAPTION>
                                          NET SALES
                                          ---------

                     1ST          2ND           3RD           4TH
FISCAL               QUARTER      QUARTER       QUARTER       QUARTER       TOTAL
YEAR ENDED           (JULY-       (OCTOBER-     (JANUARY-     (APRIL-       FOR 
JUNE 30,             SEPTEMBER)   DECEMBER)     MARCH)        JUNE)         YEAR
--------             ----------   ---------     ---------     -------       --------

                                       (Dollars in Thousands)
<S>                  <C>          <C>           <C>           <C>           <C>     
1997. . . . . .      $40,351      $47,724       $35,431       $32,117       $155,623
    . . . . . .        25.9%        30.7%         22.8%         20.6%           100%

1996. . . . . .      $44,165      $53,260       $39,079       $32,481       $168,985
    . . . . . .        26.1%        31.5%         23.1%         19.3%           100%

1995. . . . . .      $46,721      $60,854       $43,781       $39,148       $190,504
    . . . . . .        24.5%        31.9%         23.0%         20.6%          100%
</TABLE>


SERVICEMARKS

        The Registrant has registered the "Sound Advice" name in Florida. It has
not registered the "Sound Advice" name with the United States Patent and
Trademark Office. The Registrant is not aware of any adverse claims concerning
the Registrant's use of the "Sound Advice" name.

COMPETITION

        The brand-name home entertainment and consumer electronics business is,
and can be expected to remain, highly competitive, with price, customer service
and financing plans or programs being the main competitive factors. The
Registrant believes that it competes effectively on the basis of such factors
and its product mix has been selected to include higher-end audio and video

                                       10

<PAGE>


products not generally offered by many of its competitors. During fiscal years
1996 and 1997 and to a much lesser extent in the transition period ending
January 31, 1998, the Registrant reduced its offering of certain widely
available low margin products in order to focus on more fully-featured products
in those categories where the Registrant believes there is less competition. The
Registrant's principal competitors include other retailers specializing in
similar products, department stores, discount stores, mass merchandisers,
catalog showrooms and specialty stores. Many of the Registrant's competitors are
national in scope and have greater financial resources than the Registrant.

EMPLOYEES

        As of April 17, 1998, the Registrant employed approximately 677 persons,
of whom approximately 469 were commissioned persons, including approximately 72
car stereo and mobile installers, 34 service department technicians and 59
delivery and custom installers. Substantially all of the Registrant's employees
are full-time. The Registrant's employees are not unionized and it has never
experienced a strike or work stoppage. Management believes that its employee
relations are good.

                                       11

<PAGE>


ITEM 2. PROPERTIES.

        The Registrant's 22 stores are located in four geographic areas on the
east and west coasts of Florida, in north central Florida and in Jacksonville,
Florida. Most of the Registrant's stores are between 15,000 and 17,000 gross
square feet. Retail selling area represents the substantial square footage of
each store, with the balance used for merchandise storage and, in all but one
store, car audio and accessory installation. The stores are generally located
either in free standing buildings or in multi-store shopping centers. The stores
are generally close to regional malls or in shopping districts. The following
map displays the locations of the Registrant's 22 stores.

                                        STORE LOCATIONS

A map of Florida indicates the general location of the Registrant's 22 stores in
the four geographic areas.

JACKSONVILLE STORES
Jacksonville (Regency)
Jacksonville (Orange Park)

CENTRAL FLORIDA STORES
Orlando (East Colonial)
Orlando (Sandlake)
Altamonte Springs

WEST COAST STORES

St. Petersburg
Tampa (2)
Clearwater
Sarasota
Fort Myers
Naples

EAST COAST STORES
West Palm Beach
Boca Raton
Ft. Lauderdale
Plantation
Hollywood
Aventura
Hialeah Gardens
Coral Gables
West Kendall
South Kendall

                                       12

<PAGE>


        All of the Registrant's 22 stores are currently leased, one of which is
accounted for as a capital lease. Leases expire on various dates between 1998
and 2014, without giving effect to renewal options. The average unexpired lease
term of the Registrant's stores including renewal options is approximately 18
years.

        Generally, the store leases provide for a base rental with cost of
living adjustments or stipulated annual percentage increases (or a combination
thereof) and do not provide for a percentage of sales in addition to the fixed
rent. In addition, the leases generally require the Registrant to pay all or a
portion of the real estate taxes and assessments, utilities, insurance and/or
common area and interior maintenance and repairs. See notes (9) and (10) of
Notes to Consolidated Financial Statements.

        The Registrant's headquarters are located in a 53,850 square foot
facility which contains its executive offices, accounting, data processing,
purchasing and advertising operations and service and repair center. The lease
expires in March 1999 (exclusive of one ten-year renewal option). The Registrant
is currently in negotiation with the landlord for a shorter renewal option
period. The Registrant's 56,320 square foot central warehouse and distribution
facility is located in Deerfield Beach, Florida, approximately 15 miles north of
its corporate headquarters. The lease for such facility expires in May 2000
(exclusive of one five-year renewal option). A sales training center and the
Registrant's custom sales department are located in the Hollywood store
facility.

        The Registrant relocated its Tampa, Florida warehouse and support
facility for the West Coast Stores in February 1998. The lease for such new
facility containing approximately 12,500 square feet expires in January 2003
(exclusive of two five-year renewal options). The Registrant also occupies an
approximate 10,000 square foot leased facility in Orlando, Florida which is used
as a warehouse and support facility for the Central Florida Stores. The lease
for such facility expires in May 2000.

        A portion of the Registrant's former Ft. Lauderdale store is currently
being used for car installations, with the balance of such building having been
leased to a nonaffiliated company for a term of five years (exclusive of one
five-year renewal option).

ITEM 3. LEGAL PROCEEDINGS.

        The Registrant is from time to time involved in litigation relating to
claims arising out of its operations in the normal course of business. Such
claims against the Registrant are generally covered by insurance. The Registrant
believes that none of these claims will have a material adverse impact on its
financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

        Not applicable.

                                       13

<PAGE>


ITEM 4.1.  EXECUTIVE OFFICERS OF THE REGISTRANT.

        Pursuant to General Instruction G(3) of Form 10-K, the information
regarding executive officers of the Registrant called for by Item 401 of
Regulation S-K is hereby included in Part I of this report.

        The following table sets forth the name, age (as of April 17, 1998) and
position(s) held by each executive officer of the Registrant:

NAME                       AGE          POSITION(S) WITH REGISTRANT
----                       ---          ---------------------------

Peter Beshouri             43           Director, Chairman of the Board,
                                        President and Chief Executive
                                        Officer

Michael Blumberg           49           Director, Senior Vice President and
                                        Secretary

Christopher O'Neil         44           Executive Vice President, Chief
                                        Operating Officer and Assistant
                                        Secretary

Kenneth L. Danielson       47           Chief Financial and Accounting
                                        Officer and Treasurer

        The Registrant's officers are elected annually by the Board of Directors
and hold office at the pleasure of the Board.

        PETER BESHOURI, who has been an employee of the Registrant since 1974,
has served as Chairman of the Board and Chief Executive Officer of the
Registrant since August 1982. Prior thereto he was the general sales manager of
the Registrant, as well as having served as a showroom manager and district
manager. He was elected President of the Registrant in May 1985. Mr. Beshouri
currently serves as a director of Progressive Retailers Organization. In August
1995, Mr. Beshouri, together with the Registrant and a former chief financial
officer of the Registrant, voluntarily agreed with the Securities and Exchange
Commission ("SEC"), without admitting or denying any wrongdoing, to the entry of
a cease and desist order by the SEC concerning the Registrant's Form 10-K for
fiscal year 1991 and Forms 10-Q for the quarters ended September 30 and December
31, 1991, which the SEC found in such order had been materially misstated. The
cease and desist order with respect to Mr. Beshouri related to his supervisory
responsibility in connection with the Registrant violating certain provisions of
the securities laws that require public companies to keep accurate books and
records, to maintain appropriate internal accounting controls and to file
accurate annual and quarterly reports. No censure, fine or penalty was imposed
by the SEC on Mr. Beshouri.

        MICHAEL BLUMBERG, a founder and a director of the Registrant, was
elected a Vice President in August 1982, Vice President - Purchasing and Finance
in May 1986, Vice President - Purchasing and Marketing in December 1987, and
Senior Vice President in May 1989. From the Registrant's inception until
February 1995, Mr. Blumberg 

                                       14

<PAGE>


served as Treasurer of the Registrant and, since October 13, 1989, he has also
been serving as Secretary of the Registrant. His responsibilities include
overall supervision of all purchasing and selecting new product categories and
lines for the Registrant, as well as consulting with certain of the Registrant's
manufacturers in connection with product design.

        CHRISTOPHER O'NEIL joined the Registrant in 1979 as a car audio buyer.
He was elected Vice President - Purchasing of the Registrant in May 1986, Vice
President - Car Audio Purchasing in May 1989 and his title was changed to Vice
President/Purchasing in May 1990. Effective February 1992, Mr. O'Neil was
elected Executive Vice President and Chief Operating Officer of the Registrant.
In his current position, his principal responsibilities are the supervision of
service, warehouse, distribution, security and product support functions for the
Registrant's stores. Since December 1990, Mr. O'Neil has also served as an
Assistant Secretary of the Registrant.

        KENNETH L. DANIELSON joined the Registrant in September 1993 and
effective October 1993 assumed the responsibilities of and became Chief
Financial Officer of the Registrant. In February 1995, he was also elected
Treasurer. Prior to joining the Registrant, Mr. Danielson was employed by Storer
Communications, Inc. ("Storer"), a large television broadcasting and cable
company based in Miami, Florida, for approximately 15 years. During his
employment with Storer, Mr. Danielson held various positions, including Director
of Accounting, Assistant Treasurer, Vice President, Treasurer and Chief
Financial Officer, with his positions as Vice President, Treasurer and Chief
Financial Officer being held concurrently from November 1988 through August
1993. Prior to Mr. Danielson's employment by Storer, he was employed by Coopers
& Lybrand LLP from 1971 to 1978. Mr. Danielson is a certified public accountant.

                                       15

<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

COMMON STOCK INFORMATION

        The Registrant's Common Stock, par value $.01 per share ("Common
Stock"), is quoted under the symbol "SUND" on the NASDAQ Stock Market (NASDAQ
National Market).

        The following table sets forth, for the fiscal quarters indicated, the
high and low sales prices for the Registrant's Common Stock on the NASDAQ Stock
Market. NASDAQ Stock Market quotations are based on actual transactions and not
bid prices.

                                                        PRICES
                                                        ------

                                                   HIGH          LOW
                                                   ----          ---

1996
----

First Quarter (7/1/95 to 9/30/95)                $ 3-1/2       $ 2-3/8
Second Quarter (10/1/95 to 12/31/95)               2-5/8         1-1/8
Third Quarter (1/1/96 to 3/31/96)                  2-1/4         1-3/8
Fourth Quarter (4/1/96 to 6/30/96)                 2-7/8         1-1/2

1997
----

First Quarter (7/1/96 to 9/30/96)                $ 2-1/4       $ 1-1/4
Second Quarter (10/1/96 to 12/31/96)               2            1-3/16
Third Quarter (1/1/97 to 3/31/97)                  2-5/8         1-3/8
Fourth Quarter (4/1/97 to 6/30/97)                 2-3/8         1-1/4

TRANSITION PERIOD ENDED
JANUARY 31, 1998
----------------

Second Quarter-partial (7/31/97)                 $ 2-5/8       $ 1-7/8
Third Quarter (8/1/97 to 10/31/97)                 2-5/8         1-3/8
Fourth Quarter (11/1/97 to 1/31/98)                2             1-1/8


        As of April 24, 1998, there were 189 holders of record of the Common
Stock, and, based upon information previously provided to the Registrant by
depositories and brokers, the Registrant believes it has in excess of 1,000
beneficial owners.

DIVIDEND POLICY

        The Registrant has never paid cash dividends on its Common Stock and
does not plan to pay cash dividends in the foreseeable future. The Registrant
has been and continues to be prohibited under its revolving credit facility from
paying cash dividends. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION. - Liquidity and Capital
Resources."

                                       16

<PAGE>


RECENT SALES OF UNREGISTERED SECURITIES

        On May 5, 1997, the Board of Directors of the Registrant adopted a
Common Stock Purchase Rights Plan and subsequently declared a dividend
distribution of one Common Stock Purchase Right (a "Right") on each outstanding
share of Common Stock to holders of record on May 16, 1997. Each Right has an
initial exercise price of $12.00 for one share of Common Stock. The Rights will
be exercisable only if a person or group acquires 15% or more of the Common
Stock (or 10% of such Common Stock under certain circumstances) or announces a
tender offer, the consummation of which would result in ownership by a person or
group of 15% or more of the Common Stock (or 10% of such Common Stock under
certain circumstances). Upon such occurrence, each Right (other than Rights
owned by such person or group) will entitle the holder to purchase from the
Registrant the number of shares of Common Stock having a market value equal to
twice the exercise price of the Right.

        If the Registrant is acquired in a merger or other business combination
transaction, or sells more than 50% of its assets or earning power, after a
person or group has acquired 15% of more of the outstanding Common Stock (or 10%
of such Common Stock under certain circumstances), each Right (other than Rights
owned by such person or group) will entitle its holder to purchase, at the
Right's then-current exercise price, a number of the acquiring company's common
shares having a market value of twice such price. Following the acquisition by a
person or group of 15% or more of the Common Stock (or 10% of such Common Stock
under certain circumstances) and prior to an acquisition of 50% or more of the
Common Stock, the Board of Directors may exchange the Rights (other than Rights
owned by such person or group) at an exchange ratio of one share of Common Stock
per Right.

        Prior to the acquisition by a person or group of beneficial ownership of
15% or more of the Common Stock (or 10% of such Common Stock under certain
circumstances), the Rights are redeemable for $.001 per Right at the option of
the Board of Directors of the Registrant. The Rights will expire on May 4, 2007.
There are currently 3,728,894 Rights outstanding. See note (6) of Notes to
Consolidated Financial Statements.

                                       17

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

        The selected financial data for the transition periods ended January 31,
1998 and 1997, and the fiscal years 1997, 1996 and 1995 should be read in
conjunction with the Consolidated Financial Statements and related notes and
independent auditors report appearing elsewhere in this report and "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
<TABLE>
<CAPTION>

                                TRANSITION PERIODS
                                 ENDED JANUARY 31,                   FISCAL YEARS ENDED JUNE 30,
                               ---------------------     -----------------------------------------------
                                  1998         1997        1997         1996          1995        1994           1993
                               ---------    ---------    ---------    ---------    ---------    --------       ---------
                                           (unaudited)

                                              (Amounts in thousands except per share data)                    
<S>                            <C>          <C>          <C>          <C>          <C>          <C>            <C> 
                                                                                                                     
OPERATING STATEMENT DATA:                                                                                   
Net Sales ..................   $  96,793    $ 100,773    $ 155,623    $ 168,985    $ 190,504    $ 174,761      $ 158,089 
Cost of Goods Sold .........      65,822       69,220      105,605      119,775      134,800      119,373        107,726 
                               ---------    ---------    ---------    ---------    ---------    ---------      --------- 
Gross Profit ...............      30,971       31,553       50,018       49,210       55,704       55,388         50,363 
Selling, General, and                                                                                                    
   Administrative Expense ..      29,903       29,827       49,045       52,393       54,502       50,891         49,150 
Loss Due to Impairment                                                                                                   
   Of Asset (1) ............        --           --           --           --            400         --             --   
                               ---------    ---------    ---------    ---------    ---------    ---------      --------- 
Income (Loss) From                                                                                                       
   Operations ..............       1,068        1,726          973       (3,183)         802        4,497          1,213 
Other Income (Expense):                                                                                                  
   Interest Expense ........        (897)        (891)      (1,556)      (1,526)      (1,425)        (503)          (584 
   Provision for Shareholder                                                                                             
     Settlement (2) ........        --           --           --           --             56       (1,252)          --   
   Other Income (Expense) ..          48           31          101           (4)         (66)          (7)         1,060 
                               ---------    ---------    ---------    ---------    ---------    ---------      --------- 
Income (Loss) Before                                                                                                     
   Income Taxes (Benefit) ..         219          866         (482)      (4,713)        (633)       2,735          1,689 
Income Taxes (Benefit) .....       1,175          475          389         (486)        (152)       1,008            561 
                              ----------    ---------    ---------    ---------    ---------    ---------      --------- 
                                                                                                                         
Net (Loss) Income ..........   $    (956)   $     391    $    (871)   $  (4,227)   $    (481)   $   1,727(2)   $   1,128 
                               =========    =========    =========    =========    =========    =========      ========= 
                                                                                                                         
Basic (Loss) Earnings                                                                                          
  Per Share (3) ............   $    (.26)   $     .10    $    (.23)   $   (1.13)   $    (.13)   $     .46(2)   $     .30 
                               =========    =========    =========    =========    =========    =========      ========= 
Weighted Average Number                                                                                                  
  Of Shares Outstanding ....       3,729        3,729        3,729        3,729        3,729        3,743          3,722 
                               =========    =========    =========    =========    =========    =========      ========= 
</TABLE>
----------
   Footnotes on next page.

                                                                 18
<PAGE>

<TABLE>
<CAPTION>

                               TRANSITION
                              PERIOD ENDED
                               JANUARY 31,                   FISCAL YEARS ENDED JUNE 30,
                              -------------  ----------------------------------------------------------
                                                               (Dollars in Thousands)

                                  1998          1997         1996         1995       1994         1993
                               --------      --------    --------     -------      -------      --------
<S>                             <C>          <C>         <C>          <C>          <C>          <C>
BALANCE SHEET DATA:
Current Assets.............     $37,546      $32,515     $34,645      $39,191      $41,641      $31,574
Current Liabilities........      31,960       24,724      26,019       29,107       27,997       19,858
Working Capital............       5,586        7,791       8,625       10,084       13,645       11,717
Total Assets...............      51,789       46,550      49,056       56,702       57,537       46,384
Borrowings Under Revolving
  Credit Facility..........      10,700       11,875       9,100        8,677        9,730        4,810
Current Maturities of Long-
  Term Debt (included in
  Current Liabilities......         593          171         161        2,674        1,238          682
Long-Term Debt (excluding
  current maturities)......          53          575         746          908        3,575        3,273
Shareholders' Equity.......      15,342       16,298      17,169       21,396       21,933       19,181

STORE DATA:
Number of Stores Open
  at End of Period.........          22           21          21           21           20           20
Weighted Average Net
  Sales Per Store (4)......     $ 4,549      $ 7,411     $ 8,047      $ 9,261      $ 8,738      $ 8,038
</TABLE>

---------

     (1)  The Loss Due to Impairment of Asset in the amount of $400,000 in
          fiscal year 1995 relates to the return of a new management information
          system to, and settlement with, the vendor thereof as a result of the
          unsuccessful installation and implementation of such system. See note
          (8) of Notes to Consolidated Financial Statements.

     (2)  The Provision for Shareholder Settlement relates to the global
          settlement in fiscal 1994 of the consolidated class action against the
          Registrant. The Provision for Shareholder Settlement was adjusted in
          fiscal 1995 by a credit to income of $56,000.

     (3)  In December 1997, the Registrant adopted the provisions of Statement
          of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
          Share" which establishes new guidelines for the calculation of
          earnings per share. Basic earnings per share have been computed by
          dividing net income by the weighted average number of shares
          outstanding during the year. Diluted earnings per share have been
          computed using the exercise of stock options, as well as their related
          income tax effects. Earnings per share for all periods have been
          restated to reflect the provision of this Statement.

     (4)  Weighted average net sales per store represents net sales for the
          period divided by the number of stores open during the period,
          weighted to account for stores open for only a portion of the period.
          The transition period ended January 31, 1998 includes sales for a
          seven month period.

                                       19

<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

RESULTS OF OPERATIONS

OVERVIEW - TRANSITION PERIODS ENDED JANUARY 31, 1998 AND 1997

The following tables set forth for transition periods ended January 31, 1998 and
1997 (i) certain items in the Registrant's statements of operations expressed as
a percentage of net sales and (ii) the percentage change in dollar amounts of
such items as compared to the indicated transition period in the prior year.
<TABLE>
<CAPTION>
                                                                         PERIOD TO PERIOD
                                       ITEMS AS A PERCENTAGE           PERCENTAGE INCREASE
                                            OF NET SALES                  /(DECREASE)
                                       TRANSITION PERIODS ENDED       TRANSITION PERIODS ENDED
                                             JANUARY 31,                   JANUARY 31,
                                       ------------------------       ------------------------
                                        1998            1997                 1997-98
                                       ------          ------                -------
                                                      (unaudited)
<S>                                    <C>             <C>                   <C>    
Net Sales....................          100.0%          100.0%                ( 3.9)%
Cost of Goods Sold...........           68.0            68.7                 ( 4.9)
                                       -----           -----
Gross Profit.................           32.0            31.3                 ( 1.8)
Selling, General and Admini-
  strative Expense...........           30.9            29.6                   0.3 
Income from
  Operations.................            1.1             1.7                 (38.1)
Other Income (Expense):
  Interest Expense...........           (0.9)           (0.9)                  0.6
  Other Expense, Net.........             *               *                     *
                                       -----            ----  
Income Before Income
  Taxes (Benefit)............            0.2             0.8                 (74.7)
                                       =====            ====
Net (Loss) Income ...........           (1.0)%           0.4 %              (344.7)%
                                       =====            ====
</TABLE>

----------------
*    Negligible

TRANSITION PERIOD ENDED JANUARY 31, 1998 COMPARED TO PRIOR TRANSITION PERIOD
ENDED JANUARY 31, 1997

        Net sales for the transition period ended January 31, 1998 were
approximately $96,793,000, a decrease of approximately $3,980,000 or 3.9% over
the comparable transition period in the prior year. The overall net decrease in
sales is primarily attributable to reduced video sales. Audio sales increased
for the seven month period and were more than offset by reduced sales in
extended warranties, mobile electronics and personal and portable electronics.
Comparable store net sales as adjusted for the new store and the relocated store
decreased 5.3% in the seven months ended January 31, 1998 as compared to the
corresponding period in the prior year. Historically, the Registrant has
realized greater sales and profits during the holiday selling season which was
the Registrant's second quarter prior to the change in fiscal year.

        Gross profit decreased by approximately $582,000 or 1.8% in the
transition period ended January 31, 1998 compared to the corresponding
transition period in the prior year. The reduction in gross profit is primarily
related to the reduction in net sales, net of the increase in gross profit
percentage. The gross profit percentage was 32.0% in the seven months ended
January 31, 1998. The gross profit percentage was 31.3% in the seven months
ended January 31, 1997. The increase in gross profit percentage is 

                                       20

<PAGE>


directly related to the Registrant's sales mix of higher margin product
categories.

        Selling, general and administrative expense ("SG&A") for the transition
period ended January 31, 1998 was approximately $29,903,000, an increase of
approximately $76,000 or 0.3% over the corresponding transition period in the
prior year. The Registrant continues to monitor and attempt to control expenses
in its effort to reduce the overall level of SG&A expense. SG&A as a percentage
of net sales increased to 30.9% in the transition period ending January 31, 1998
from 29.6% in the corresponding period in the prior year. The percentage
increase is directly attributable to the reduction in net sales from the
previous comparable period.

        Interest expense for the transition period ended January 31, 1998 was
$897,000, a slight increase of $6,000 from the corresponding period in the prior
year.

        In the transition period ended January 31, 1998, the Registrant recorded
an income tax provision in the amount of $1,175,000 which included an amount for
taxes payable based on pretax operating income and an increase in the valuation
reserve on deferred tax assets. As a result, the Registrant had an effective
income tax rate of approximately 536.0% for the seven months ended January 31,
1998. The Registrant had an income tax rate of approximately 54.9% for the seven
months ended January 31, 1997.

        Net loss for the transition period ended January 31, 1998 was
approximately $956,000 or $.26 per share compared to net income of approximately
$391,000 or $.10 per share in the same transition period in the prior year. The
net loss in the 1998 period was primarily attributable to the provision for
income taxes based upon pretax income, along with the increase in the valuation
reserve on deferred tax assets.

                                       21

<PAGE>


OVERVIEW - FISCAL YEARS ENDED JUNE 30, 1997, 1996 AND 1995

        The following tables set forth for fiscal years ended June 30, 1997,
1996 and 1995 (i) certain items in the Registrant's statements of operations
expressed as a percentage of net sales and (ii) the percentage change in dollar
amounts of such items as compared to the indicated prior fiscal year.
<TABLE>
<CAPTION>
                                                                           PERIOD TO PERIOD
                                       ITEMS AS A PERCENTAGE              PERCENTAGE INCREASE
                                           OF NET SALES                       /(DECREASE)
                                            YEARS ENDED                       YEARS ENDED
                                              JUNE 30,                          JUNE 30,
                                   ------------------------------         -------------------
                                   1997        1996        1995           1996-97     1995-96
                                   ----        ----        ----           -------     -------
<S>                                <C>        <C>          <C>              <C>        <C>    
Net Sales....................      100.0%     100.0%       100.0%           ( 7.9)%    (11.3)%
Cost of Goods Sold...........       67.9       70.9         70.8            (11.8)     (11.1)
                                   -----      -----        -----
Gross Profit.................       32.1       29.1         29.2              1.6      (11.7)
Selling, General and Admini-
  strative Expense...........       31.5       31.0         28.6            ( 6.4)      (3.9)
Loss Due to Impairment of
 Asset.......................         -         -           (0.2)              -          **
                                    ----      ----         -----
Income (Loss) from
  Operations.................        0.6      (1.9)          0.4            130.6     (497.2)
Other Income (Expense):
  Interest Expense...........       (1.0)     (0.9)         (0.7)             2.0        7.1
  Other Expense, Net.........         .1         *             *          2,937.1      (62.5)
                                   -----      ----         -----  
(Loss) Income Before Income
  Taxes (Benefit)............       (0.3)     (2.8)         (0.3)           (89.8)     645.0
                                   =====     =====         ===== 
Net Loss ....................       (0.6)%    (2.5)%        (0.3)%          (79.4)%    779.1%
                                   =====     =====         ===== 
</TABLE>

----------------
*    Negligible
**   Not meaningful

FISCAL 1997 COMPARED TO FISCAL 1996

        Net sales for the fiscal year ended June 30, 1997, were approximately
$155,623,000, a decrease of approximately $13,362,000 or 7.9% over the prior
fiscal year. The decrease in net sales overall is primarily attributable to the
Registrant's decision to eliminate personal computers and other non-performing
low margin products from the product mix along with reduced sales of cellular
telephones, personal electronics and VCRs. Comparable store net sales decreased
8.6% in fiscal year 1997 compared to fiscal year 1996. The comparable store net
sales were adjusted to exclude the store relocated to a larger showroom in
November 1996. The Registrant's operations, in common with other retailers in
general, are subject to seasonal influences. Historically, the Registrant has
realized more of its net sales and operating income in the second quarter ending
in December.

        Gross profit increased by approximately $808,000 or 1.6% in the fiscal
year ended June 30, 1997 compared to the prior fiscal year. The gross profit
percentage was 32.1% in the fiscal year ended June 30, 1997. Exclusive of the
provision for loss on personal computers and accessories, the gross profit
percentage for the fiscal year ended June 30, 1996 was 30.0%. The increase in
gross profit and gross profit percentage is directly related to the Registrant's
renewed focus on value added selling in the core categories of high end audio,
video and mobile electronics and the elimination of computers and other
non-performing low margin products from the product mix. The gross profit for
the prior 

                                       22

<PAGE>


fiscal year was impacted by a $1,500,000 provision for loss on personal
computers and related accessories recorded in the second quarter of fiscal 1996
in connection with such product category's elimination from the Company's
product mix.

        Selling, general and administrative expense ("SG&A") for the fiscal year
ended June 30, 1997, was approximately $49,045,000, a decrease of approximately
$3,349,000 or 6.4% over the prior fiscal year. The overall decrease is primarily
attributable to cost reduction programs initiated by the Registrant primarily in
the areas of advertising and personnel expense and the elimination of personal
computers from the product mix in fiscal 1996. Since a sizeable amount of these
reductions were associated with the elimination of expenses associated with
sales of personal computers, it is anticipated that future expense reductions in
this area will not be as significant. However, the Registrant continues to
monitor and control expenses in its effort to reduce the overall level of SG&A.
The Registrant's efforts are now being directed at the improvement of
operational processes to attempt to generate reduced costs. In addition, costs
which are relatively fixed in nature are being reviewed and analyzed for
potential reduction or elimination. SG&A as a percentage of net sales increased
slightly to 31.5% from 31.0% in the prior fiscal year. The percentage increase
is directly attributable to the reduction in net sales from the previous fiscal
year.

        Interest expense for the fiscal year ended June 30, 1997, was
$1,556,000, an increase of $30,000 from the prior fiscal year. The increase was
primarily reflective of increased borrowings under the Registrant's revolving
credit facility during fiscal 1997.

        In fiscal 1997 the Registrant recorded a net income tax provision in the
amount of $389,000 on the pre-tax operating loss. This provision is due to the
increase of the valuation allowance on the deferred tax assets, net of income
taxes recoverable as a result of the carryback of the fiscal 1997 net operating
loss.

        Net loss for the fiscal year ended June 30, 1997 was approximately
$871,000 or $.23 per share compared to net loss of approximately $4,227,000 or
$1.13 per share for the prior fiscal year. The significant reduction in net loss
for fiscal year 1997 was primarily due to improved gross profit margins on the
Registrant's product mix, the Registrant's continuing efforts to reduce SG&A and
the impact in fiscal year 1996 of the $1.5 million provision for loss on
personal computers and related accessories.

                                       23

<PAGE>


FISCAL 1996 COMPARED TO FISCAL 1995

        Net sales for the fiscal year ended June 30, 1996, were approximately
$168,985,000, a decrease of approximately $21,519,000 or 11.3% over the prior
fiscal year. The decrease in net sales overall is primarily attributable to the
Registrant's decision to eliminate personal computers and other nonperforming
low margin products from the product mix and increased competition on widely
available lower end electronic products. In addition, net sales declined during
the first three months of fiscal year 1996 primarily as a result of weather
related effects of Hurricane Erin during the Registrant's annual August scratch
and dent sale. The Registrant believes that part of the reduction is also
attributable to consumer concerns over the general economy and increased levels
of consumer debt. Comparable store net sales decreased 14% in fiscal year 1996
compared to fiscal year 1995. The comparable store net sales were adjusted to
exclude the new store opened in November 1994 and another relocated to a larger
showroom in December 1994. The Registrant's operations, in common with other
retailers in general, are subject to seasonal influences. Historically, the
Registrant has realized more of its net sales and operating income in the second
quarter ending in December.

        Gross profit for fiscal year 1996 was approximately $49,210,000, a
decrease of approximately $6,494,000 or 11.7% over the prior fiscal year. Gross
profit as a percentage of net sales decreased slightly to 29.1% for the fiscal
year ended June 30, 1996, as compared to 29.2% for the prior fiscal year. The
overall reduction in gross profit is related to the reduction in net sales and
includes a $1,500,000 provision in the second quarter of fiscal 1996 for loss on
personal computer inventory and related accessories in connection with such
product category's elimination from the Registrant's product mix through
subsequent sale and disposal. [See note (8) of Notes to Consolidated Financial
Statements.] Exclusive of this loss provision, the gross profit percentage was
30.0% in fiscal year 1996. This increase from the prior fiscal year is directly
related to the Registrant's renewed specialty retailing focus on value added
selling in the core product categories of high end audio, video and mobile
electronics during the second half of fiscal year 1996.

        Selling, general and administrative expense ("SG&A") for the fiscal year
ended June 30, 1996, was approximately $52,393,000, a decrease of approximately
$2,109,000 or 3.9% over the prior fiscal year. The overall decrease is primarily
attributable to cost reduction programs initiated by the Registrant during the
second half of the fiscal year which were partially offset by increased selling
expenses during the first half of the fiscal year. See "ITEM 1. BUSINESS -
General." The increased selling expenses reflected the net effect of increased
advertising expenditures over reduced salesmen's commissions on lower sales
volume. In addition, in fiscal year 1995 the Registrant's operations were
impacted by a $400,000 provision for asset impairment. SG&A as a percentage of
net sales increased to 31.0% from 28.8% (inclusive of the provision for asset
impairment) in the prior fiscal year. The percentage increase is directly
attributable to the reduction in net sales from the previous fiscal year.

                                       24

<PAGE>


        Interest expense for the fiscal year ended June 30, 1996, was
$1,526,000, an increase of $102,000 from the prior fiscal year. The increase was
primarily reflective of interest rate increases and fees paid under the
Registrants prior and new revolving credit facilities during fiscal year 1996.

        For the fiscal year ended June 30, 1996, the effective income tax
benefit was 10.3% and for fiscal year 1995 the effective income tax benefit was
24.0%. The recorded tax benefit in fiscal year 1996 excludes the recognition of
temporary differences which cannot be recovered from federal income taxes paid
during the loss carryback period.

        Net loss for the fiscal year ended June 30, 1996, was approximately
$4,227,000, or $1.13 per share, compared to net loss of approximately $481,000,
or $.13 per share, for the prior fiscal year. The net loss in fiscal year 1996
was primarily attributable to the reduction in net sales and the corresponding
reduction in gross profit (of which $1,500,000 is attributable to the provision
for loss on personal computers). The overall reduction in gross profit was only
partially offset by the net reduction in SG&A.

LIQUIDITY AND CAPITAL RESOURCES

        In May 1994, the Registrant obtained a five year term loan of
approximately $1,608,000 from General Electric Capital Corporation ("GECC") for
the purpose of financing a new management information system and related
communications equipment. The interest rate under the GECC financing is based
upon a short term commercial paper rate plus 259 basis points. The Registrant
has the option to convert to a fixed interest rate loan based on certain
Treasury Note rates tied to the then remaining term of the loan plus 310 basis
points. The repayment of such financing was collateralized by the management
information system and related communications equipment. The outstanding
principal amount of the GECC financing was reduced to approximately $575,000 in
July 1995 as a result of the return of such management information system and
the settlement with the vendor thereof and, as a result, is now repayable in
consecutive monthly installments of principal and interest in the approximate
amount of $13,800 each and a final installment of unpaid principal and interest
due on May 1, 1999. The remaining unpaid balance of such financing remains
collateralized by certain computer equipment. See note (4)(b) of Notes to
Consolidated Financial Statements.

      The Registrant's ownership of its former Fort Lauderdale store is
encumbered by a first mortgage loan from a bank in the amount of $640,000, with
a balance of approximately $437,000 at January 31, 1998. See "ITEM 2.
PROPERTIES." Such loan bears interest at the rate of 1/2 of 1% above the prime
rate of such lender (such lender's prime rate was 8.50% at January 31, 1998) and
is payable in one hundred ninety consecutive monthly installments of principal
in the amount of $1,779 each, together with accrued interest, and in one balloon
principal payment of approximately $428,000, together with any accrued and
unpaid interest, due on July 12, 1998. Such balloon payment obligation will be
repaid through funds available under the Revolving Credit Facility, refinancing
of the 

                                       25

<PAGE>


mortgage or sale of the property. See note (4)(b) of Notes to Consolidated
Financial Statements.

        The Registrant's existing $25,000,000 revolving credit facility was
amended and extended with its existing lender through July 31, 2001. The terms
of the facility were amended to allow the Registrant to borrow, repay, and
reborrow based upon a borrowing base equal to the lesser of 70% of eligible
inventory (as defined) at cost or 55% of eligible inventory at retail selling
price. The availability under the facility is reduced by outstanding letters of
credit. The revolving credit facility bears interest on the outstanding balance
at prime plus 1% and allows for a LIBOR pricing option for one, two, three or
six month periods at 2.5% over the corresponding LIBOR rate for the respective
period. The interest rate is eligible for a .25% reduction in 1998 and 1999
provided certain conditions are met. The Registrant pays a monthly fee based
upon the unused portion of the commitment less $5,000,000 at .375% per annum.
The Registrant paid a closing fee of $45,000 and is obligated to an additional
commitment fee of $50,000 per annum beginning December 8, 1998.

        The amended revolving credit facility contains various affirmative and
negative covenants including those requiring the Registrant to maintain a
quarterly ratio of current assets to current liabilities of not less than 1.05
to 1 and maintain working capital at the end of each quarter of at least
$3,500,000. In addition, cumulative net losses after October 1, 1997 may not
exceed $4,000,000. The revolving credit facility limits the incurrence of
additional debt, capital expenditures, acquisitions and investments and
prohibits cash dividends.

        Borrowings under the revolving credit facility are collateralized by the
Registrant's assets including depository accounts, receivables, inventory,
property and equipment and intangible assets.

        The interest rate under the Registrant's revolving credit facility
fluctuated between 8.10% and 9.50% during the transition period ended January
31, 1998. The 8.10% rate is a result of the LIBOR pricing option included as
part of the amendment of the revolving credit facility. As of January 31, 1998,
the outstanding borrowings under the Registrant's revolving credit facility were
$10,700,000. The decrease of approximately $1,174,000 in outstanding borrowing
in the 1998 transition period as compared to the corresponding prior transition
period is primarily related to cash generated from operations.

        The Registrant had working capital of approximately $5,586,000 as of
January 31, 1998, a decrease of approximately $2,205,000 from June 30, 1997. The
decrease in working capital results primarily from the increases in accounts
payable and accrued liabilities of approximately $5,536,000 and $2,452,000,
respectively, which were partially offset by the decrease of approximately
$1,175,000 in borrowings under the Registrant's revolving credit facility, the
increase of approximately $3,239,000 in inventory and a $1,340,000 increase in
the Registrant's cash balances.

        The Registrant currently believes that funds from the Registrant's
operations combined with borrowings available under 

                                       26

<PAGE>


its revolving credit facility and vendor credit programs will be sufficient to
satisfy its currently projected operating cash requirements during fiscal year
1999. However, in order to fully complete the store expansion and store
relocation currently planned in fiscal 1999, the Registrant may need to seek
additional financing sources. In that regard, the Registrant is exploring
additional financing sources in connection with the expansion and store
relocation. See "Expansion" in ITEM 1. The Registrant may also need to seek
additional sources of financing (debt and/or equity or a combination thereof) in
order to proceed with any expansion program beyond fiscal year 1999.

YEAR 2000

        The Registrant recognizes the potential problems for many computer
systems relating to the Year 2000. The majority of the Registrant's systems are
purchased from outside vendors. Those installed systems which are not currently
able to fully function in the Year 2000 either have new versions which are Year
2000 compliant and which the Registrant is preparing to install on the system,
or the vendor has committed to a Year 2000 compliant release in sufficient time
to allow installation and testing prior to critical cutover dates. Consequently,
the Registrant presently does not anticipate either a significant amount of
incremental expense or a disruption in service associated with the Year 2000 and
its impact on the Registrant's computer system. In addition, the Registrant is
assessing the impact of vendors' compliance to Year 2000 and what the impact
will be on the Registrant's ongoing results of operations. There can be no
assurance that the Registrant's systems nor the computer systems of other
companies with whom the Registrant conducts business will be Year 2000 compliant
prior to December 31, 1999.

IMPACT OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS

        The Registrant does not believe that either inflation or foreign
currency fluctuations has had a material impact upon its operating results
because technological advances in the products sold by the Registrant and
changes in the components of products, together with increased competition among
the Registrant's vendors, have kept the product prices stable. Where the prices
of products have increased, the Registrant has generally been able to pass on
such increases to its customers.

FORWARD-LOOKING STATEMENTS

        This report contains forward-looking statements (within the meaning of
Section 21E. of the Securities Exchange Act of 1934, as amended) representing
the Registrant's current expectations, beliefs, estimates or intentions
concerning the Registrant's future performance and operating results, its
products, services, markets and industry, and/or future events relating to or
effecting the Registrant and its business and operations. When used in this
report, the words "believes," "estimates," "plans," "expects," "intends,"
"anticipates," and similar expressions as they relate to the Registrant are
intended to identify forward-looking statements. The actual results or
achievements of the Registrant could differ materially from those indicated by
the forward-looking statements

                                       27

<PAGE>


because of various risks, factors and uncertainties related to and including,
without limitation, the effectiveness of the Registrant's business and marketing
strategies, the product mix sold by the Registrant, customer demand,
availability of existing and new merchandise from and the establishment and
maintenance of relationships with suppliers, price competition for products and
services sold by the Registrant, management of expenses, gross profit margins,
the opening of additional stores, availability and terms of financing to
refinance or repay existing financings or to fund capital and expansion needs,
the continued and anticipated growth of the retail home entertainment and
consumer electronics industry, a change in interest rates, exchange rate
fluctuations, Year 2000, the seasonality of the Registrant's business and the
other risks and factors detailed in this report and in the Registrant's other
filings with the SEC. These risks and uncertainties are beyond the ability of
the Registrant to control. In many cases, the Registrant cannot predict the
risks and uncertainties that could cause actual results to differ materially
from those indicated by the forward-looking statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        The Consolidated Financial Statements and notes thereto and the
Consolidated Financial Statement Schedule and the report of the independent
auditors thereon set forth on pages F-1 to F-25 and S-1 herein are filed as part
of this report and incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

        Not applicable.

                                       28

<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Incorporated by reference from the Registrant's 1998 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K,
except that the information regarding the Registrant's executive officers called
for by Item 401 of Regulation S-K has been included in Item 4.1 in PART I of
this report.

ITEM 11. EXECUTIVE COMPENSATION

        Incorporated by reference from the Registrant's 1998 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

        Incorporated by reference from the Registrant's 1998 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Incorporated by reference from the Registrant's 1998 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

        (a) 1. and 2. The financial statements and the required financial
        statement schedule listed in the accompanying Table of Contents to
        Consolidated Financial Statements and Financial Statement Schedule at
        page F-1 herein are filed as part of this report.

        (a) 3. The exhibits listed in the Exhibit Index to the Exhibit Volume
        accompanying this report are filed with or incorporated by reference as
        part of this report.

        (b) Reports on Form 8-K. A Report on Form 8-K was filed by the
        Registrant on February 20, 1998, in Item 8 (Change in Fiscal Year) of
        which the Registrant disclosed the change in the Registrant's fiscal
        year end from the twelve month period ending on June 30 to January 31.

                                       29

<PAGE>


                                   SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
April, 1998.

                                         Sound Advice, Inc.

                                         By:  \s\ PETER BESHOURI
                                            --------------------------
                                            Peter Beshouri, Chairman of
                                            the Board, President and
                                            Chief Executive Officer

        Pursuant to the requirements of 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 dates indicated:
<TABLE>
<CAPTION>
        SIGNATURE                                TITLE                              DATE
        ---------                                -----                              ----
                               
<S>                              <C>                                            <C>
\s\ PETER BESHOURI                      Chairman of the Board,                                 
--------------------------       President and Chief Executive Officer                         
Peter Beshouri                   (Principal Executive Officer)                  April 30, 1998 
                             
                                              Director,         
\s\ MICHAEL BLUMBERG                   Senior Vice President         
---------------------------                     and       
Michael Blumberg                             Secretary                          April 30, 1998
                             
\s\ G. KAY GRIFFITH
--------------------------
G. Kay Griffith                               Director                          April 30, 1998

\s\ WILLIAM F. HAGERTY, IV
--------------------------
William F. Hagerty, IV                        Director                          April 30, 1998

\s\ HERBERT A. LEEDS
---------------------------
Herbert A. Leeds                               Director                         April 30, 1998

\s\ GREGORY STURGIS
---------------------------
Gregory Sturgis                                Director                         April 30, 1998
                             
                                      Chief Financial Officer               
\s\ KENNETH L. DANIELSON                    and Treasurer                    
---------------------------           (Principal Financial and  
Kenneth L. Danielson                      Accounting Officer)                   April 30, 1998
</TABLE>

                                       30

<PAGE>


                        SOUND ADVICE, INC. AND SUBSIDIARY

                                TABLE OF CONTENTS

                                                                   PAGE

Independent Auditors' Report                                       F-2

Consolidated Financial Statements:
    Consolidated Balance Sheets                                    F-3 to F-4
    Consolidated Statements of Operations                          F-5
    Consolidated Statements of Changes in
      Shareholders' Equity                                         F-6
    Consolidated Statements of Cash Flows                          F-7 to F-8
    Notes to Consolidated Financial Statements                     F-9 to F-25

Financial Statement Schedule:
    Schedule II - Valuation and Qualifying Accounts                S-1

                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Sound Advice, Inc.:

We have audited the accompanying consolidated balance sheets of Sound Advice,
Inc. and subsidiary (the "Company") as of January 31, 1998 and June 30, 1997 and
1996, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the seven-month period ended January 31,
1998 and each of the years in the three-year period ended June 30, 1997. In
connection with our audits of the consolidated financial statements, we also
have audited the accompanying financial statement schedule. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sound Advice, Inc.
and subsidiary as of January 31, 1998 and June 30, 1997 and 1996, and the
results of their operations and their cash flows for the seven-month period
ended January 31, 1998 and each of the years in the three-year period ended June
30, 1997, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.


/S/ KPMG PEAT MARWICK LLP
-------------------------------
KPMG PEAT MARWICK LLP

Fort Lauderdale, Florida
April 22, 1998

                                      F-2
<PAGE>

<TABLE>
<CAPTION>
                        SOUND ADVICE, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                   January 31, 1998 and June 30, 1997 and 1996

                                                                           JUNE 30,
                                                JANUARY 31,      ----------------------------
                                                    1998             1997            1996
                                                -----------      -----------      -----------
<S>                                             <C>              <C>              <C>
                ASSETS
Current assets:
   Cash                                         $ 1,421,392           81,280        1,007,231
   Receivables:
      Vendors                                     3,964,078        2,864,121        3,259,226
      Trade                                         883,832          674,848          623,840
      Employees                                     215,411          300,586          217,742
                                                -----------      -----------      -----------
                                                  5,063,321        3,839,555        4,100,808

      Less allowance for doubtful accounts          384,100          286,400          572,000
                                                -----------      -----------      -----------
                                                  4,679,221        3,553,155        3,528,808

   Inventories, net                              31,027,992       27,789,250       27,587,101
   Prepaid and other current assets                 362,078          670,818          638,113
   Deferred tax assets                                 --             92,930          712,930
   Income taxes receivable                           55,000          328,000        1,170,571
                                                -----------      -----------      -----------
             Total current assets                37,545,683       32,515,433       34,644,754

Property and equipment, net                      13,977,184       13,667,085       13,947,974

Deferred tax assets, net                               --             96,098           96,098

Other assets                                        134,012          125,069          196,035

Goodwill, net                                       132,179          146,441          170,891
                                                -----------      -----------      -----------

                                                $51,789,058       46,550,126       49,055,752
                                                ===========      ===========      ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

<TABLE>
<CAPTION>
                                                                                        JUNE 30,
                                                              JANUARY 31,      ----------------------------
                                                                 1998              1997            1996
                                                              -----------      -----------      -----------
<S>                                                           <C>              <C>              <C>
          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Borrowings under revolving credit facility                 $10,700,152       11,874,533        9,100,115
   Accounts payable                                            13,163,813        7,627,791       11,605,540
   Accrued liabilities                                          7,502,918        5,050,445        5,152,353
   Current maturities of long-term debt                           593,020          171,478          161,406
                                                              -----------      -----------      -----------
             Total current liabilities                         31,959,903       24,724,247       26,019,414

Long-term debt, excluding current maturities                       53,483          574,524          745,564
Capital lease obligation                                          805,113          809,486          815,940
Other liabilities and deferred credits                          3,628,481        4,144,028        4,305,995
                                                              -----------      -----------      -----------

             Total liabilities                                 36,446,980       30,252,285       31,886,913
                                                              -----------      -----------      -----------

Shareholders' equity:
   Common stock; $.01 par value.  Authorized 10,000,000
      shares; issued and outstanding 3,728,894 shares in
      1998, 1997 and 1996                                          37,289           37,289           37,289
   Additional paid-in capital                                  11,058,655       11,058,655       11,058,655
   Retained earnings                                            4,246,134        5,201,897        6,072,895
                                                              -----------      -----------      -----------

             Total shareholders' equity                        15,342,078       16,297,841       17,168,839


Commitments and contingencies


                                                              $51,789,058       46,550,126       49,055,752
                                                              ===========      ===========      ===========

</TABLE>

                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                        SOUND ADVICE, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

             Transition period ended January 31, 1998, prior period
          ended January 31, 1997 (unaudited) and the fiscal years ended
                          June 30, 1997, 1996 and 1995

                                                                                                        JUNE 30,
                                                    JANUARY 31,     JANUARY 31,      ----------------------------------------------
                                                       1998             1997             1997             1996             1995
                                                   ------------     ------------     ------------     ------------     ------------
                                                                    (UNAUDITED)
<S>                                                <C>              <C>              <C>              <C>              <C>
Net sales                                          $ 96,792,912      100,772,628      155,623,213      168,984,777      190,503,745
Cost of goods sold                                   65,822,097       69,219,709      105,605,396      119,774,833      134,800,287
                                                   ------------     ------------     ------------     ------------     ------------
          Gross profit                               30,970,815       31,552,919       50,017,817       49,209,944       55,703,458

Selling, general and administrative expenses         29,903,064       29,827,020       49,044,756       52,393,352       54,501,903
Loss due to impairment of asset                            --               --               --               --            400,000
                                                   ------------     ------------     ------------     ------------     ------------
          Income (loss) from operations               1,067,751        1,725,899          973,061       (3,183,408)         801,555

Other income (expense):
   Interest expense                                    (897,086)        (891,497)      (1,556,314)      (1,526,199)      (1,424,693)
   Provision for shareholder settlement                    --               --               --               --             56,000
   Other income (expense)                                48,572           31,217          101,255           (3,569)         (65,529)
                                                   ------------     ------------     ------------     ------------     ------------
          Income (loss) before income taxes             
            (benefit)                                   219,237          865,619         (481,998)      (4,713,176)        (632,667)

Income taxes (benefit)                                1,175,000          475,000          389,000         (486,000)        (151,840)
                                                   ------------     ------------     ------------     ------------     ------------

          Net (loss) income                        $   (955,763)         390,619         (870,998)      (4,227,176)        (480,827)
                                                   ============     ============     ============     ============     ============

Common and common equivalent per share amounts:
   Basic net (loss) income per share               $       (.26)             .10             (.23)           (1.13)            (.13)
                                                   ============     ============     ============     ============     ============

Weighted average number of shares outstanding         3,728,894        3,728,894        3,728,894        3,728,894        3,728,894
                                                   ============     ============     ============     ============     ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                        SOUND ADVICE, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                Transition period ended January 31, 1998 and the
                 fiscal years ended June 30, 1997, 1996 and 1995

                                                COMMON STOCK
                                         --------------------------
                                                                       ADDITIONAL
                                          NUMBER OF                      PAID-IN         RETAINED
                                           SHARES          AMOUNT        CAPITAL         EARNINGS         TOTAL
                                         -----------    -----------    -----------     -----------     -----------
<S>                                      <C>            <C>            <C>             <C>             <C>
Balance, June 30, 1994                     3,728,894    $    37,289     11,114,655      10,780,898      21,932,842

   Net loss                                     --             --             --          (480,827)       (480,827)

   Adjustment to common stock warrant
      valuation                                 --             --          (56,000)           --           (56,000)
                                         -----------    -----------    -----------     -----------     -----------

Balance, June 30, 1995                     3,728,894         37,289     11,058,655      10,300,071      21,396,015

   Net loss                                     --             --             --        (4,227,176)     (4,227,176)
                                         -----------    -----------    -----------     -----------     -----------

Balance, June 30, 1996                     3,728,894         37,289     11,058,655       6,072,895      17,168,839

   Net loss                                     --             --             --          (870,998)       (870,998)
                                         -----------    -----------    -----------     -----------     -----------

Balance, June 30, 1997                     3,728,894         37,289     11,058,655       5,201,897      16,297,841

   Net loss                                     --             --             --          (955,763)       (955,763)
                                         -----------    -----------    -----------     -----------     -----------

Balance, January 31, 1998                  3,728,894    $    37,289     11,058,655       4,246,134      15,342,078
                                         ===========    ===========    ===========     ===========     ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

<TABLE>
<CAPTION>
                        SOUND ADVICE, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

             Transition period ended January 31, 1998, prior period
          ended January 31, 1997 (unaudited) and the fiscal years ended
                          June 30, 1997, 1996 and 1995

                                                                                                 JUNE 30,
                                               JANUARY 31,     JANUARY 31,     -------------------------------------------
                                                   1998           1997             1997           1996             1995
                                               -----------     -----------     -----------     -----------     -----------
                                                               (UNAUDITED)
<S>                                            <C>             <C>             <C>             <C>             <C>
Cash flows from operating activities:
   Net (loss) income                           $  (955,763)        390,619        (870,998)     (4,227,176)       (480,827)
   Adjustments to reconcile net (loss)
      income to net cash provided by (used
      in) operating activities:
        Depreciation and amortization            1,875,315       1,800,078       3,090,078       3,273,013       3,322,041
        Deferred income taxes                      189,028         103,000         620,000         731,437        (285,157)
        Loss on sale of assets                        --               876             876          11,386          65,529
        Provision for asset impairment                --              --              --              --           400,000
        Common stock warrant valuation                --              --              --              --           (56,000)
        Changes in operating assets and
          liabilities:
            Decrease (increase) in:
             Receivables                        (1,126,066)       (873,963)        (24,347)      1,524,828        (608,326)
             Inventories                        (3,238,742)      1,127,462        (202,149)      4,171,643       3,370,921
             Prepaid and other current             
                assets                             308,740        (333,787)        (32,705)        604,456         684,391
             Income taxes receivable               273,000        (103,000)        842,571        (618,888)       (183,683)
             Other assets                          (31,753)        (41,188)          9,038          72,961          15,096
            Increase (decrease) in:
             Accounts payable                    5,536,022      (1,771,281)     (3,977,749)        514,285       1,282,108
             Accrued liabilities                 2,452,473         700,651        (101,908)       (278,168)         28,824
             Other liabilities and deferred
                credits                           (515,547)        (73,443)       (161,967)       (163,974)        437,672
                                               -----------     -----------     -----------     -----------     -----------
             Net cash provided by (used in)
                operating activities             4,766,707         926,024        (809,260)      5,615,803       7,992,589
                                               -----------     -----------     -----------     -----------     -----------
</TABLE>

                                      F-7
<PAGE>

<TABLE>
<CAPTION>
                        SOUND ADVICE, INC. AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

                                                                                                      JUNE 30,
                                               JANUARY 31,       JANUARY 31,      -------------------------------------------------
                                                   1998             1997               1997             1996              1995
                                              -------------     -------------     -------------     -------------     -------------
                                                                 (UNAUDITED)
<S>                                           <C>               <C>               <C>               <C>               <C>
Cash flows from investing activities:
   Capital expenditures                       $  (2,148,341)       (2,180,478)       (2,723,687)       (1,164,308)       (5,115,790)
                                              -------------     -------------     -------------     -------------     -------------
             Net cash used in investing
                activities                       (2,148,341)       (2,180,478)       (2,723,687)       (1,164,308)       (5,115,790)
                                              -------------     -------------     -------------     -------------     -------------
Cash flows from financing activities:
   Borrowings on revolving credit facility      102,128,424       110,350,997       171,896,950       138,785,743        66,119,893
   Repayments on revolving credit facility     (103,302,806)     (109,396,955)     (169,122,532)     (138,363,041)      (67,172,165)
   Net repayments of long-term debt                 (99,499)          (94,082)         (160,968)       (2,674,513)       (1,231,170)
   Decrease in cash overdraft                          --                --                --          (1,234,066)         (589,190)
   Reduction in capital lease obligation             (4,373)           (2,990)           (6,454)           (5,337)           (2,209)
                                              -------------     -------------     -------------     -------------     -------------
             Net cash (used in) provided
                by financing activities          (1,278,254)          856,970         2,606,996        (3,491,214)       (2,874,841)
                                              -------------     -------------     -------------     -------------     -------------

Increase (decrease) in cash                   $   1,340,112          (397,484)         (925,951)          960,281             1,958

Cash, beginning of year                              81,280         1,007,231         1,007,231            46,950            44,992
                                              -------------     -------------     -------------     -------------     -------------

Cash, end of year                             $   1,421,392           609,747            81,280         1,007,231            46,950
                                              =============     =============     =============     =============     =============
Supplemental disclosures of cash flow
 information:
      Interest paid                           $     849,347           800,450         1,380,742         1,371,736         1,281,687
                                              =============     =============     =============     =============     =============

      Income taxes paid, net of refunds       $      69,773              --          (1,273,571)         (598,549)          317,000
                                              =============     =============     =============     =============     =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-8
<PAGE>

                        SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                January 31, 1998 and June 30, 1997, 1996 and 1995

(1)   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (A)  DESCRIPTION OF BUSINESS

           Sound Advice, Inc. and subsidiary (the "Company") operate in a
           single-business segment, which is the retailing and servicing of home
           and car audio systems, video products, cellular telephones, personal
           electronics, home entertainment furniture and related customized
           services and accessories. Its operations are conducted in the state
           of Florida through 22 stores and three support centers.

      (B)  PRINCIPLES OF CONSOLIDATION

           The accompanying consolidated financial statements include the
           accounts of the Company and its wholly owned subsidiary. All
           significant intercompany balances and transactions have been
           eliminated in consolidation.

      (C)  CHANGE IN FISCAL YEAR-END

           Effective February 13, 1998, the Company changed its fiscal year-end
           from June 30 to January 31. The seven-month transition period of July
           1, 1997 through January 31, 1998 ("transition period") precedes the
           start of the new fiscal year. The unaudited financial information for
           the seven months ended January 31, 1997 ("prior period") is presented
           for comparative purposes and includes any adjustments (consisting of
           normal, recurring adjustments) which are, in the opinion of
           management, necessary for a fair presentation.

      (D)  RECEIVABLES

           Receivables from vendors consist of cooperative advertising and other
           amounts earned based on annual promotional and market development
           agreements under various incentive programs. The funds received under
           these programs are determined based upon the Company's level of
           purchases and/or the inclusion of the vendors' products in the
           Company's advertising and promotional programs. Once earned, the
           funds are recorded as a reduction of advertising expense or applied
           against product cost. Also included in receivables from vendors are
           amounts due for warranty repairs. Trade receivables consist primarily
           of amounts due from cellular activation providers and credit card and
           finance companies resulting from customer purchases.

      (E)  INVENTORIES

           Merchandise and service parts inventories are stated at the lower of
           cost or market. Cost is determined using a moving average, which
           approximates the first-in, first-out method, and is recorded net of
           volume and purchase discounts and rebates.

                                                                     (Continued)
                                      F-9

<PAGE>

                        SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           The Company allocates to inventory certain costs associated with
           purchasing, pricing and preparation of inventories for sale. For the
           transition period ended January 31, 1998, allocated costs
           approximated $938,000 with $435,000 remaining in inventory as of
           January 31, 1998. For the fiscal years ended June 30, 1997 and 1996,
           allocated costs approximated $2,314,000 and $3,487,000, respectively,
           with $593,000 and $882,000 remaining in inventory as of June 30, 1997
           and 1996, respectively.

      (F)  PROPERTY AND EQUIPMENT

           Property and equipment are stated at cost. Depreciation and
           amortization are provided over the following estimated useful lives
           using the straight-line method.

                    DESCRIPTION                        YEARS

                    Building                             30
                    Furniture and equipment            3 to 7
                    Leasehold improvements        15 or term of lease, if
                                                       shorter
                    Display fixtures                   3 to 7
                    Vehicles                           3 to 5

      (G)  GOODWILL

           Goodwill is amortized on a straight-line basis over 15 years.
           Goodwill is presented net of accumulated amortization of
           approximately $235,000 as of January 31, 1998 and approximately
           $220,000 and $196,000 as of June 30, 1997 and 1996, respectively.

      (H)  INCOME TAXES

           The Company accounts for income taxes under the provisions of
           Financial Accounting Standards ("SFAS") No. 109, ACCOUNTING FOR
           INCOME TAXES, which generally requires recognition of deferred tax 
           assets and liabilities for the expected future tax consequences of
           events that have been included in the consolidated financial
           statements or tax returns. Under this method, deferred tax assets and
           liabilities are determined based on differences between the financial
           reporting and tax bases of assets and liabilities and are measured by
           applying enacted tax rates and laws for the taxable years in which
           those differences are expected to reverse. In addition, SFAS No. 109
           requires adjustment of previously deferred income taxes for changes
           in tax rates under the liability method.

      (I)  SELF-INSURANCE ACCRUALS

           The Company was self-insured through December 31, 1996 and beginning
           January 1, 1998, up to certain limits, for workers' compensation
           benefits and, accordingly, has accrued unpaid claims and associated
           expenses, including incurred, but not reported losses.

                                                                     (Continued)
                                      F-10

<PAGE>

                       SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      (J)  EXTENDED WARRANTY SERVICE CONTRACTS AND SALES INCENTIVE PROGRAM

           The Company offers extended warranty service contracts on behalf of a
           third party on most of its products. These contracts are on a
           nonrecourse basis to the Company. The Company includes revenue from 
           the sale of extended warranty contracts in net sales and records, as 
           cost of goods sold, the amounts due to the third party for the cost 
           for such contracts at the time of sale as the earnings process has 
           been completed. Revenue from the sale of such contracts represented
           approximately 5 percent to 6 percent of consolidated net sales for 
           each period presented. Gross margins from the sale of extended 
           warranty service contracts are higher than gross margins from the 
           sale of the Company's other products.

           Prior to March 1993 and from July 1994 through May 1997, the Company,
           subject to certain conditions, offered the purchasers of extended
           warranty service contracts the right to apply the sales price of the
           contract towards future purchases of merchandise if the purchaser did
           not utilize the contract during its term. Non-utilized warranty
           contracts are generally redeemable for a 60-day period after
           expiration of the contract. The term of the extended warranty service
           contracts is from one to five years. Effective June 1, 1997, the
           Company discontinued offering this program on future purchases. The
           total amount of extended warranty service contracts sold from July
           1990 through February 1993 and July 1994 through May 1997 was
           approximately $21 million and $27 million, respectively. The Company
           records a liability at the time of sale for the estimated amount of
           future redemptions under this program. Historically, the overall
           redemption rate has ranged from 9 percent to 11 percent of the value
           of the contracts issued. Such liability is based on estimates and,
           while management believes that such amounts are adequate, there can
           be no assurance that changes to management's estimates may not occur
           due to limitations inherent in the estimation process. Changes in the
           estimates are charged or credited to income in the period determined.
           Amounts estimated to be paid within one year have been classified as
           accrued liabilities with the remainder included in other liabilities
           and deferred credits. As of January 31, 1998, the liability for
           estimated redemptions approximated $1,270,000. As of June 30, 1997
           and 1996, the liability for estimated redemptions approximated
           $1,772,000 and $1,892,000, respectively. Amounts charged against the
           liability recorded for future redemptions approximated $578,000 for
           the transition period ended January 31, 1998 and $926,000, $833,000
           and $628,000 for fiscal years ended June 30, 1997, 1996 and 1995,
           respectively.

      (K)  ADVERTISING

           The Company expenses advertising costs when the advertisement occurs.
           Advertising expense is recorded net of funds received from vendor
           advertising and promotional programs. Advertising expense, net, for
           the transition period ended January 31, 1998 and for the fiscal years
           ended June 30, 1997, 1996 and 1995, approximated $3,149,000,
           $4,086,000, $6,476,000 and $4,745,000, respectively.

                                                                     (Continued)

                                      F-11

<PAGE>

                       SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      (L)  USE OF ESTIMATES

           Management of the Company has made a number of estimates and
           assumptions relating to the reporting of assets and liabilities and
           the disclosure of contingent assets and liabilities to prepare these
           consolidated financial statements in conformity with generally
           accepted accounting principles. Actual results could differ from
           those estimates.

      (M)  FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK

           The carrying amount of cash, receivables, revolving credit facility
           and trade accounts payable approximates fair value because of the
           short maturity of these instruments. The fair value of the Company's
           long-term debt is estimated by discounting the future cash flows for
           each instrument at rates currently offered to the Company for similar
           debt instruments of comparable maturities, which approximates the
           carrying value.

           Financial instruments which potentially expose the Company to
           concentrations of credit risk consist principally of vendor
           receivables. Although credit risk is affected by conditions and
           occurrences in the industry, the Company reviews the credit risk of
           specific vendors, historical trends and other information. Two
           vendors accounted for 40 percent, 54 percent and 47 percent of the
           Company's receivables as of January 31, 1998 and June 30, 1997 and
           1996, respectively. The Company estimates an allowance for doubtful
           accounts based on the credit risk and payment trends of the customer.
           An adverse change in these factors would affect the Company's
           estimate of bad debt.

           The Company is a specialty retailer in Florida with a focus on
           upscale electronics and is a primary distributor in its markets for
           certain products. Although competitive sources of supply are
           available for most of its products, the loss of a source for which
           the Company is a primary distributor could have an adverse impact on
           the Company. The Company would most likely be able to replace these
           products, but such replacement products may be widely available in
           its markets. Four vendors accounted for 53 percent of the Company's
           purchases during the transition period ended January 31, 1998. The
           loss of one of these vendors could have an adverse impact on the
           Company. The Company's principal competitors include other retailers,
           department and discount stores, mass merchandisers, catalog showrooms
           and specialty stores. Many of the Company's competitors are national
           in scope and have greater financial resources than the Company.

      (N)  IMPAIRMENT OF LONG-LIVED  ASSETS AND LONG-LIVED  ASSETS TO BE
           DISPOSED OF

           The Company adopted the provisions of SFAS No. 121, ACCOUNTING FOR
           THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
           DISPOSED OF, on July 1, 1996. This Statement requires that long-lived
           assets and certain identifiable intangibles be reviewed for
           impairment whenever events or changes in circumstances indicate that
           the carrying amount of an asset may not be recoverable.
           Recoverability of assets to be held and used is measured by a
           comparison of the carrying amount of an asset to future net cash
           flows expected to be generated by the asset. If such assets are
           considered to be impaired, the impairment to be recognized is
           measured by the amount by which the carrying amount of the assets
           exceeds the fair value of the assets. Assets to be disposed

                                                                     (Continued)

                                      F-12

<PAGE>

                       SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


           of are reported at the lower of the carrying amount or fair value
           less costs to sell. Adoption of this Statement did not have a
           material impact on the Company's financial position, results of
           operations or liquidity.

      (O)  STOCK-BASED COMPENSATION PLAN

           Prior to July 1, 1996, the Company accounted for its stock-based
           compensation plan in accordance with the provisions of Accounting
           Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
           TO EMPLOYEES, and related interpretations. As such, compensation
           expense would be recorded on the date of grant only if the current
           market price of the underlying stock exceeded the exercise price. On
           July 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR
           STOCK-BASED COMPENSATION, which permits entities to recognize as
           expense over the vesting period the fair value of all stock-based
           awards on the date of grant. Alternatively, SFAS No. 123 also allows
           entities to continue to apply the provisions of APB Opinion No. 25
           and provide pro forma net income and pro forma earnings per share
           disclosures for employee stock option grants made in 1996 and future
           years as if the fair-value-based method defined in SFAS No. 123 had
           been applied. The Company has elected to continue to apply the
           provisions of APB Opinion No. 25 and provide the pro forma disclosure
           provisions of SFAS No. 123.

      (P)  EARNINGS PER SHARE

           The Company has adopted SFAS No. 128, EARNINGS PER SHARE. In
           accordance with SFAS No. 128, primary earnings per share have been
           replaced with basic earnings per share, and fully diluted earnings
           per share have been replaced with diluted earnings per share which
           includes potentially dilutive securities such as outstanding options.
           Prior periods have been presented to conform to SFAS No. 128,
           however, basic and diluted loss or income per share are the same as
           the primary loss or income per share previously presented.

           Basic earnings per share is computed by dividing income available to
           common shareholders by the weighted-average number of common shares
           outstanding during the period. Diluted earnings per share is computed
           by dividing income available to common shareholders by the
           weighted-average number of common shares outstanding during the
           period increased to include the number of additional common shares
           that would have been outstanding if the dilutive potential common
           shares had been issued. The dilutive effect of outstanding options is
           reflected in diluted earnings per share by application of the
           treasury stock method.

           Options to purchase 213,500, 218,500, 112,500 and 3,000 shares of
           common stock at prices ranging from $1.69 to $1.77 per share were
           outstanding for the transition period ended January 31, 1998, and for
           the fiscal years ended June 30, 1997, 1996 and 1995, respectively,
           but were not included in the computation of diluted earnings per 
           share because the inclusion of the options would be antidilutive.

                                                                     (Continued)

                                      F-13

<PAGE>

                       SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


           Options to purchase 437,500, 450,500, 107,500 and 138,500 shares of
           common stock at prices ranging from $1.77 to $7.27 per share were
           outstanding for the transition period ended January 31, 1998, and for
           the fiscal years ended each of the years in the three year period 
           June 30, 1997, 1996 and 1995, respectively, but were not included in 
           the computation of diluted earnings per share because the options 
           exercise prices were greater than the average market price of common 
           shares for the respective periods.

      (Q)  RECLASSIFICATIONS

           Certain amounts in the fiscal year 1997, 1996 and 1995 consolidated
           financial statements have been reclassified to conform to the 1998
           transition period presentation.

(2)   LIQUIDITY

      As discussed in note 4, a mortgage with a balance of approximately
      $428,000 will mature in July 1998. Management of the Company believes,
      although there is no assurance they will be successful in doing so, that
      this obligation will be repaid through funds available under the revolving
      credit facility, refinancing of the mortgage or sale of the property.
      Management of the Company also believes that operating cash flows,
      combined with currently available borrowings under the current facility
      and existing vendor credit programs, will be sufficient for the Company to
      satisfy its operating cash requirements during fiscal year 1999. The
      Company may need to seek additional financing for capital expenditures
      required in connection with its expansion program for additional stores or
      store relocations in fiscal year 1999. There can be no assurance that the
      Company will be able to obtain such additional financing.

(3)   PROPERTY AND EQUIPMENT, NET

      Property and equipment, net consists of the following:

                                      TRANSITION
                                        PERIOD
                                         ENDED
                                        JANUARY 31,     YEARS ENDED JUNE 30,
                                                      -------------------------
                                          1998           1997         1996
                                          ----           ----         ----
      Land                            $   521,465       521,465      521,465
      Building                          1,119,605     1,119,605    1,119,605
      Furniture and equipment           8,708,705     8,222,690    8,545,945
      Leasehold improvements           16,345,129    15,363,402   14,494,852
      Display fixtures                  5,999,650     5,358,234    5,049,940
      Vehicles                            959,768       920,585      949,168
                                        ---------    ----------   ----------
                                       33,654,322    31,505,981   30,680,975
      Less accumulated depreciation    19,677,138    17,838,896   16,733,001
                                       ----------    ----------   ----------
      Property and equipment, net     $13,977,184    13,667,085   13,947,974
                                      ===========    ==========   ==========

      Depreciation expense, including amortization of capital leases, for the
      transition period ended January 31, 1998 and for the fiscal years ended
      June 30, 1997, 1996 and 1995, approximated $1,838,000, $3,004,000,
      $3,064,000, and $3,161,000, respectively.

                                                                     (Continued)

                                      F-14

<PAGE>


                       SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(4)   DEBT

      (A)  REVOLVING CREDIT FACILITY

           Effective as of December 8, 1997, the Company amended and extended
           its revolving line of credit facility with its existing lender
           through July 31, 2001. The terms of the agreement were amended to
           allow the Company to borrow, repay, and reborrow, based upon a
           borrowing base equal to the lesser of 70 percent of eligible
           inventory (as defined) at cost or 55 percent of eligible inventory at
           retail selling price. The availability under the facility is reduced
           by outstanding letters of credit. The revolving credit facility bears
           interest on the outstanding balance at prime plus 1 percent and
           allows for a LIBOR pricing option for one-, two-, three- or six-month
           periods at 2.5 percent over the corresponding LIBOR rate for the
           respective period.The interest rate is eligible for a .25 percent
           reduction in 1998 and 1999 provided certain conditions are met. The
           Company pays a monthly fee based upon the unused portion of the
           commitment less $5,000,000 at .375 percent per annum. The Company
           paid a closing fee of $45,000 and is obligated to an additional
           commitment fee of $50,000 per annum beginning December 8, 1998.

           The amended loan and security agreement contains various affirmative
           and negative covenants requiring the Company to maintain a quarterly
           ratio of current assets to current liabilities of not less than 1.05
           to 1.0 and maintain working capital of at least $3,500,000. In
           addition, cumulative net losses from and after October 1, 1997 may
           not exceed $4,000,000. The amended loan and security agreement also
           limits the incurrence of additional debt, liens, capital
           expenditures, acquisitions and investments, and prohibits cash
           dividends and the repurchase of capital stock.

           Borrowings under the revolving credit facility are collateralized by 
           the Company's assets, including depository accounts, receivables,
           inventory, property and equipment and intangible assets.

           The effective interest rate on the outstanding loan balance under the
           financing arrangement in effect as of January 31, 1998 was 12.3
           percent and as of June 30, 1997 and 1996 was 11.5 percent and 12.6
           percent, respectively.

                                                                     (Continued)

                                      F-15

<PAGE>


                       SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      (B)  LONG-TERM DEBT

           Long-term debt consists of the following:

                                                TRANSITION
                                                  PERIOD
                                                   ENDED
                                                JANUARY 31,      YEARS ENDED
                                                                  JUNE 30,
                                                             ------------------
                                                   1998        1997      1996
                                                   ----        ----      ----
           Promissory note                      $ 209,873     296,919   436,539
           Mortgage note                          436,630     449,083   470,431
                                                  -------     -------   -------
                   Total                          646,503     746,002   906,970

           Less current maturities                593,020     171,478   161,406
                                                  -------     -------   -------
           Long-term debt, excluding current
            maturities                          $  53,483     574,524   745,564
                                                  =======     =======   =======

           The promissory note is payable in 60-equal monthly installments due
           May 1999 based upon a short-term commercial paper rate plus 2.6
           percent. The Company has the option to convert to a fixed interest
           rate loan based on certain Treasury note rates tied to the
           then-remaining term of the loan plus 3.1 percent. The promissory note
           is secured by certain computer equipment with a net book value of
           approximately $27,000 as of January 31, 1998.

           The mortgage note is payable in monthly installments of $1,779,
           including interest at the lender's prime rate plus .5 percent, with a
           balloon payment of approximately $428,000 due July 12, 1998. The loan
           is secured by land, building and improvements with a net book value
           of approximately $827,000 as of January 31, 1998.

           The aggregate maturities of long-term debt for each of the years
           subsequent to January 31, 1998 are as follows:

                            YEARS ENDED               AMOUNT
                            -----------               ------
                                1999               $  593,020
                                2000                   53,483

      (C)  LETTERS OF CREDIT

           The Company has standby letters of credit, in the aggregate of
           approximately $885,000, maturing at various dates through April 1999,
           primarily supporting self-insurance reserves. The letters of credit
           were not drawn upon as of January 31, 1998.

                                                                     (Continued)

                                      F-16


<PAGE>

                       SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(5)   INCOME TAXES

      The components of the provision for income taxes (benefit) are as follows:

                            TRANSITION
                              PERIOD
                              ENDED            
                            JANUARY 31,          YEARS ENDED JUNE 30,
                                           ----------------------------------
                               1998           1997       1996        1995
                               ----           ----       ----        ----
      Current:
         Federal           $  985,972     (231,000)  (1,217,437)     89,702
         State                   -            -            -         43,615
                             --------      -------    ---------      ------
                              985,972     (231,000)  (1,217,437)    133,317
      Deferred                189,028      620,000      731,437    (285,157)
                            ---------      -------    ---------     -------

              Total        $1,175,000      389,000     (486,000)   (151,840)
                           ==========      =======    =========     =======


      The provision for deferred income taxes (benefit) consists of the
      following:
<TABLE>
<CAPTION>

                                     TRANSITION
                                       PERIOD
                                       ENDED           
                                     JANUARY 31,        YEARS ENDED JUNE 30,
                                                   -----------------------------
                                       1998          1997       1996       1995
                                       ----          ----       ----       ----
<S>                                 <C>             <C>       <C>         <C>
      Allowance for doubtful        $   (8,630)     90,304    (33,546)    (5,682)
         accounts
      Inventory adjustments           (427,154)    155,618   (101,424)   (47,414)
      Preopening expenses                 -           -       (54,814)    60,667
      Prepaid expenses                 (79,994)     60,601     44,373   (196,849)
      Accelerated depreciation        (547,581)   (204,601)  (222,001)  (246,477)
      Accrued rent expense              74,873      (8,433)    54,733   (106,449)
      Provision for warranty
         redemption                    236,906      40,836    (20,902)    26,049
      Deferred tax valuation           
         allowance                     804,358     349,000  1,080,426     20,000
      Other                            136,250     136,675    (15,408)   210,998
                                       -------     -------   --------    -------
            Total                   $  189,028     620,000    731,437   (285,157)
                                       =======     =======   =========   =======
</TABLE>

                                                                     (Continued)

                                      F-17
<PAGE>

                      SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      The reconciliation of the federal statutory rate and the Company's
      effective tax rate is as follows:

<TABLE>
<CAPTION>

                                             TRANSITION
                                               PERIOD
                                                ENDED        
                                             JANUARY 31,     YEARS ENDED JUNE 30,
                                                          ----------------------------
                                                1998        1997     1996     1995
                                                ----        ----     ----     ----
<S>                                              <C>       <C>      <C>      <C>   
      Statutory income tax rate                  34.0%     (34.0)   (34.0)   (34.0)
      Effect of state taxes                       -           -        -       (.2)
      Reserve for tax examination               276.0       41.5      -        -
      Provision for valuation allowance         201.0       72.6     22.9      1.4
      Nondeductible expenses                     25.0         .7       .8      8.8
                                                -----       ----     ----     ----

            Effective income tax rate           536.0%      80.8    (10.3)   (24.0)
                                                =====       ====     ====     ====
</TABLE>


      The tax effects of temporary differences that give rise to significant
      portions of deferred tax assets and deferred tax liabilities are as
      follows:

<TABLE>
<CAPTION>

                                             TRANSITION
                                               PERIOD
                                                ENDED
                                             JANUARY 31,   YEARS ENDED JUNE 30,
                                                          ------------------------
                                                1998         1997        1996
                                                ----         ----        ----
<S>                                         <C>              <C>         <C>    
         Allowance for doubtful accounts    $   130,580      121,950     212,261
         Inventory adjustments                  348,595      (78,559)     77,052
         Prepaid advertising                    (45,850)     (69,467)    (48,003)
         Prepaid insurance                      (10,445)     (74,104)    (34,972)
         Accelerated depreciation               779,821      232,240      93,845
         Deferred gain on sale                   42,545       49,260      51,790
         Accrued rent expense                   750,495      825,368     816,934
         Accrued insurance                       54,797       62,079      81,593
         Legal settlement expense                10,389       28,064      29,755
         Provision for warranty redemption      431,929      668,835     709,671
         Other                                  (51,792)      60,068     106,808
         Deferred tax valuation allowance    (2,441,064)  (1,636,706) (1,287,706)
                                              ---------    ---------   ---------

               Total                        $      -         189,028     809,028
                                               ========   ==========  ==========
</TABLE>


      SFAS No. 109 requires that the tax benefit of deductible temporary
      differences be recorded as an asset to the extent that management assesses
      the utilization of such temporary differences to be "more likely than
      not." A valuation allowance has been established to the extent future
      deductible amounts cannot be recovered through federal income taxes paid
      within the statutory carryback period. The valuation allowance for
      deferred tax assets as of January 31, 1998 and June 30, 1997 and 1996 was
      $2,441,064, $1,636,706 and $1,287,706, respectively. The net change in the
      total valuation allowance for the transition period ended January 31, 1998
      and for the fiscal years ended June 30, 1997 and 1996 was an increase of
      $804,358, $349,000 and $1,080,426, respectively.

                                                                     (Continued)

                                      F-18
<PAGE>

                      SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      The Internal Revenue Service (IRS) is in the process of completing its
      examination of the Company's income tax returns for the years 1993 through
      1996. The Company has received a notice of proposed adjustments for the
      1993 through 1996 years. The Company believes that the accruals provided
      in connection with this matter are adequate and that the resolution of
      this matter will not have a material adverse effect on the Company's
      financial condition or results of operations.

(6)   SHAREHOLDERS' EQUITY

      (A)  SHAREHOLDER RIGHTS PLAN

           In May 1997, the board of directors adopted a Common Stock Purchase
           Rights Plan and subsequently declared a dividend distribution of one
           Common Stock Purchase Right ("Right") on each outstanding share of
           common stock. Each Right has an initial exercise price of $12 for one
           share of common stock. Generally, the Rights will be exercisable only
           if a person or group acquires 15 percent or more of the common stock
           or announces a tender offer, the consummation of which would result
           in ownership by a person or group of 15 percent or more of the common
           stock. Upon such occurrence, each Right (other than Rights owned by
           such person or group) will entitle the holder to purchase from the
           Company the number of shares of common stock having a market value
           equal to twice the exercise price of the Right. Generally, prior to
           the acquisition by a person or group of beneficial ownership of 15
           percent or more of the common stock, the Rights are redeemable for
           $.001 per Right at the option of the board of directors. The Rights
           will expire on May 4, 2007. As of January 31, 1998, 3,728,894 Rights
           were outstanding.

      (B)  STOCK OPTION PLAN

           The Company has a stock option plan (the "Plan") which provides for
           the issuance of either incentive stock options or non-qualified stock
           options. Under the Plan, as amended, the Company has reserved up to
           750,000 shares of common stock for future issuance. The exercise
           price of incentive stock options shall not be less than the
           fair-market value per share on the date of grant. The exercise price
           of any non-qualified stock option shall not be less than 85 percent
           of the fair-market value per share on the date of grant. For the
           transition period ended January 31, 1998 and for each of the fiscal
           years ended June 30, 1997, 1996 and 1995, the option price represents
           the fair-market value of each underlying share of common stock at the
           date of grant established by the Company's board of directors. The
           option term may not be longer than ten years. No options may be
           granted under the stock option plan after November 10, 2001.

           On March 10, 1997, the Company issued 75,000 stock options at an
           exercise price of $1.69 per share. In addition, incentive stock
           options to purchase 31,000 shares of common stock, previously granted
           to two officers at an exercise price of $6.29 per share, were
           canceled and reissued by the Company at an exercise price of $1.69
           per share. These options are immediately exercisable through March 9,
           2002.

                                                                     (Continued)

                                      F-19

<PAGE>

                      SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


           On April 29, 1997, the Company issued 412,500 stock options at an
           exercise price of $1.89 per share. These options vest in increments
           of one third upon attainment of a market price of the Company's
           common stock at $4.00, $5.00 and $6.50. These options are also
           subject to full vesting on the earlier to occur of April 29, 2001 or
           a change in control (as defined) of the Company. These options have a
           term of five years expiring April 28, 2002. In addition, the Company
           granted 5,000 warrants to purchase common stock to each of three
           non-employee directors of the Company subject to the same exercise
           price and vesting terms as the options issued on April 29, 1997. In
           addition, stock options to purchase 35,000 shares of common stock,
           previously granted to a director at an exercise price of $5.96 per
           share for 15,000 shares and $6.29 per share for 20,000 shares, were
           canceled and reissued by the Company and subject to the same exercise
           price and vesting terms as the options issued on April 29, 1997.

           Changes in stock options outstanding are as follows:

<TABLE>
<CAPTION>
                                                                   WEIGHTED-AVERAGE
                                           NUMBER OF                  EXERCISE
                                            SHARES         PRICE        PRICE
<S>                                        <C>          <C>             <C>
            Outstanding, June 30, 1994      155,000     $4.20-10.48     5.86
               Granted                       45,000      5.96           5.96
               Exercised                       -            -            -
               Canceled                     (58,500)     4.20-10.48     5.47
                                           --------
            Outstanding, June 30, 1995      141,500      5.45-9.27      6.07
               Granted                      147,500      1.70-6.29      2.79
               Exercised                       -                         -
               Canceled                     (69,000)     5.45-9.27      6.08
                                           --------
            Outstanding, June 30, 1996      220,000      1.70-7.27      3.87
               Granted                      553,500      1.69-1.89      1.85
               Exercised                       -                         -
               Canceled                    (104,500)     5.45-7.27      6.12
                                           --------
            Outstanding, June 30, 1997      669,000      1.69-4.76      2.04
               Granted                         -                         -
               Exercised                       -                         -
               Canceled                     (18,000)     1.77-4.76      2.34
                                           --------
            Outstanding, January 31, 1998   651,000     $1.69-1.89      1.83
                                           ========
               Exercisable                  213,500
                                           ========
               Available for future grants   38,000
                                           ========
</TABLE>

           The Company applies APB Opinion No. 25 in accounting for its Plan
           and, accordingly, no compensation cost has been recognized for its
           stock options in the consolidated financial statements. Had the
           Company determined compensation cost based on the fair

                                                                     (Continued)

                                      F-20


<PAGE>

                     SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


           value at the grant date for its stock options under SFAS No. 123, the
           Company's net loss would have been increased to the pro forma amounts
           approximated:

<TABLE>
<CAPTION>

                                               1998         1997         1996
                                               ----         ----         ----
<S>                                        <C>           <C>         <C>         
            Net loss:       As reported    $  (956,000)  $(871,000)  $(4,227,000)
                                             =========     =======     =========
                            Pro forma      $(1,131,000)  $(891,000)  $(4,227,000)
                                             =========     =======     =========
            Loss per share: As reported    $      (.26)  $    (.23)  $     (1.13)
                                             =========     =======     =========
                            Pro forma      $      (.30)  $    (.24)  $     (1.13)
                                             =========     =======     =========
</TABLE>


           Pro forma net income reflects only options granted in 1997 and 1996.
           There were no options granted during the transition period.
           Therefore, the full impact of calculating compensation cost for stock
           options under SFAS No. 123 is not reflected in the pro forma net
           income amounts presented above because compensation cost is reflected
           over the options' vesting period and compensation cost for options
           granted prior to July 1, 1995 is not considered.

           The fair value of each options' grant is estimated on the date of
           grant using the Black-Scholes option-pricing model with the following
           assumptions:

                                                          1997          1996
                                                          ----          ----
             Expected dividend yield                        -            -
             Expected stock price volatility              1.01          1.01
             Risk-free interest rate                     5.9-6.1%      5.1-5.8%
             Expected life of options                    3 years       3 years

           As of June 30, 1997 and 1996, the weighted average fair value of
           options granted during the fiscal year was $1.15 and $1.03,
           respectively. There were no options granted during the transition
           period.

           As of January 31, 1998, the range of exercise prices and
           weighted-average remaining contractual life of outstanding options
           was $1.69 to $1.89 and 3.9 years, respectively.

           As of January 31, 1998 and June 30, 1997 and 1996, the number of
           options exercisable was 213,500, 221,500 and 220,000, respectively,
           and the weighted-average exercise price of those options was $1.72,
           $1.76 and $3.87, respectively.

      (C)  SHAREHOLDERS' EQUITY

           During fiscal year 1995, the Company issued 306,335 warrants to
           purchase common stock of the Company in connection with the
           settlement of two shareholder class action suits filed in 1992. The
           warrants are exercisable through June 14, 1999, and each warrant is
           exercisable into one share of common stock at an exercise price of
           $8.70 per share. No options have been exercised as of January 31,
           1998.

                                                                     (Continued)

                                      F-21
<PAGE>

                    SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(7)   EMPLOYEE BENEFIT PLANS

      (A)  EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

           Effective as of July 1, 1989, the Company established and adopted an
           Employee Stock Ownership Plan and Trust (the "ESOP") for all of its
           employees. Contributions to the ESOP are made at the discretion of
           the board of directors. No contributions were made in transition
           period ended January 31, 1998 or fiscal years ended June 30, 1997,
           1996 or 1995.

      (B)  RETIREMENT SAVINGS PLANS

           The Company offers a 401(k) savings and investment plan (the "401(k)
           Plan") to employees who meet certain eligibility requirements such as
           one year of service, 1,000 hours worked during the year and age of 21
           years. The Company makes matching contributions to the 401(k) Plan up
           to a maximum percentage of each participating employee's annual
           investment. Matching and discretionary contributions to the 401(k)
           Plan are authorized by the Company's board of directors.
           Contributions for the transition period ended January 31, 1998 and
           for the fiscal years ended June 30, 1997, 1996 and 1995 approximated
           $0, $215,000, $232,000 and $159,000, respectively.

(8)   PROVISIONS FOR DISPOSAL OF INVENTORY AND ASSET IMPAIRMENT

      During fiscal year 1996, the Company eliminated personal computers and
      related accessories from its product line. In December 1995, the Company
      recorded a $1,500,000 provision to write down its remaining personal
      computer and related accessories inventory to estimated net realizable
      value and to recognize expenses associated with the sale and disposal. The
      provision for loss was included in cost of goods sold.

      During fiscal year 1995, the Company was unable to successfully complete
      the implementation of a new management information system and recorded a
      provision of $400,000 for loss on impairment of these assets.

(9)   LEASES

      The Company is obligated under a number of operating leases for retail
      store space, distribution and installation centers and certain property
      and equipment, which expire at various dates through 2014. The retail
      store leases generally contain provisions for increases based on the
      Consumer Price Index and contain options for periods of up to 15 years to
      renew at the then fair rental value.

      In June 1994, the Company entered into a limited partnership agreement
      with a development company in connection with the acquisition and
      development of a parcel of land in Fort Myers, Florida. The Company was a
      40 percent limited partner and made capital contributions of approximately
      $250,000. The Company agreed to lease this building for a period of 20
      years and has recorded a portion of the Fort Myers lease as a capital
      lease. In April 1995, the land and building were sold by the limited
      partnership. The Company's portion of the gain on sale is being amortized
      over the life of the lease.

                                                                     (Continued)

                                      F-22

<PAGE>

                    SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



      Property under capital lease includes the following amounts in the
      accompanying consolidated financial statements:

                                           TRANSITION
                                          PERIOD ENDED
                                           JANUARY 31,    YEARS ENDED JUNE 30,
                                                          --------------------
                                             1998           1997       1996
                                             ----           ----       ----

           Building                      $  685,000        685,000    685,000
           Furniture and equipment          142,900        142,900    142,900
                                            -------        -------    -------
                                            827,900        827,900    827,900
           Less accumulated
             depreciation                   175,180        142,910     87,590
                                            -------        -------    -------
                                         $  652,720        684,990    740,310
                                            =======        =======    =======

      Future minimum annual rental payments required under operating leases that
      have initial or remaining noncancelable lease terms in excess of one year
      (including option periods) as of January 31, 1998 and the capital lease
      payments are as follows:

                                                         CAPITAL     OPERATING
                       YEAR ENDED                         LEASE        LEASES

                           1999                       $   162,396  $  5,906,044
                           2000                           162,396     5,316,608
                           2001                           162,396     5,126,694
                           2002                           162,396     4,874,849
                           2003                           162,396     4,490,719
                        Thereafter                      1,921,686    20,433,137
                                                        ---------    ----------
                Total minimum lease payments            2,733,666  $ 46,148,051
                                                                     ==========

           Less amounts representing interest
             (at an effective interest rate of 
              approximately 19%)                        1,921,340
                                                        ---------
                Present value of minimum
                   capital lease payments                 812,326

           Less current installments of
              obligations under capital lease               7,213
                                                        ---------
                Obligations under capital
                   lease, excluding current
                   installments                       $   805,113
                                                      ===========

      The Company opened a specialty store in Aventura, Florida in February
      1998. The future minimum annual lease payments are included in the table
      above.

                                                                     (Continued)

                                      F-23


<PAGE>

                    SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      Total rental expense under the noncancelable operating leases for the
      transition period ended January 31, 1998 and for the fiscal years ended
      June 30, 1997, 1996 and 1995, was approximately $3,981,000, $6,542,000,
      $6,058,000, and $6,123,000, respectively.

(10)  ACCRUED LIABILITIES

      Certain store lease agreements provide for scheduled base rental increases
      over the lease term or provide free-rent periods. The Company recognizes
      the aggregate rent expense on a straight-line basis over the lease term,
      and the difference between rent expense on a straight-line basis. The base
      rental is accrued and included in other liabilities and deferred credits
      in the consolidated balance sheets. As of January 31, 1998 and June 30,
      1997 and 1996, the recorded liability for accrued rent was approximately
      $2,207,000, $2,174,000 and $2,148,000, respectively.

      Included in accrued liabilities as of January 31, 1998 and June 30, 1997
      and 1996 are approximately $3,080,000, $2,159,000 and $2,637,000,
      respectively, of customer deposits on future sales orders.

(11)  COMMITMENT AND CONTINGENCIES

      (A)  EMPLOYMENT AGREEMENTS

           Two of the Company's officers have employment agreements, which
           provided for aggregate base salaries of $360,000 for the transition
           period ended January 31, 1998 and $611,050 for each of the fiscal
           years ended June 30, 1997, 1996, and 1995. These agreements have been
           extended through June 30, 1998 under the same terms as the original
           agreement.

      (B)  SEVERANCE AGREEMENTS

           The Company has entered into agreements with corporate officers and
           certain other key employees that provide severance pay benefits under
           certain conditions if there is a change in control (as defined) of
           the Company.

                                                                     (Continued)

                                      F-24
<PAGE>


                        SOUND ADVICE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      (C)  BONUS PLAN

           During 1995, the Company implemented a bonus plan for certain
           managerial positions based upon the annual operating performance of
           the Company. Under the terms of the bonus plan, bonuses ranging
           between 10 percent and 25 percent of annual compensation may be
           earned for achievement of various levels of targeted operating
           performance as approved by the board of directors. For the transition
           period ended January 31, 1998 and for the fiscal years ended June 30,
           1997, 1996 and 1995, no bonus amounts were earned under the plan.

      (D)  OTHER

           The Company is a party to various legal actions arising in the normal
           course of business. It is the opinion of management that the ultimate
           disposition of these matters will not have a material adverse effect
           on the Company's financial position or results of operations.


                                      F-25

<PAGE>

<TABLE>
<CAPTION>
                        SOUND ADVICE, INC. AND SUBSIDIARY

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

                                               BALANCE AT      CHARGED TO           OTHER
                                              BEGINNING OF     COSTS AND          CHANGES ADD      BALANCE AT
            DESCRIPTION                           YEAR          EXPENSES           (DEDUCT)        END OF YEAR
            -----------                      -------------     ----------         -----------      -----------
<S>                                          <C>               <C>                <C>              <C>
Allowance for doubtful accounts:
      January 31, 1998                       $     286,400      226,600            (128,900) (A)      384,100
                                             =============      =======            ========         =========
      June 30, 1997                          $     572,000      410,152            (695,752) (A)      286,400
                                             =============      =======            ========         =========
      June 30, 1996                          $     470,000      722,000            (620,000) (A)      572,000
                                             =============      =======            ========         =========
      June 30, 1995                          $     460,000      380,474            (370,474) (A)      470,000
                                             =============      =======            ========         =========
Allowance for redemption of
   extended service warranty
   contracts:
      January 31, 1998                       $   1,771,815         -               (501,437) (B)    1,270,378
                                             =============      =======            ========         =========
      June 30, 1997                          $   1,891,920         -               (120,105) (B)     1,771,815
                                             =============      =======            ========         =========
      June 30, 1996                          $   1,830,445       61,475 (B)            -             1,891,920
                                             =============      =======            ========         =========
      June 30, 1995                          $   1,761,222       69,223 (B)            -             1,830,445
                                             =============      =======            ========         =========
Allowance for inventory
   obsolescence:
      January 31, 1998                       $     700,000         -                   -              700,000
                                             =============      =======            ========         =========
      June 30, 1997                          $     830,000         -               (130,000) (C)       700,000
                                             =============      =======            ========         =========
      June 30, 1996                          $     600,000      230,000 (C), (D)       -               830,000
                                             =============      =======            ========         =========
      June 30, 1995                          $     273,000      327,000 (D)            -               600,000
                                             =============      =======            ========         =========
<FN>
(A) Amounts represent write-off of uncollectible receivables.

(B) Amounts represent net change between beginning of period and end of period
    balances.

(C) Amounts represent provision and disposition of personal computer and related
    accessory inventories.

(D) Amounts represent general obsolescence.
</FN>
</TABLE>

                                      S-1




<PAGE>

--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                       ----------------------------------

                                    EXHIBITS

                                       TO

                                   FORM 10-K

                           Annual Report Pursuant to
                           Section 13 or 15(d) of the
                        Securities Exchange Act of 1934



For the Transition Period Ended                           Commission File Number
      January 31, 1998                                           0-15194

                       ----------------------------------



                               SOUND ADVICE, INC.
             (Exact name of registrant as specified in its charter)

--------------------------------------------------------------------------------

<PAGE>

<TABLE>
<CAPTION>


                                  EXHIBIT INDEX

EXHIBIT                                                                                    SEQUENTIAL
  NO.                                                                                       PAGE NO.
-------                                                                                    ----------
<S>       <C>                                                                              <C>
3.1       Articles of Incorporation, as amended, of the Registrant (incorporated
          by reference from Registration Statement No. 33-5942, Exhibit 3.1,
          filed May 23, 1986)

3.2       By-laws of the Registrant (incorporated by reference from Registration
          Statement No. 33-5942, Exhibit 3.2, filed May 23, 1986)

4.1       Form of 1997 Common Stock Purchase Rights Agreement, dated as of May
          5, 1997, between the Registrant and American Stock Transfer & Trust
          Company (incorporated by reference from the Registrant's Registration
          Statement on Form 8-A, Exhibit 4.1, filed on May 13, 1997)

9.        Right of First Refusal and Voting Trust Agreement, dated June 30,
          1986, among Peter Beshouri, Gregory Sturgis, Michael Blumberg and
          Joseph Piccirilli (incorporated by reference from the Registrant's
          Annual Report on Form 10-K for the fiscal year ended June 30, 1986,
          Exhibit 9, File No. 33-5942)

10.1      Loan and Security Agreement (without schedules), dated as of April 11,
          1996, between the Registrant and Foothill Capital Corporation
          (incorporated by reference from the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended March 31, 1996, Exhibit 10.2, File No.
          0-15194) 

          Amendment Number One to Loan and Security Agreement dated as of
          December 8, 1997 between Registrant and Foothill Capital Corporation
          (incorporated by reference from the Registrant's Quarterly Report on
          form 10-Q for the quarter ended December 31, 1997, Exhibit 10.1, 
          File No. 0-15194)

                                       i

<PAGE>


EXHIBIT                                                                                    SEQUENTIAL
  NO.                                                                                       PAGE NO.
-------                                                                                    ----------

        

10.2      Mortgage Note, dated July 12, 1988, from the Registrant payable to
          Bank Atlantic in the principal amount of $640,000, together with
          Mortgage and Security Agreement, dated July 12, 1988, between the
          Registrant and BankAtlantic and Assignment of Leases, Rents and
          Profits, dated July 12, 1988, between the Registrant and BankAtlantic
          (incorporated by reference from the Registrant's Annual Report on Form
          10-K for the fiscal year ended June 30, 1988, Exhibit 10.42, File No.
          0-15194)

10.3*     Second Amended and Restated Sound Advice, Inc. 1986 Stock Option Plan
          (incorporated by reference from the Registrant's Registration
          Statement No. 333-27051 on Form S-8, Exhibit 4.3, filed on May 14,
          1997)

10.4*     Sound Advice, Inc. Employee Stock Ownership Plan and Trust, made
          January 15, 1990, between the Registrant and Peter Beshouri, Michael
          Blumberg, Gregory Sturgis, Joseph Piccirilli and Jacob E. Farkas, the
          trustees (incorporated by reference from the Registrant's Quarterly
          Report on Form 10-Q for the quarter ended March 31, 1990, Exhibit
          10.2, File No. 0-15194), First Amendment to the Sound Advice, Inc.
          Employee Stock Ownership Plan and Trust, dated as of December 23, 1992
          (incorporated by reference from the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended December 31, 1992, Exhibit 10.2, File
          No. 0-15194), Second Amendment to the Sound Advice, Inc. Employee
          Stock Ownership Plan and Trust, dated as of July 9, 1993 (incorporated
          by

                                       ii

<PAGE>

EXHIBIT                                                                                    SEQUENTIAL
  NO.                                                                                       PAGE NO.
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          reference from the Registrant's Annual Report on Form 10-K for the
          fiscal year ended June 30, 1993, Exhibit 10.15, File No. 0-15194) and
          Third Amendment to the Sound Advice, Inc. Employee Stock Ownership
          Plan and Trust, dated as of December 30, 1994 (incorporated by
          reference from the Registrant=s Annual Report on Form 10-K for the
          fiscal year ended June 30, 1995, Exhibit 10.9, File No. 0-15194)

10.5*     Employment Agreements, dated June 30, 1986, between Registrant and
          each of Peter Beshouri and Michael Blumberg (incorporated by reference
          from the Registrant's Annual Report on Form 10-K for the fiscal year
          ended June 30, 1986, Exhibit 10.26, File No. 33-5942), First
          Amendments to Employment Agreements, both dated as of May 20, 1989,
          between the Registrant and each of Peter Beshouri and Michael Blumberg
          (incorporated by reference from Registration Statement No. 33-28745,
          Exhibit 10.20, filed May 16, 1989), Second Amendments to Employment
          Agreements, both dated as of October 27, 1989, between the Registrant
          and each of Peter Beshouri and Michael Blumberg (incorporated by
          reference from the Registrant's Quarterly Report on Form 10-Q for the
          quarter ended December 31, 1989, Exhibit 10.2, File No. 0-15194),
          Third Amendments to Employment Agreements, both dated as of July 1,
          1992, between the Registrant and each of Peter Beshouri and Michael
          Blumberg (incorporated by reference from the Registrant's Annual
          Report on Form 10-K for the fiscal year ended June 30, 1992, Exhibit
          10.15, File No. 0-15194), Fourth Amendments to Employment Agreements,
          both dated as of July 1, 1993, between the Registrant and each of
          Peter 

                                      iii

<PAGE>


EXHIBIT                                                                                    SEQUENTIAL
  NO.                                                                                       PAGE NO.
-------                                                                                    ----------

          Beshouri and Michael Blumberg (incorporated by reference from the
          Registrant's Annual Report on Form 10-K for the fiscal year ended June
          30, 1993, Exhibit 10.16, File No. 0-15194), Fifth Amendments to
          Employment Agreements, both effective as of July 1, 1994, between the
          Registrant and each of Peter Beshouri and Michael Blumberg
          (incorporated by reference from the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended December 31, 1994, Exhibit 10.2, File
          No. 0-15194), Sixth Amendments to Employment Agreements, both
          effective as of July 1, 1995, between the Registrant and each of Peter
          Beshouri and Michael Blumberg (incorporated by reference from the
          Registrant=s Quarterly Report on Form 10-Q for the quarter ended
          September 30, 1995, Exhibit 10.1, File No. 0-15194), Seventh
          Amendments to Employment Agreements, both effective as of July 1,
          1996, between the Registrant and each of Peter Beshouri and Michael
          Blumberg (incorporated by reference from the Registrant's Annual
          Report on Form 10-K for the fiscal year ended June 30, 1996, Exhibit
          10.8, File No. 0-15194), and Eighth Amendment(s) to Employment
          Agreements, both dated as of May 24, 1997, between the Registrant and
          each of Peter Beshouri and Michael Blumberg (incorporated by reference
          from the Registrant's Quarterly Report on Form 10-Q for the quarter
          ended March 31, 1997, Exhibit 10.2, File No. 0-15194)

10.6*     Form of Agreement entered into as of May 1, 1997, between the
          Registrant and each of two executive officers of the Registrant
          (Kenneth L. Danielson and Christopher P. O'Neil) and 

                                       iv

<PAGE>


EXHIBIT                                                                                    SEQUENTIAL
  NO.                                                                                       PAGE NO.
-------                                                                                    ----------

          twelve other employees of the Registrant relating to the making of a
          severance payment (two years gross wages for the executive officers
          and six months gross wages for the other employees) under certain
          circumstances upon a change of control (as defined) (incorporated by
          reference from the Registrant's Annual Report on Form 10-K for the
          fiscal year ended June 30, 1997, Exhibit 10.6, File No. 0-15194)

10.7      Associate Agreement, dated March 1, 1986 between the Registrant and
          Progressive Retailers Organization, Inc. ("PRO"), together with PRO
          Policy and Procedure Manual (incorporated by reference from Amendment
          No. 1 to Registration Statement No. 33-5942, Exhibit 10.28, filed June
          24, 1986)

10.8      Lease, dated September 23, 1987, between Designer's Place at Dania, a
          Florida general partnership consisting of Marvin Mandel, Philip Mandel
          and G&E Investment Company, and the Registrant (incorporated by
          reference from the Registrant's Quarterly Report on Form 10-Q for the
          quarter ended September 30, 1987, Exhibit 10.1, File No. 0-15194)

10.9      Amended and Restated Lease, dated as of December 1, 1991, between
          Chase, Gunsaullus, Scherer and the Registrant (incorporated by
          reference from the Registrant's Annual Report on Form 10-K for the
          fiscal year ended June 30, 1992, Exhibit 10.19, File No. 015194)

10.10     Dealer Agreement, dated January 1, 1995, between McCaw Communications
          of Florida, Inc. d/b/a Cellular One ("McCaw") and the Registrant, as
          amended by that certain Amendment

                                       v

<PAGE>

EXHIBIT                                                                                    SEQUENTIAL
  NO.                                                                                       PAGE NO.
-------                                                                                    ----------

          to Dealer Agreement, dated January 1, 1995, between McCaw and the
          Registrant (incorporated by reference from the Registrant=s Annual
          Report on Form 10-K for the fiscal year ended June 30, 1995, Exhibit
          10.14, File No. 0-15194)

10.11     Form of Warrant to Purchase 5,000 Shares of Common Stock of Sound
          Advice, Inc. entered into as of April 29, 1997, by the Registrant with
          and in favor of each of Gregory Sturgis, Richard W. McEwen and Herbert
          A. Leeds, who are directors of the Registrant (incorporated by
          reference from the Registrant's Annual Report on Form 10-K for the
          fiscal year ended June 30, 1997, Eshibit 10.11, File No. 0-15194)

10.12     Credit Card Program Agreement, dated August 12, 1992, between Monogram
          Credit Card Bank of Georgia ("Monogram") and the Registrant
          (incorporated by reference from the Registrant's Annual Report on Form
          10-K for the fiscal year ended June 30, 1992, Exhibit 10.29, File No.
          0-15194), together with Amendment thereto, dated June 14, 1996,
          between Monogram and Registrant (incorporated by reference from the
          Registrant's Annual Report on Form 10-K for the fiscal year ended June
          30, 1996, Exhibit 10.14, File No. 0-15194)

10.13     Sales Agreement, dated August 10, 1989, between Progressive Casualty
          Insurance Company and the Registrant (incorporated by reference from
          the Registrant's Annual Report on Form 10-K for the fiscal year ended
          June 30, 1992, Exhibit 10.32, File No. 0-15194)

                                       vi

<PAGE>


EXHIBIT                                                                                    SEQUENTIAL
  NO.                                                                                       PAGE NO.
-------                                                                                    ----------

10.14     Lease, dated as of May 22, 1993, between L&T Limited Partnership, as
          landlord, and the Registrant, as tenant (incorporated by reference
          from the Registrant's Annual Report on Form 10-K for the fiscal year
          ended June 30, 1993, Exhibit 10.34, File No. 0-15194)

10.15     Promissory Note, dated May 4, 1994, from the Registrant payable to
          General Electric Capital Corporation ("GECC") in the original
          principal amount of $1,607,661.17, as amended, together with Master
          Security Agreement, dated as of May 4, 1994, between the Registrant
          and GECC (incorporated by reference from the Registrant's Annual
          Report on Form 10-K for the fiscal year ended June 30, 1994, Exhibit
          10.28, File No. 0-15194)

10.16     Stipulation of Settlement, dated as of January 26, 1994, regarding IN
          RE: SOUND ADVICE, INC. SECURITIES LITIGATION, which has annexed as one
          of the exhibits thereto, among other documents, the Form of Warrant
          Agreement between the Registrant and American Stock Transfer & Trust
          Company, as warrant agent, covering the 306,335 warrants issued in
          connection with the settlement of the class action (incorporated by
          reference from the Registrant's current report on Form 8-K, dated
          January 31, 1994, reporting an event on January 28, 1994, Exhibit 2,
          File No. 0-15194)

21        Subsidiaries of the Registrant (filed
                   herewith)

23        Consent of Independent Public Accountants of KPMG Peat Marwick LLP
          (filed herewith)

27        Financial Data Schedule (filed herewith)
</TABLE>

----------

*  Management contract or compensation plan or arrangement required to be filed 
   as an exhibit to this report pursuant to Item 14(c) of Form 10-K.