<PAGE>

                           UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                        WASHINGTON, D.C. 20549

                               FORM 10-K

(Mark One)

/X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended  December 31, 1998
                           ---------------------------------------------------
                                           or

/ /  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  
     SECURITIES  EXCHANGE  ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                       to
                               ---------------------     ---------------------

Commission File Number: 0-26524
                        ------------------------------------------------------

                              MACKIE DESIGNS INC.
------------------------------------------------------------------------------
              (Exact name of registrant as specified in its charter)


          Washington                                 91-1432133
------------------------------------------------------------------------------
(State or other jurisdiction of                    (I.R.S. Employer
 incorporation or organization)                    Identification No.)

16220 Wood-Red Road, N.E., Woodinville, Washington        98072
------------------------------------------------------------------------------
   (Address of principal executive offices)            (Zip Code)

                                (425) 487-4333
------------------------------------------------------------------------------
               (Registrant's telephone number, including area code)

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

   Title of each class           Name of each exchange on which registered
-------------------------    -------------------------------------------------
         None                                       None

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

                      Common Stock - no par value
------------------------------------------------------------------------------
                         (Title of each 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 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. / /

         As of March 15, 1999, the aggregate market value of the Registrant's 
Common Stock held by nonaffiliates of the Registrant was $13,910,821 based on 
the closing sales price of the Registrant's Common Stock on the Nasdaq 
National Market. On that date, there were 12,324,558 shares of Common Stock 
outstanding.

         Portions of the Registrant's definitive Proxy Statement for its 1999 
Annual Meeting of Shareholders are incorporated by reference into Part III 
hereof.


<PAGE>


                                 MACKIE DESIGNS INC.

                                     FORM 10-K
                        FOR THE YEAR ENDED DECEMBER 31, 1998

                                       INDEX
<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               ----
<S>                <C>                                                                                         <C>
Part I

     Item 1.       Business....................................................................................  3

     Item 2.       Properties.................................................................................. 13

     Item 3.       Legal Proceedings........................................................................... 14

     Item 4.       Submission of Matters to a Vote of Securities Holders....................................... 14


Part II

     Item 5.       Market for Registrant's Common Equity and Related Stockholder Matters....................... 14

     Item 6.       Selected Financial Data..................................................................... 15

     Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations....... 16

     Item 7a.      Qualitative and Quantitative Disclosures About Market Risk.................................. 23

     Item 8.       Consolidated Financial Statements and Supplementary Data.................................... 23

     Item 9.       Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........ 40


Part III

     Item 10.      Directors and Executive Officers of the Registrant.......................................... 40

     Item 11.      Executive Compensation...................................................................... 40

     Item 12.      Security Ownership of Certain Beneficial Owners and Management.............................. 40

     Item 13.      Certain Relationships and Related Transactions.............................................. 40


Part IV

     Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 40


Signatures..................................................................................................... 42
</TABLE>
                                     2

<PAGE>


PART I

ITEM 1.  BUSINESS

INTRODUCTION

         Mackie Designs Inc. ("Mackie" or the "Company") develops, 
manufactures, sells and supports high-quality, reasonably priced professional 
audio equipment. The Company's products are used in a wide variety of sound 
applications including home and commercial recording studios, multimedia and 
video production, compact disc, read-only memory ("CD-ROM") authoring, live 
performances, and public address systems. The Company offers a range of 
products at suggested retail prices of up to $13,000, which generally 
represents the low to mid-range price points within the professional audio 
market. Mackie distributes its products through a network of independent 
representatives to over 1,000 retail dealers of professional audio equipment 
in the U.S. and offers its products through local distributors in nearly 100 
other countries.

         In June 1998, the Company purchased Radio Cine Forniture (R.C.F.) 
S.p.A. ("RCF"), an Italian corporation with principal offices in Reggio 
Emilia, Italy and manufacturing facilities located in various locations in 
Italy. RCF's principal activity is the manufacture of loudspeakers and 
speaker components. Its products are distributed throughout the world, and 
are well recognized for quality. RCF owns several subsidiaries which are 
engaged in the distribution of its products in various countries. RCF will 
work in conjunction with the Company in the development and manufacture of 
speaker products bearing both the "MACKIE." and "RCF" brands.

         The Company's primary products are mixers, mixer-related products, 
speakers and amplifiers. A mixer serves as the central component of any 
professional audio system by electronically blending, routing and enhancing 
sound sources, such as voices, musical instruments, sound effects and audio 
tape, video tape and other pre-recorded material. For example, using a mixer, 
a vocalist may be heard above the accompaniment, background singers are 
combined, and individual instruments are blended into the overall mix. The 
musician or sound technician accomplishes this task by using the mixer 
controls to adjust the relative volume of each sound source.

         Audio mixers are a necessary component of any recording system, 
whether the system is being used to produce an audio tape, compact disc 
("CD"), video soundtrack or multimedia CD-ROM. A mixer is used not only to 
balance sound inputs when recording initial tracks, but is also often used to 
further process and edit the tracks prior to duplication and distribution of 
the recording. Mixers are used in recording applications by commercial and 
home studios, in film and video post-production, in business presentations 
and teleconferencing, in the production of television and radio programming 
and in multimedia productions such as CD-ROM and on-line authoring.

         Mixers are also used to control relative audio levels in live 
presentations at locations such as auditoriums, ballrooms, theaters and 
sports arenas. For example, a typical performing group uses from six to 24 
microphones and electronic inputs. Large concert tours and musical road 
productions often have 60 or more sound inputs, which may include 
pre-recorded music and sound effects. Many churches use multiple microphones 
for spoken word and music during their services.

         In late 1996, the Company introduced power amplifiers, its first 
line of products that are not directly related to mixers. Power amplifiers 
are used to amplify the output signals from mixers to a level sufficient to 
drive loudspeakers. Amplifiers are used with mixers and loudspeakers in a 
variety of applications, such as private and touring sound reinforcement 
systems, permanent industrial and commercial installations, recording 
studios, and theatre/cinema and broadcast facilities. The power amplifier 
line is distributed through the same channels as mixers.

                                     3

<PAGE>

         In August 1997, the Company introduced powered monitor speakers. 
Powered monitors combine signal processing, power amplifiers, and speakers in 
one cabinet housing. Enclosing an amplifier in the speaker eliminates one 
step of the path the sound signal travels, reducing the chance of altering 
the original signal. This step is very important when recording with highly 
sensitive professional audio equipment to accurately reproduce sound. 
Mackie's powered monitors are used in conjunction with a mixer, and are sold 
through existing mixer distribution channels.

         The Company's traditional markets have been analog mixers and 
related products. Recently, digital technologies have been developed by the 
Company to expand its market base. Mackie's first digital product, Human User 
Interface ("HUI") interface tool for digital audio workstations ("DAW"), was 
introduced in late 1997. This DAW interface targets the rapidly growing 
digital audio workstation market, and was developed in conjunction with 
Digidesign, a division of Avid Technology, Inc., for ProTools 4.1. DAWs are 
used in video, film, multimedia and recording studios.

         In July 1998, the Company began shipping the Digital 8-Bus digital 
mixing console ("D8B"). Like analog mixers, the D8B blends, routes and 
enhances sound sources but does so with the added capability of recalling all 
settings and automating them in real time. In addition, the D8B's open 
hardware and software architecture allows the customer to configure the D8B 
to interface with any type of device, analog or digital, and the D8B's 
internal sound processing capabilities can be enhanced with third-party 
software "plug-ins." Markets include recorded sound, such as commercial and 
home studios, multimedia production, sound for video games and film and video 
post-production.

         With the acquisition of RCF, the Company expanded its product line 
into speakers and speaker components. RCF manufactures raw speaker components 
used by third-party speaker manufacturers. RCF also produces several types of 
finished speakers ready for the installed sound and professional audio 
markets.

         Mackie was incorporated in Washington in 1988. The Company's 
executive offices and U.S. manufacturing facilities are located at 16220 
Wood-Red Road N.E., Woodinville, Washington 98072, and its telephone number 
is (206) 487-4333. RCF was incorporated in Italy in 1949 and has its 
executive and manufacturing offices in Reggio Emilia, Italy.

         "MACKIE.", the running figure, "RCF," "Artesuono" and all of the 
names of the Company's U.S.-produced products are registered trademarks or 
common law trademarks of the Company. To the extent trademarks are 
unregistered, the Company is unaware of any conflicts with trademarks owned 
by third parties. This document also contains names and marks of other 
companies.

PRODUCTS

         The Company currently offers professional audio mixers and related 
accessories in seven main mixer product lines: compact mixers, 8-Bus 
consoles, SR series mixers, digital consoles, other digital automation 
systems, CFX compact mixers with effects and PPM powered mixers. The Company 
also offers its line of Fast Recovery Series-TM- power amplifiers, an active 
near field studio monitor, the HR824, and is planning to introduce several 
active and passive families of speakers during 1999. Additionally, RCF offers 
loudspeakers and speaker components under its own brand name.

         COMPACT MIXERS. Compact mixers were the Company's first products and 
are designed to be mounted in 19-inch equipment racks, which are the standard 
housings for professional audio and video components. The Company offers four 
basic compact mixers: the CR1604-VLZ, the MS1402-VLZ, the MS1202-VLZ and the 
LM-3204. Applications for the Company's compact mixers include recording and 
project studios, live presentations, video post-production and multimedia. 
Suggested retail prices for these mixers are from $429 to $1199. In the first 
quarter of 1999, the Company will update the compact mixers with further 
improvements in mic preamplifier specifications. The new mixer models will be 
called VLZ Pro.

                                     4

<PAGE>


         8-BUS SERIES. The 8-Bus is a larger mixer console designed for 
multitrack recording and live presentation applications. The Company 
introduced 8-Bus mixers in 1993. At suggested retail prices from 
approximately $2,500 to $4,200, the 8-Bus consoles have opened the market to 
many new users and replaced many larger systems offered by competitors that 
typically cost over $50,000. The console is available in three basic models: 
the 32-channel 32-8, the 24-channel 24-8 and the 16-channel 16-8. The 8-Bus 
console's applications include pre-production and recording of albums for 
major artists and groups, on-line video production, movie soundtrack mixdown, 
television dialog editing, on-stage mixing and live sound reinforcement used 
by touring musical groups, theaters, concert halls, clubs and churches.

         SR SERIES. The SR (Sound Reinforcement) Series are intended as 
high-quality, low-cost 24-, 32-, 40-, or 56-channel audio mixers for live 
music applications that compete with consoles selling for several times their 
retail price. The first product in this line, the SR24-4, was introduced in 
May 1995, followed by the SR32-4 in August 1995. These have suggested retail 
prices of $1,599 to $2,299. In December 1996, Mackie introduced the SR40-8, a 
40-channel large-format sound reinforcement console, and in March 1998, the 
Company introduced the SR56-8, a 56-channel console. The SR40-8 large-format 
console retails for $9,995 and the SR56-8 retails for $13,595. The SR24-4 and 
SR32-4 are larger than a compact mixer but significantly smaller than 
Mackie's 8-Bus consoles, and include features necessary for use with digital 
multitrack recorders. They incorporate much of the advanced technology first 
introduced in the 8-Bus series, including very-low-impedance circuitry, 
wide-band equalization and highly sensitive signal presence indicators. The 
SR24-4 and 32-4 Series mixers are targeted at bands and other touring musical 
groups, audio/video rental services and permanent sound reinforcement venues, 
including churches, clubs, small theaters and auditoriums. The SR40-8 and 
SR56-8 large-format consoles are intended for use as installed equipment in 
venues such as churches, auditoriums, or sporting facilities.

         DIGITAL CONSOLES. In July 1998, the Company entered the digital 
mixer market with the Digital 8-Bus production and post-production console 
("D8B"). With a suggested retail price of $9,999, the D8B has opened the 
high-end production and post-production market to many new users at the 
professional and semi-professional level. At the heart of the D8B is a 
Pentium-REGISTERED TRADEMARK- microprocessor running Mackie Real Time OS-TM-, 
the Company's own operating system. The D8B features 48 input channels, 24 
internal and virtual channels, 8 mix buses and 12 auxiliary buses used for 
effects processing and monitoring. Each input channel includes 
user-configurable 4-band digital equalization, dynamics processing, routing 
to internal effects processors and surround panning capabilities. The D8B has 
25 precision motorized faders to instantly recall mix settings and allow for 
dynamic automation of mix levels. Rear panel card slots allow the addition of 
up to four DSP (Digital Signal Processing) cards that can run third-party 
signal processing software capable of providing up to 16 different effects at 
once. Strategic partnerships with software suppliers offer the customer a 
growing library of effects programs from which to choose. The D8B's external 
Power Supply/CPU unit contains card slots for synchronizing the console to 
other digital devices, linking multiple consoles, connecting consoles to a 
LAN (Local Area Network) and transferring files from one console to another.

         OTHER DIGITAL AUTOMATION SYSTEMS. The Company's other digital 
automation systems include the UltraMix-REGISTERED TRADEMARK- Universal 
Automation System and the Human User Interface ("HUI").

         Digital audio workstations ("DAWs") are used in commercial, project 
and home recording studios, and multimedia authoring such as video 
production, commercials, and other uses that combine visual and sound 
effects. HUI was developed in conjunction with Digidesign, a world leader in 
the DAW market. HUI is a hands-on control surface that enhances DAW-user 
productivity with tactile controls and visual displays for mixing and editing 
functions that were previously controlled by conventional computer controls. 
HUI, which retails for approximately $3,500, replaces a mouse with a control 
surface similar to a mixer. The DAW market includes multimedia, film, video, 
and recording studio professionals.

         CFX SERIES. The Company expects to begin shipping a new line of 
mixers, the CFX series, in 1999. CFX mixers are intended for the amateur and 
semi-pro customer as well as audio/visual and rental dealers. They

                                     5

<PAGE>

utilize the same technologies as the compact mixers and include on-board 
effects processing which provides reverberation, echo, chorusing and other 
signal processing effects. The Company's EMAC-TM- effects circuitry digitally 
processes audio at 32 bits for superior audio quality and control. Three 
models are available with 12, 16 or 20 channels and suggested retail pricing 
ranging from $599 to $999.

         PPM SERIES. In the first quarter of 1999, the Company expects to 
begin shipping PPM powered mixers. These products combine the Company's 
compact mixer technology with its FR Series amplifier technology to provide 
the customer with an economical alternative to separate components. Each of 
the five models features VLZ circuitry, EMAC-TM- digital effects processing 
and FR high-current, fast recovery amplifiers. The 808S is a stereo powered 
mixer with two 500W amplifiers and eight input channels. The 808M is a mono 
powered mixer with a 500W main and a 500W monitor amplifier. The 408S is a 
stereo powered mixer with two 250W amplifiers and eight input channels. The 
408M is a mono powered mixer with a 250W main and a 250W monitor amplifier. 
The 406M is a mono powered mixer with a 250W main and a 250W monitor 
amplifier and six input channels. Suggested retail prices are expected to 
range from $699 to $999.

         FAST RECOVERY SERIES-TM- POWER AMPLIFIer. Use of a high-quality, 
professional amplifier is necessary to retain sound integrity in audio 
production. The Company's FR Series-TM- Power Amplifier was Mackie's first 
non-mixer related product and became available in December 1996. The M-1400i 
and M-1400 amplifier models are designed to keep sound quality intact when 
pushed to extreme levels. Most power amplifiers use technology that can 
result in distortion from internal feedback. The designs of the M-1400i and 
M-1400 minimize feedback while improving delivery through the use of 
high-speed digital circuitry. The M-1400i and M-1400, at suggested retail 
prices of approximately $600 and $650, respectively, are competitively priced 
and incorporate the high performance capabilities of the Company's mixer 
lines. The Company introduced an additional amplifier to this product line, 
the M-2600, in the fourth quarter of 1998 at a suggested retail price of 
approximately $1,200. The Company plans to introduce the M-800 power 
amplifier, with a suggested retail price of approximately $600, in the first 
half of 1999.

         POWERED MONITOR SPEAKERS. Powered monitors are an essential tool in 
accurate sound reproduction, and are used in conjunction with mixer products. 
Powered monitors pre-process sound through equalization and cross-overs, 
accurately amplify, then deliver a signal that is perfectly matched to the 
speaker components. Mackie introduced its first monitor, the HR824 active 
near-field studio monitor, in August 1997. Priced at approximately $1,500 a 
pair, HR824s are primarily designed for studio recording with limited space. 
These powered monitors are currently being used in a wide variety of 
applications including home and professional studio recording, video 
post-production, broadcast post-production, and home stereos.

         In 1999, the Company plans to begin shipping three lines of sound 
reinforcement speakers, all of which utilize active amplification technology. 
Each speaker contains its own amplifier, active equalizer, active cross-over 
and time alignment and phase correction circuitry. This approach allows 
efficiencies and accuracy not possible in passive speaker designs. The SRM 
Sound Reinforcement Monitor series consists of the SRM450 12" two-way active 
speaker in a composite molded enclosure and the SRS1500a active 15" 
sub-woofer. With expected suggested retail prices of $799 each, the SRM 
products will be targeted at the live sound and audio/visual and rental 
markets. The MAS Mackie Active Stage System series is an affordable active 
sound reinforcement system for live sound and smaller installations. The MAS 
Series utilizes the same active technology as the SRM series but in a more 
affordable wood and composite enclosure. Suggested retail prices range from 
$699 to $999. The Fussion Series consists of large format active speakers 
intended for large live sound touring systems, permanent installation, 
corporate sound and audio/visual and rental customers. Products range from 
active three-way speakers to active sub-woofers and active floor monitors. 
Suggested retail prices are expected to range from $2,500 to $4,500.

         RCF PRECISION COMPONENTS. RCF manufactures loudspeaker components. 
These components are sold on an OEM basis to customers throughout the world 
who use them in their own branded loudspeakers. RCF components are found in 
some of the best performing speakers in the world. These speakers can be 
heard in

                                     6
<PAGE>

many large touring sound systems as well as stadiums, auditoriums, exhibit 
halls, theatres, concert halls, clubs and churches.

         PROFESSIONAL SPEAKERS. RCF also makes many families of finished 
loudspeakers which are marketed under the RCF brand name. These loudspeakers 
are sold in the traditional passive format, meaning that amplification must 
be provided, and more recently in the active format, meaning that the 
amplifier is built into the loudspeaker. RCF introduced its Art Series of 
loudspeakers in 1997. The Art Series includes active and passive speakers in 
a molded plastic enclosure.

         CONTRACTOR PRODUCTS. For 50 years, RCF has produced and sold a large 
range of commercial products to sound reinforcement contractors who use the 
products to install public address systems throughout the world. The products 
are used in everything from life safety systems to background and foreground 
music systems. The products produced and sold to sound contractors include 
speakers, amplifiers and mixers. RCF leads the Italian market for contractor 
products and has begun expanding into other European markets where it is 
quickly gaining acceptance.

DISTRIBUTION AND SALES

         In the U.S., the Company uses a network of representatives to sell 
to over 1,000 retail dealers, some of which have several outlets. In other 
countries, the Company sells through approximately 70 local distributors, who 
in turn sell to dealers. Sales to customers outside of the U.S. accounted for 
approximately 44%, 38% and 38% of the Company's net sales in 1998, 1997 and 
1996, respectively.

         The Company carefully selects and reviews its representatives and 
dealers, including mail order outlets. Representatives and domestic dealers 
enter into agreements with the Company that govern the terms under which they 
may sell the Company's products. Agreements with dealers and distributors 
define an approved territory and set forth the products to be sold. These 
agreements are reviewed on a six-month basis, and decisions to renew are 
based on several factors, including sales performance and adequate 
representation of the Company and its products. The Company's representatives 
are paid on a commission basis. Dealers retain the difference between their 
cost and the sale price of products sold.

         International distributors are selected on the basis of criteria 
established by the Company. International distributors retain the difference 
between their cost and the sale price of products sold. Through the 
acquisition of RCF, the Company now has sales offices in the United Kingdom, 
France, Italy, Germany and China.

         In the U.S., the Company's products are sold in musical instrument 
stores, pro audio outlets and several mail order outlets. Top U.S. retail 
dealers in 1998 included Guitar Center, Mar's Music, Musician's Friend, 
Sweetwater Sound, Thoroughbred Music, Full Compass Systems, West LA Music, 
Manny's Music, B&H Photo and Washington Music Center. These 10 dealers 
represented approximately 34% of the Company's net sales in the U.S. in 1998. 
Guitar Center accounted for approximately 14% of domestic net sales in 1998; 
no other dealer accounted for more than 10% of domestic net sales in this 
period.

         Internationally, the Company has distribution in nearly 100 
countries. The top international distributors in 1998 included Musik & 
Technik (Germany), SF Marketing Inc. (Canada), Musikengro (France), Tropical 
Music Corp. (South America excluding Brazil, Chile and Argentina; Central 
America and the Caribbean nations), Hermes International (Mexico), Key Audio 
Systems (United Kingdom), Recoton Italia S.r.l. (Italy), Korg Import Division 
(Japan), Tom Lee Music (China), and Go Wild AG (Switzerland). These 10 
distributors represented approximately 39% of the Company's international net 
sales in 1998. No distributor accounted for more than 10% of international 
net sales in this period.

                                     7

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 MARKETING

         The Company's marketing strategy is designed to communicate with 
end-users directly and to educate them about its products. The Company's 
in-house marketing and design department creates all of its advertising, 
brochures, video, multimedia and trade show materials. Materials are provided 
by its marketing department to representatives, distributors and dealers 
worldwide, as part of the Company's overall sales strategy. Owner's manuals 
and sales literature are currently produced in several different languages. 
These materials are provided as a complement to the Company's direct 
advertising and customer support follow-up program. To further enhance 
customer awareness and understanding of its products, the Company advertises 
in leading trade publications, provides ongoing technical training and 
education for representatives and distributors, and participates in the 
primary industry trade shows for the musical instrument, video, recording 
studio, permanent installation and multimedia markets. Mackie has won several 
national advertisement awards as a result of this commitment to detail and 
excellence.

CUSTOMER SUPPORT

         The Company's customer support program is designed to enhance 
loyalty by building customer understanding of product use and capabilities. 
The customer service and support operation also provides the Company with a 
means of understanding customer requirements for future product enhancements. 
This understanding comes through direct customer contact, as well as through 
close analysis of warranty card responses. To encourage the return of 
warranty cards, the Company has established a policy of extending the 
warranty period for certain products to customers returning completed 
warranty cards.

         The Company maintains a staff of product support specialists at its 
headquarters to provide direct technical service and support. Telephone 
support through a toll-free number is provided during scheduled business 
hours, and via the Company's web-site after business hours. Although most 
calls involve troubleshooting with owners of Mackie products, product support 
specialists also field calls from inquiring purchasers and may participate in 
making sales.

         The Company also relies on its international distributors to support 
its products in countries where the Company does not have its own offices. 
These distributors are responsible for the costs of carrying inventory 
required to meet customer needs.

         Service and repairs on Mackie's products sold in the U.S. are 
performed at its headquarters and, for certain specialized products, at 
approximately 100 authorized warranty service centers located throughout the 
U.S. Multiple locations are necessary for customer convenience and to 
minimize shipping costs. All products shipped outside of the U.S., except to 
countries where the Company has its own offices, are serviced by the 
Company's international distributors.

RESEARCH AND DEVELOPMENT

         The Company's research and development strategy is to develop 
affordable, high-quality products and related accessories for its targeted 
markets. On December 31, 1998, the Company's research and development staff 
consisted of 59 individuals, in addition to Mr. Mackie, who engineer and 
design all aspects of the Company's new products. The Company's research and 
development expenses were approximately $5.1 million in 1998, $5.9 million in 
1997 and $3.6 million in 1996.

COMPETITION

         The market for professional audio systems in general is highly 
competitive. The Company must compete with several professional audio 
manufacturers who have significantly greater development, sales and financial 
resources than the Company. The Company's major competitors in the mixer 
market are subsidiaries of Harman

                                     8

<PAGE>


International (including Soundcraft Ltd., Allen & Heath Brenell Ltd. and DOD 
Electronics Corp.), Sony Corporation, Yamaha Corporation, Peavey Electronics 
Corporation, Teac America, Inc. (Tascam), SoundTracs PLC and Behringer 
Spezielle Studiotechnik GmbH. Competitors in the amplifier market include 
Peavey Electronics Corporation, Crown International, QSC Audio Products, Inc. 
and Crest Audio Inc. Competing speaker manufacturers include Genelec, Inc., 
Event Electronics, Inc., Alesis Corporation, JBL (produced by Harman 
International) and ElectroVoice, Inc. Competitors in the component speaker 
market include Emminence Speaker Corporation, Acustica Beyma S.A. and B&C 
Speakers S.p.A. Competitors in the installed sound category include Toa 
Corporation, Philips Electronics N.V. and Bouyer S.A.

         The Company competes primarily on the basis of product quality and 
reliability, price, ease of use, brand name recognition and reputation, 
ability to meet customers' changing requirements and customer service and 
support. However, despite the Company's investment in research and 
development, there can be no assurance that the Company will be successful in 
developing and marketing, on a timely basis, product modifications or 
enhancements or new products that respond effectively to technological 
advances by others.

PROPRIETARY TECHNOLOGY

         Mackie has a strong interest in protecting the intellectual property 
assets of the Company that reflect original research, creative development, 
and product development. As such, the Company has sought protection through 
patents, copyrights, trademarks, and trade secrets. The Company has applied 
and filed for various design and utility patents, both domestically and 
internationally. The Company has actively used certain trademarks, and has 
applied for and registered specific trademarks in the U.S. and in foreign 
countries. To protect works of original authorship, the Company asserts 
copyright protection.

         To date, the Company has 47 issued design patents, in six countries, 
including the U.S. that cover several products, including the SR24-4, 
MS1202-VLZ, CR1604-VLZ, 40-8 Bus, FR Series, HR824 Studio Monitor, HUI and 
Digital 8-Bus. In addition, the Company has 26 pending design patent 
applications in at least five countries, including the U.S. Mackie has also 
filed for utility patent protection in the U.S. and certain foreign countries 
on several products, including the HR824 Studio Monitor and Digital 8-Bus. 
While patents provide certain legal rights of enforceability, there can be no 
assurance that the historical legal standards surrounding questions of 
validity and enforceability will continue to be applied or that current 
defenses as to issued patents will, in fact, be considered substantial in the 
future. There can be no assurance as to the degree and range of protection 
any patent will afford, whether patents will issue or the extent to which the 
Company may inadvertently infringe upon patents granted to others.

         To date the Company has 161 issued trademark registrations and 155 
pending trademark applications in the U.S. and in multiple foreign countries 
for protection of marks, including MACKIE.-REGISTERED TRADEMARK-, the running 
man design, VLZ-REGISTERED TRADEMARK-, ULTRAMIX-REGISTERED TRADEMARK-, and 
the three dimensional configuration of the 24-8 Bus and 32-8 Bus. In addition 
the Company asserts common law trademark protection for various marks, and 
may in the future seek registration. Mackie intends to continue filing 
applications for trademark protection on various marks, as well as 
identifying other marks as trademarks of the Company. However, there is no 
assurance that trademark protection will be granted in any or all countries 
in which Mackie has filed or will file for registration of trademarks, or any 
country in which Mackie currently sells or intends to sell products. There 
can be no assurance that, as regarding these applications, Mackie will be 
granted the breadth of description of goods or services identified in 
respective applications. Also, Mackie cannot provide any assurance that any 
mark, whether or not registered, could withstand a challenge as to validity. 
There is no assurance that its trademarks would not be considered confusingly 
similar to, or infringing of, a third-party mark or that Mackie could 
successfully defend any of its trademarks.

         Along with extensive trademark and patent registration and filings, 
the Company has claimed copyright protection for works of original 
authorship, including product brochures, literature, advertisement, and web 
pages. In certain cases, the Company has filed and will continue to file for 
copyright registration in the U.S.

                                     9
<PAGE>

While copyrights provide certain legal rights of enforceability, there can be 
no assurance as to the ability to successfully prevent others from infringing 
upon Mackie's copyrights.

         The Company has never conducted a comprehensive patent search 
relating to the technology used in its products. The Company believes that 
its products do not infringe the proprietary rights of others. There can be 
no assurance, however, that others will not assert infringement claims 
against the Company in the future or that claims will not be successful.

         While Mackie pursues patent, trademark and copyright protection for 
products and various marks, it also relies on trade secrets, know-how and 
continuing technology advancement, manufacturing capabilities, affordable, 
high-quality products, brand name recognition, new product introduction and 
direct marketing efforts to develop and maintain its competitive position. 
The Company's policy is to have each employee enter into an agreement that 
contains provisions prohibiting the disclosure of confidential information to 
anyone outside the Company and to recognize Mackie's ownership of 
intellectual property developed by employees. Consulting contracts generally 
provide for the protection of the Company's intellectual property and the 
requirement of confidentiality. There can be no assurance, however, that 
these confidentiality agreements will be honored or that the Company can 
effectively protect its rights to its unpatented trade secrets. Moreover, 
there can be no assurance that others will not independently develop 
substantially equivalent proprietary information and techniques or otherwise 
gain access to the Company's trade secrets.

         By contrast, RCF has traditionally not sought patent protection for 
its products. Similarly, RCF has not pursued trademark or copyright 
protection except for the names "RCF" and "Artesuono."

MANUFACTURING

         The Company manufactures its products in its facilities near 
Seattle, Washington and in northern Italy. Nearly all of the Company's 
products share many components, which allows for integrated manufacturing of 
several distinct products and in certain cases significant part purchase 
volume discounts. Much of the Company's mixer console and power amplifier 
assembly work is performed on automated component-insertion machines. 
Currently, the assembly of most of the parts in a circuit board is automated.

         The Company relies on several vendors to support its product 
manufacturing and attempts, if possible, to purchase certain materials from 
multiple sources to allow for competitive pricing and to avoid reliance on 
one or only a few vendors. The Company relies almost exclusively on one 
vendor for its potentiometers, but is in contact with other potentiometer 
manufacturers regularly. Interruption in, or cessation of, the supply of 
potentiometers from this supplier could adversely affect the Company's 
production capability, as the qualification process for another manufacturer, 
from sample submission to production quality and quantity delivery, could 
take several months.

BACKLOG

         The Company does not generally track backlog. Generally, orders are 
shipped within two weeks after receipt. In the case of new product 
introductions or periods where product demand exceeds production capacity, 
the Company allocates products to customers on a monthly basis until demand 
is met.

EMPLOYEES

         At December 31, 1998, the Company and its subsidiaries had 946 
full-time equivalent employees, including 106 in marketing, sales and 
customer support, 60 in research and development, 710 in manufacturing and 
manufacturing support (which includes manufacturing engineering) and 70 in 
administration and finance. Approximately 120 of the Company's employees in 
Italy are represented by a labor union, and the Company believes relations 
with all employees, union and non-union, are favorable.

                                    10
<PAGE>

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

         THE COMPANY'S DISCLOSURE AND ANALYSIS IN THIS REPORT CONTAIN SOME 
FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS GIVE THE COMPANY'S 
CURRENT EXPECTATIONS OR FORECASTS OF FUTURE EVENTS. YOU CAN IDENTIFY THESE 
STATEMENTS BY THE FACT THAT THEY DO NOT RELATE STRICTLY TO HISTORICAL OR 
CURRENT FACTS. IN PARTICULAR, THESE INCLUDE STATEMENTS RELATING TO FUTURE 
ACTION, PROSPECTIVE PRODUCTS, NEW TECHNOLOGIES, FUTURE PERFORMANCE OR RESULTS 
OF CURRENT AND ANTICIPATED PRODUCTS, SALES EFFORTS, EXPENSES, YEAR 2000 AND 
EURO COMPLIANCE REMEDIATION ACTIVITIES, THE OUTCOME OF CONTINGENCIES, AND 
FINANCIAL RESULTS.

         ANY OR ALL OF THE COMPANY'S FORWARD-LOOKING STATEMENTS IN THIS 
REPORT OR IN ANY OTHER PUBLIC STATEMENT MADE BY THE COMPANY MAY TURN OUT TO 
BE WRONG. THEY CAN BE AFFECTED BY INACCURATE ASSUMPTIONS MADE BY THE COMPANY 
OR BY KNOWN OR UNKNOWN RISKS OR UNCERTAINTIES. MANY FACTORS - FOR EXAMPLE, 
PRODUCT COMPETITION AND PRODUCT DEVELOPMENT - WILL BE IMPORTANT IN 
DETERMINING FUTURE RESULTS. CONSEQUENTLY, NO FORWARD-LOOKING STATEMENT CAN BE 
GUARANTEED. ACTUAL RESULTS MAY MATERIALLY VARY.

         THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE ANY 
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE 
EVENTS OR OTHERWISE. YOU ARE ADVISED, HOWEVER, TO CONSULT ANY FUTURE 
DISCLOSURES MADE BY THE COMPANY ON RELATED SUBJECTS IN THE COMPANY'S 10-Q, 
8-K AND 10-K REPORTS TO THE SEC. ALSO, NOTE THAT THE COMPANY PROVIDES THE 
FOLLOWING CAUTIONARY DISCUSSION OF RISKS, UNCERTAINTIES AND POSSIBLE 
INACCURATE ASSUMPTIONS RELEVANT TO THE COMPANY'S BUSINESS. THESE ARE FACTORS 
THAT THE COMPANY THINKS COULD CAUSE ITS ACTUAL RESULTS TO DIFFER MATERIALLY 
FROM EXPECTED AND HISTORICAL RESULTS. OTHER FACTORS BESIDES THOSE LISTED HERE 
COULD ALSO ADVERSELY AFFECT THE COMPANY. THIS DISCUSSION IS PERMITTED BY THE 
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         DEVELOPMENT, INTRODUCTION AND SHIPMENT OF NEW PRODUCTS. The Company 
currently is developing new analog and digital mixers, amplifiers and 
loudspeakers. Significant resource, technological, supplier, manufacturing or 
other problems may delay the development, introduction or manufacture of 
these products.

         The Company's sales have been significantly affected by delays in 
developing and releasing new products. Some customers waited for the 
Company's new products, while others purchased products from the Company's 
competitors. Delays in the completion and shipment of new products, or 
failure of customers to accept new products, may affect future results.

         VARIABILITY IN QUARTERLY OPERATING RESULTS. The Company's operating 
results tend to vary from quarter to quarter. The Company's revenue in each 
quarter is substantially dependent on orders received within that quarter. 
Conversely, the Company's expenditures are based on investment plans and 
estimates of future revenues. The Company may, therefore, be unable to 
quickly reduce spending if revenues decline in a given quarter. As a result, 
operating results for that quarter will suffer. The Company's results of 
operations for any one quarter are not necessarily indicative of results for 
any future period.

         Other factors which may cause the Company's quarterly results to 
fluctuate include:

--       increased competition in the Company's niche markets
--       timing of new product announcements
--       product releases and pricing changes by the Company or its competitors
--       market acceptance or delays in the introduction of new products
--       production constraints
--       the timing of significant orders
--       customers' budgets
--       foreign currency exchange rates

                                    11
<PAGE>

         Due to all of the foregoing factors, it is possible that in some 
future quarters the Company's operating results will be below the 
expectations of analysts and investors.

         RAPID TECHNOLOGICAL CHANGE. Product technology in the Company's 
industry evolves rapidly, making timely product innovation essential to 
success in the marketplace. The introduction of products with improved 
technologies or features may render the Company's existing products obsolete 
and unmarketable. If the Company cannot develop products in a timely manner 
in response to industry changes, or if the Company's products do not perform 
well, the Company's business and financial condition will be adversely 
affected. Also, the Company's new products may contain defects or errors 
which give rise to product liability claims against the Company or cause them 
to fail to gain market acceptance.

         ECONOMIC AND MARKET CONDITIONS. The Company's business is impacted 
by domestic and global economic conditions and by the health of the 
professional audio market in the world. The Company's operations may in the 
future reflect substantial fluctuations from period to period as a 
consequence of such general economic and market conditions. These factors 
could have a material adverse effect on the Company's business and financial 
condition.

         COMPETITION. The Company expects competition to increase from both 
established and emerging companies. If the Company fails to compete 
successfully against current and future sources of competition, the Company's 
profitability and financial performance may be adversely affected.

         DEPENDENCE ON SUPPLIERS. Certain parts used in the Company's 
products are currently available from either a single supplier or from a 
limited number of suppliers. If the Company cannot develop alternative 
sources of these components, or if the Company experiences deterioration in 
its relationship with these suppliers, there may be delays or reductions in 
product introductions or shipments, which may materially adversely affect the 
Company's operating results.

         Because the Company relies on a small number of suppliers for 
certain parts, the Company is subject to possible price increases by these 
suppliers. Also, the Company may be unable to accurately forecast its 
production schedule. If the Company underestimates its production schedule, 
suppliers may be unable to meet the Company's demand for components. This 
delay in the supply of key components may materially adversely affect the 
Company's business.

         INTERNATIONAL OPERATIONS. International sales represented 
approximately 44% of the Company's net sales for the year ended December 31, 
1998. The Company expects that international sales will continue to be a 
significant portion of its revenue. International sales may fluctuate due to 
various factors, including:

--         unexpected changes in regulatory requirements
--         tariffs and taxes
--         difficulties in staffing and managing foreign operations
--         longer average payment cycles and difficulty in collecting accounts 
           receivable
--         fluctuations in foreign currency exchange rates
--         product safety and other certification requirements
--         political and economic instability


         The European Community and European Free Trade Association have 
established certain electronic emission and product safety requirements 
("CE"). Certain of the Company's new products have not yet met these 
requirements. Failure to obtain either a CE certification or a waiver for any 
product may prevent the Company from marketing that product in Europe.

                                    12
<PAGE>

         The Company operates subsidiaries in Italy, the United Kingdom,
Germany, France, the Netherlands and China. The Company's business and financial
condition is, therefore, sensitive to currency exchange rates or any other
restrictions imposed on these currencies.

         PROTECTION OF INTELLECTUAL PROPERTY.  Refer to the section 
captioned "Proprietary Technology" in Item 1 above.

         ACQUISITIONS AND BUSINESS COMBINATIONS. In June 1998, the Company 
acquired RCF, a manufacturer of loudspeakers and speaker components. This was 
a step to expand the Company's product line and manufacturing capabilities. 
The Company is currently working to integrate the two companies' product 
offerings. Integrating the products and operations of RCF with the Company's 
may place significant burdens on the Company's management and operating 
teams, and may divert management's attention from its other business 
concerns. If the Company fails to integrate RCF's products and operations 
with its own, the Company's business and financial condition may suffer. The 
RCF products may not be accepted by the Company's sales channels or customers.

         The Company may pursue additional acquisitions of complementary 
technologies, product lines or businesses. Further acquisitions may include 
risks like those involved in the Company's acquisition of RCF, as well as 
risks of entering markets where the Company has no or limited prior 
experience, the potential loss of key employees of the acquired company, and 
impairment of relationships with existing employees, customers and business 
partners. Further acquisitions may also impact the Company's financial 
position. For example, the Company may use significant cash or incur 
additional debt, which would weaken the Company's balance sheet. The Company 
may also amortize expenses related to the goodwill and intangible assets 
acquired, which may reduce the Company's profitability.

         The Company cannot guarantee that future acquisitions will improve 
the Company's business or operating results.

         DEPENDENCE ON KEY PERSONNEL. The Company's future success will 
depend in large part on the continued service of many of its technical, 
marketing, sales and management personnel and on its ability to attract, 
train, motivate and retain highly qualified employees. The Company's 
employees may voluntarily terminate their employment with the Company at any 
time. Competition for highly qualified employees is intense, and the process 
of locating technical, marketing, sales and management personnel with the 
combination of skills and attributes required to execute the Company's 
strategy is often lengthy. The Company believes that it will need to hire 
additional technical personnel in order to enhance its existing products and 
to develop new products. If the Company is unable to hire additional 
technical personnel, the development of new products and enhancement would 
likely be delayed. The loss of the services of key personnel or the inability 
to attract new personnel could have a material adverse effect upon the 
Company's results of operations.

         RISK OF YEAR 2000 NON-COMPLIANCE.  Refer to the section captioned 
"Year 2000 Issue" in Item 7 below.

         RISK OF EURO NON-COMPLIANCE.  Refer to the section captioned "Euro 
Conversion" in Item 7 below.

ITEM 2.  PROPERTIES

         The Company's headquarters near Seattle, Washington house its 
manufacturing, administrative, sales and marketing, research and development 
and customer support operations. The building, which is occupied pursuant to 
a lease through December 31, 2004, is an 89,000 square foot manufacturing and 
office facility. The monthly rent stated in the lease is $56,613, adjusted 
annually for changes in the Consumer Price Index (monthly rent expense in 
1998 was $60,982). The Company leases its facility from Mackie Holdings, LLC, 
an entity owned by

                                    13
<PAGE>

three significant shareholders and directors of the Company, on terms the 
Company believes are at least as favorable to the Company as might have been 
obtained from unaffiliated parties.

         In November 1995, the Company entered into a 10-year lease, with an 
option to extend for an additional 10 years, covering property that is 
adjacent to the Company's existing facility. The building is approximately 
81,250 square feet. The Company is using the building for product shipping, 
additional vertical integration of manufacturing processes and other 
manufacturing activities. Initial base monthly rent for the entire building 
is $43,063; after five years, the base rent increases to $49,563 per month.

         The Company's primary facilities in Reggio Emilia, Italy comprise a 
manufacturing facility totaling 119,000 square feet and a building for 
administrative offices of 14,000 square feet. Both facilities are 
Company-owned.

ITEM 3.  LEGAL PROCEEDINGS

         In June 1997, the Company filed a lawsuit against certain parties, 
including one of the Company's major competitors and a major dealer of the 
Company's products, alleging infringement of its intellectual property 
rights. The suit against the Company's former dealer has been settled in 
full, and the dealer will resume representation of Mackie's products on April 
2, 1999. The remaining defendants include Behringer Spezielle Studio-Technick 
Gmbh ("Behringer") and Ulrich Bernard Behringer. The suit claims damages in 
the amount of $327 million. Cases are pending in the United States District 
Court for the Western District of Washington and a local court in the United 
Kingdom. Behringer has filed counterclaims alleging unspecified damages. 
While the Company intends to vigorously prosecute its claims and the 
counterclaims, there can be no assurance that the Company will prevail in any 
of these actions.

         The Company is also involved in various legal proceedings and claims 
that arise in the ordinary course of business. Management currently believes 
that these matters will not have a material adverse impact on the Company's 
financial position, liquidity or results of operations.

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

         None.

PART II

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

         The Company's Common Stock is traded on the NASDAQ National Market 
System under the symbol "MKIE." The following table sets forth the high and 
low sale prices as reported on NASDAQ for the periods indicated. These prices 
do not include retail markups, markdowns or commissions.

<TABLE>
<CAPTION>

                                                Common Stock
                               -----------------------------------------------
                                          HIGH                     LOW
                               ------------------------ ----------------------
<S>                                        <C>                     <C>
 Year Ended December 31, 1997:
  First Quarter                            $  8.00                 $ 5.88
  Second Quarter                           $  8.88                 $ 5.63
  Third Quarter                            $  9.88                 $ 7.75
  Fourth Quarter                           $ 10.25                 $ 6.00
</TABLE>
                                    14
<PAGE>

<TABLE>

<S>                                        <C>                     <C>
 Year Ended December 31, 1998:
  First Quarter                            $  7.50                 $ 6.19
  Second Quarter                           $  7.75                 $ 6.25
  Third Quarter                            $  7.75                 $ 5.88
  Fourth Quarter                           $  7.13                 $ 5.25
</TABLE>

         As of March 15, 1999, there were 12,324,558 shares of Common Stock 
outstanding held by approximately 93 holders of record. The number of holders 
does not include individual participants in security position listings.

         In 1997 and 1998, the Company paid no dividends on its common stock. 
The Company's present policy is to retain earnings to finance the Company's 
business. Any future dividends will be dependent upon the Company's financial 
condition, results of operations, current and anticipated cash requirements, 
acquisition plans and plans for expansion, and any other factors that the 
Company's Board of Directors deems relevant. Under its bank loan agreement, 
the Company is prohibited from paying any dividends without prior approval 
from the bank. The Company has no present intention of paying dividends on 
its common stock in the foreseeable future.

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

(in thousands, except per share data)
                                                     Year         Year           Year          Year          Year
                                                     Ended        Ended          Ended         Ended         Ended
                                                  12/31/98 (a)   12/31/97      12/31/96      12/31/95      12/31/94
                                                 -------------- ------------ ------------- ------------- -------------
<S>                                              <C>            <C>          <C>           <C>           <C>
STATEMENT OF INCOME DATA
-------------------------------------------------------------------------------------------------------------------------
   Net Sales                                          $100,975      $74,889       $73,236       $63,919       $49,907
-------------------------------------------------------------------------------------------------------------------------
   Gross Profit                                       $ 38,271      $27,796       $28,025       $27,163       $21,887
-------------------------------------------------------------------------------------------------------------------------
   Operating Expenses                                 $ 30,106      $20,670       $17,784       $13,627       $10,388
-------------------------------------------------------------------------------------------------------------------------
   Pro Forma Net Income (b)                           $  5,581      $ 5,537       $ 7,421       $ 9,026       $ 7,555
-------------------------------------------------------------------------------------------------------------------------

BALANCE SHEET DATA
-------------------------------------------------------------------------------------------------------------------------
   Working Capital                                    $ 35,784      $35,956       $32,020       $30,154       $ 7,004
-------------------------------------------------------------------------------------------------------------------------
   Total Assets                                       $119,337      $53,372       $46,256       $38,046       $13,592
-------------------------------------------------------------------------------------------------------------------------
   Long-Term Debt                                     $ 23,011      $     0       $     0       $     0       $   383
-------------------------------------------------------------------------------------------------------------------------
   Shareholders' Equity                               $ 49,569      $46,478       $42,283       $34,807       $ 8,244
-------------------------------------------------------------------------------------------------------------------------

PER COMMON SHARE DATA (DILUTED BASIS)
-------------------------------------------------------------------------------------------------------------------------
   Diluted Income Per Share                           $   0.43      $  0.41       $  0.55       $  0.73       $  0.68
-------------------------------------------------------------------------------------------------------------------------
   Shares Used In Diluted Income Per Share              12,945       13,401        13,611        12,362        11,140
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

 (a) Includes financial data of RCF which was acquired June 29, 1998. Results 
     of operations for RCF are included beginning July 1, 1998.

(b)  Through August 16, 1995, the Company was taxed as an S Corporation and 
     therefore was not subject to income taxes. The pro forma income statement
     data includes certain adjustments to reflect a provision for income taxes
     as if the Company had been subject to income taxes as a C Corporation.

                                    15

<PAGE>


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

GENERAL

         This Annual Report on Form 10-K includes forward-looking statements 
within the meaning of the Private Securities Litigation Reform Act of 1995. 
This Act provides a "safe harbor" for forward-looking statements to encourage 
companies to provide prospective information about themselves as long as they 
identify these statements as forward-looking and provide meaningful 
cautionary statements identifying important factors that could cause actual 
results to differ from the projected results. All statements other than 
statements of historical fact made in this Annual Report on Form 10-K are 
forward-looking. In particular, statements herein regarding future results of 
operations and financial position, the Company's ability to develop and 
introduce new products, the Company's ability to manage its rapid growth, its 
ability to integrate the operations of RCF, the assessment of the Company's 
Year 2000 and euro compliance exposures and completion of remediation 
efforts, and any other guidance on future periods are forward-looking 
statements. Forward-looking statements reflect management's current 
expectations and are inherently uncertain. The Company's actual results may 
differ significantly from management's expectations. The following 
discussions and the section entitled "Business - Cautionary Factors That May 
Affect Future Results" describe some, but not all, of the factors that could 
cause these differences.

         The Company derives its operating revenue from worldwide sales of 
audio mixers, speakers and other professional audio equipment. Sales outside 
the U.S. account for a significant portion of the Company's total sales. 
International sales volumes have historically been affected by foreign 
currency fluctuations relative to the U.S. dollar. When weaknesses of local 
currencies have made the Company's products more expensive, sales to those 
countries have declined.

         The Company's gross margins are also affected by its international 
sales. Typically, gross margins from exported products by Mackie are lower 
than from those sold in the U.S. due to discounts offered to its 
international distributors. RCF does not offer discounts to its distributors. 
The discounts offered by Mackie are given because the international 
distributor typically incurs certain expenses, including technical support, 
product service and in-country advertising, that the Company normally incurs 
for domestic sales. The Company offered its international distributors a 
weighted-average discount of approximately 10.1% in 1998, 14.8% in 1997, and 
12.7% in 1996. The decrease in discounts in 1998 is attributable to the lack 
of discounts offered by RCF. Sales outside the U.S. represented approximately 
44%, 38%, and 38% of the Company's net sales in 1998, 1997 and 1996, 
respectively.

         The Company's gross margins are also affected by the purchase of 
some components outside of the U.S. and Italy. As a result of fluctuations in 
the value of local currencies relative to the U.S. dollar and Italian lira, 
some of the Company's international component suppliers have increased prices 
and may further increase prices. The Company employs foreign exchange hedging 
strategies for certain currencies to help mitigate the effect of currency 
fluctuations.

         The Company's gross margins have fluctuated from time to time due 
primarily to inefficiencies related to the introduction and manufacturing of 
new products and inefficiencies associated with integrating new equipment 
into the Company's manufacturing processes. Historically, fluctuations have 
also resulted from varying prices of components and competitive pressures.

         The Company plans to introduce new products and product revisions at 
a more rapid rate than it has in the past. Some anticipated new products will 
require the implementation of manufacturing practices with which the Company 
is not familiar. This could result in lower margins as the Company becomes 
more familiar with new manufacturing procedures.

                                    16
<PAGE>

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1997

         The results of operations for the year ended December 31, 1998 
include the results of operations for RCF beginning July 1, 1998.

NET SALES

         The Company's net sales increased 34.8% to $101.0 million in 1998 
from $74.9 million in 1997. The increase was primarily attributable to the 
inclusion of RCF's sales of $22.5 million. Sales outside the U.S. increased 
to 44% of the Company's total net sales in 1998 from 38% in 1997. This 
increase was due mainly to the inclusion of sales by RCF whose sales outside 
of the U.S. comprised 89% of its total net sales for the six months ended 
December 31, 1998.

COST OF SALES

         Gross profit was $38.3 million in 1998 compared with $27.8 million 
in 1997. The increase was largely attributable to the inclusion of RCF's 
gross profit of $8.6 million. Gross profit as a percentage of sales increased 
to 37.9% in 1998 from 37.1% in 1997. The increase in gross margin percentage 
was due primarily to a difference in product mix for 1998 compared with 1997 
as sales of certain product lines provided higher gross margins than other 
product lines.

MARKETING AND SALES

         Marketing and sales expenses increased to $15.1 million in 1998 from 
$9.9 million in 1997. The increase was primarily attributable to the 
inclusion of marketing and sales expenses for RCF of $4.1 million. The 
primary components of marketing and sales expenses include salaries ($3.5 
million in 1998 and $2.0 million in 1997), independent representatives' 
commissions ($4.0 million in 1998 and $2.7 million in 1997), and advertising 
($3.7 million in 1998 and $3.0 million in 1997). As a percentage of net 
sales, marketing and sales expenses increased to 15.0% in 1998 from 13.3% in 
1997.

ADMINISTRATIVE

         Administrative expenses increased to $9.9 million for 1998 from $4.8 
million for 1997. The increase was primarily attributable to the inclusion of 
administrative expenses for RCF of $3.6 million. This increase was also due 
to increased legal expenses due to the lawsuit filed by the Company against 
certain parties alleging infringement of its intellectual property rights 
(see Item 3, "Legal Proceedings" in this Form 10-K). As a percentage of net 
sales, administrative expenses were 9.8% in 1998 compared with 6.5% in 1997.

RESEARCH AND DEVELOPMENT

         Research and development expenses decreased to $5.1 million in 1998 
from $5.9 million in 1997. As a percentage of net sales, these expenses 
decreased to 5.0% in 1998 from 7.9% in the corresponding period of 1997. This 
decrease was due primarily to decreases in prototype and other expenditures. 
R&D expenses for RCF were $759,000. Mackie has historically incurred a higher 
percentage of R&D expenses as a percentage of net sales when compared with 
RCF due to a higher level of product development and innovation.

INTEREST INCOME AND INTEREST EXPENSE

                                    17
<PAGE>

         Interest income decreased to $782,000 in 1998 compared with $791,000 
in 1997 due to a lower average cash balance. Interest expense increased to 
$1,521,000 in 1998 from none in 1997 primarily due to borrowings related to 
the acquisition of RCF and to interest-bearing debt carried by RCF.

INCOME TAX PROVISION

         The provision for income taxes for 1998 of $2,052,000 represents an 
overall effective rate for 1998 of 26.8%. The provision for income taxes for 
1997 of $2,373,000 represented an overall effective rate for 1997 of 30.0%. 
The decrease in the overall effective rate in 1998 compared with the 
statutory rate is primarily due to the benefits provided by the Company's 
foreign sales corporation and the research and development tax credit.

YEAR ENDED DECEMBER 31, 1997 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1996

NET SALES

         The Company's net sales increased 2.3% to $74.9 million in 1997 from 
$73.2 million in 1996. The increase in sales was primarily attributable to 
sales from new products (the SR40-8, FR Series power amplifiers, and the 
HR824 active studio monitor), partially offset by a decrease in sales in two 
mixer product lines (the 8-Bus Series mixers and compact mixers). Sales of 
the SR40-8 (which became available in December 1996), FR Series power 
amplifiers (which became available in December 1996), and the HR824 active 
studio monitor (which became available in August 1997) accounted for 20% of 
net sales in 1997. Sales of the 8-Bus Series mixers decreased to 16% of net 
sales in 1997 from 25% in 1996. Sales of compact mixers were 47% of net sales 
in 1997 compared with 53% in 1996. Sales outside the U.S. represented 38% of 
the Company's net sales in both 1997 and 1996.

COST OF SALES

         Gross profit was $27.8 million in 1997 compared with $28.0 million 
in 1996. Gross profit as a percentage of net sales decreased to 37.1% in 1997 
from 38.3% in 1996. The decrease in gross margin percentage was due to 
start-up costs associated with initial production of the SR40-8 and the FR 
Series -TM- power amplifier, both of which were shipped in significant 
quantities for the first time in the first quarter of 1997. The gross margin 
percentage decrease was also due to a higher weighted-average discount 
offered to international distributors. Additionally, the decrease in gross 
margin percentage was due to a difference in product mix in 1997 compared 
with 1996 as sales of certain product lines provided lower gross margins than 
other product lines.

MARKETING AND SALES

         Marketing and sales expenses increased to $9.9 million in 1997 from 
$9.2 million in 1996. This increase was due primarily to increased marketing 
and sales staff and increased advertising expenses. The primary components of 
marketing and sales expenses include salaries ($2.0 million in 1997 and $1.7 
million in 1996), independent representatives' commissions ($2.7 million in 
1997 and $2.9 million in 1996), and advertising ($3.0 million in 1997 and 
$2.7 million in 1996). Marketing and sales expenses as a percentage of net 
sales were 13.3% in 1997 compared with 12.6% in 1996.

ADMINISTRATIVE

         Administrative expenses decreased to $4.8 million in 1997 from $5.0 
million in 1996. This decrease was due primarily to a reallocation of rent 
expense from administrative expenses to manufacturing overhead as additional 
space was utilized in the manufacturing process, partially offset by an 
increase in various other expenditures. Administrative expenses as a 
percentage of net sales were 6.5% in 1997 compared with 6.8% in 1996.

                                    18
<PAGE>

RESEARCH AND DEVELOPMENT

         Research and development expenses increased to $5.9 million in 1997 
from $3.6 million in 1996. As a percentage of net sales, these expenses 
increased to 7.9% in 1997 from 4.9% in 1996. This increase was due primarily 
to increases in R&D staff and expenditures as the Company expanded its 
product line into other pro-audio categories.

INTEREST INCOME

         Interest income decreased to $791,000 in 1997 from $863,000 in 1996 
due to a lower average cash balance.

INCOME TAX PROVISION

         The provision for income taxes for 1997 of $2.4 million represented 
an overall effective rate of 30.0%. The provision for income taxes for 1996 
of $3.7 million represented an overall effective rate for 1996 of 33.1%. The 
decrease in the overall effective rate in 1997 compared with 1996 is due to 
the increased benefits provided by the Company's foreign sales corporation 
and the research and development tax credit.

LIQUIDITY AND CAPITAL RESOURCES

         The Company used internally generated cash to finance its operations 
during 1998 and 1997. The Company's operating activities generated cash of 
$177,000 in 1998 and $2.6 million in 1997. Net cash provided by operating 
activities in 1998 was primarily attributable to net income, depreciation and 
amortization, offset by increases in accounts receivable and inventory.

          Net cash used in investing activities increased to $15.4 million in 
1998 from $2.6 million in 1997, due principally to the acquisition of RCF and 
purchases of furniture and equipment. The Company had no significant capital 
expenditure commitments at December 31, 1998. The Company intends to finance 
its 1998 capital expenditures from cash provided by operations, current cash 
reserves and existing credit facilities.

         Net cash provided by financing activities in 1998 was $14.0 million 
compared with net cash used in financing activities during 1997 of $1.3 
million. The cash provided by financing activities in 1998 was due 
principally to proceeds from bank credit facilities used for the acquisition 
of RCF. During 1998, the Company repurchased approximately 392,000 shares of 
its own stock at a total cost of $2.6 million.

         In June 1998, the Company entered into a credit agreement with a 
bank to provide certain credit facilities to the Company, including a $14.0 
million loan for the acquisition of RCF of which $12.5 million was 
outstanding at December 31, 1998. Unused amounts under the loan may be used 
for general corporate purposes. The loan, which is secured by all of the 
Company's assets, bears interest at the bank's prime rate, or at a specified 
LIBOR rate plus a specified margin, whichever the Company chooses. Interest 
under the loan is payable monthly. Principal is payable in installments equal 
to 1/7 of the amount borrowed on September 30 of each year commencing 
September 30, 1999. All outstanding principal and interest amounts are due on 
September 30, 2003. The agreement also provides a $5.0 million unsecured line 
of credit to finance any unexpected working capital requirements. The line of 
credit bears interest at the same rate as the acquisition loan. The agreement 
also provides a $2.5 million credit facility for capital equipment purchases 
or general corporate purposes. Certain terms under this facility, such as 
interest rate, repayment period and collateral, will be determined at the 
time advances are made to the Company. The Company also has a $1.75 million 
line of credit for the purchase of foreign exchange contracts. At December 
31, 1998, there was $200,000 outstanding on the $5.0 million line of credit 
and there were no outstanding balances on the other credit lines. These 
credit

                                    19
<PAGE>

facilities (excluding the acquisition loan) expire April 30, 2000. Under the 
terms of the credit agreement, the Company must maintain certain financial 
ratios and tangible net worth. The Company is in compliance with all such 
covenants. The agreement also provides, among other matters, restrictions on 
additional financing, dividends, mergers, and acquisitions. The agreement 
also imposes an annual capital expenditure limit of $10 million.

         RCF has entered into agreements with several banks that provide 
short-term credit facilities totaling approximately $25 million. At December 
31, 1998, there was approximately $11.8 million outstanding under these 
facilities. The majority of these credit facilities are secured by RCF's 
receivables. Interest rates on these credit facilities range from 2.2% to 
12.5%. RCF also has various long-term loans outstanding at December 31, 1998, 
totaling approximately $14.8 million, which bear interest at rates from 3.1% 
to 8.8%. These loans mature at varying dates up to 2007 and certain of these 
loans are secured by specific assets of RCF.

         The Company has granted options to various individuals to purchase 
shares of the Company's common stock. As of December 31, 1998, options to 
purchase 3,417,900 shares of common stock at exercise prices of $5.55 per 
share to $13.88 per share are outstanding and 2,010,950 of these options are 
exercisable. The exercise of these options would provide additional cash to 
the Company.

         The Company believes that existing cash and cash equivalent balances 
together with cash generated from operations and cash available from credit 
facilities will be sufficient to finance the Company's operations at least 
through 1999.

INFLATION AND CHANGES IN FOREIGN CURRENCY EXCHANGE RATES

         Although the Company cannot accurately anticipate the effects of 
inflation, the Company does not believe inflation has had or is likely to 
have a material effect on its results of operations or liquidity.

         Sales and expenses incurred by foreign subsidiaries are denominated 
in the subsidiary's local currency and translated into U.S. dollar amounts at 
average rates during the period. To date, the foreign currency exchange rates 
have not significantly impacted the Company's profitability.

YEAR 2000 ISSUE

         The "Year 2000 Issue" or "Y2K" refers to the practice of many 
existing computer programs using only the last two digits when designating a 
year. Therefore, these programs cannot distinguish a year that begins with 19 
from a year that begins with 20. If not corrected, many computer applications 
could fail or create erroneous results beginning January 1, 2000. The 
following analysis addresses the issues at the Company's locations in 
Woodinville, Washington (referred to as "Mackie-Woodinville") and in Italy 
(referred to as "RCF").

READINESS

         INFORMATION SYSTEM - ENTERPRISE RESOURCE PLANNING SYSTEM (ERP). Y2K 
inspection at Mackie-Woodinville has revealed two systems requiring updating: 
the shipping manifest system, and the general ledger module of the 
manufacturing system. Integration of the replacement shipping system is 
scheduled to begin March 1999 and be completed in April 1999. The general 
ledger module is to be replaced by a Y2K compliant version from the software 
developer. This work is scheduled to begin May 1999, and be completed by the 
end of the second quarter of 1999. Both of these systems, if left unchanged, 
would run correctly until December 31, 1999.

         RCF completed the analysis of its system in mid-1998. Its ERP was 
determined to be Y2K non-compliant and implementation of a solution began 
February 1999. The project is scheduled to have the first

                                    20
<PAGE>

release of converted software available for testing in early April 1999, with 
a six-week test cycle to follow. The problem resolution phase of the project 
is scheduled to run for a six-week period following the test cycle. The 
revised software is scheduled to be in place in July 1999. At present, the 
project is on schedule.

         INFORMATION SYSTEMS - HARDWARE. Hardware at Mackie-Woodinville has 
undergone a preliminary review showing no major problems. A detailed PC 
hardware analysis is under way and is scheduled to be completed by April 30, 
1999. Server hardware has already been found to be Y2K compliant. The primary 
ERP server at Mackie recently had its Unix operating system upgraded to make 
it entirely Y2K compliant. Other equipment with embedded systems are 
currently also being inspected, with completion scheduled for the end of the 
second quarter of 1999.

         RCF has purchased all server hardware required for Y2K compliance. 
The new hardware will be used initially for testing of the Y2K modifications, 
then run as the live system following the conversion. The PC and network 
server analyses are expected to take place in October 1999. The Company does 
not consider this to be a point of risk given that, with the exception of a 
small number of PCs, all hardware is new and Y2K compliant.

         VENDORS. Mackie-Woodinville has undergone a process to evaluate the 
Y2K preparedness of its critical vendors. Of these vendors, any that are "in 
the process" of completing their Y2K preparations will be audited quarterly 
for progress. Mackie-Woodinville has in place a plan to evaluate the cost and 
time to develop alternate sources for goods, plus a program to evaluate the 
cost and storage requirements to ensure an uninterrupted supply of goods 
while engaging alternate suppliers.

         RCF has begun the process of identifying key vendors and assessing 
the Y2K compliance of these vendors. Vendors will be asked about their Y2K 
compliance plans and based on their responses, RCF plans to take appropriate 
actions to mitigate the possible impact of Y2K issues.

         CUSTOMERS. A customer evaluation process is being put in place by 
Mackie-Woodinville to ensure that critical customers will be compliant. Of 
these customers who are not already Y2K compliant, those preparing for Y2K 
compliance will be audited quarterly. These customers may ultimately receive 
an onsite visit and be asked to demonstrate contingency plans if Y2K 
preparation efforts do not appear to be adequate or timely.

         RCF plans to assess customer Y2K issues through direct inquiry of 
key customers. Based on their responses, RCF will determine the steps that 
need to be taken to minimize the impact of Y2K issues.

         PRODUCTS.  All Mackie products using microprocessors or other 
digital-based technology have been reviewed and found to be Y2K compliant.

         All RCF products are manufactured without a microprocessor or other 
digital-based technology and, therefore, are not affected by Y2K issues.

COSTS

         All Y2K resolution issues at Mackie-Woodinville have been budgeted 
at less than $50,000.

         RCF has a total Y2K budget of $250,000. All costs are 
expected to be funded by cash flow from operations.

RISKS

         Risk to Mackie-Woodinville is fairly low regarding issues that are 
directly within the Company's control. Systems at risk of failure are 
scheduled to be Y2K compliant by the end of the second quarter of 1999, and

                                    21
<PAGE>

would not fail until January 1, 2000. External influences are being managed 
to minimize any potential impact on the business.

         The greatest risk for RCF is in the conversion of the 
manufacturing/MRP module of its ERP. In this area, the most likely error 
would be one of missing the conversion of a date field, or the incorrect 
conversion of a date. The Company contracted to do this conversion will be 
available following the "go live" date on the converted software and will 
support the system on a maintenance agreement. Another point of risk is the 
timing of availability of the converted software for installation, although 
this risk is deemed by the Company to be fairly low.

CONTINGENCY PLANS

         Contingency plans are being worked on for RCF in the event that 
software is not available for installation until some period after the 
scheduled "go live" date. The primary focus is on the manufacturing system 
and MRP. Research is being done on finding an option to quickly port critical 
manufacturing information over to a backup system to keep the Company running 
for a short period should the converted software not be available by the 
required date.

         If the remediation efforts of the Company's key suppliers and 
customers are unsuccessful in dealing with Y2K problems and if the Company's 
efforts to mitigate the impact of such problems are unsuccessful, there may 
be a material adverse impact on the Company's consolidated results and 
financial condition. The Company is unable to quantify any potential impact 
at this time, but will continue to monitor and evaluate the situation.

EURO CONVERSION

         With the introduction of the euro, European business systems are 
being forced to handle currencies in a new way. There are many rules 
governing precisely how these systems must act when transacting the euro. 
Greatly simplified, some of the systems-related business issues include:

--   As of January 1, 1999, it is optional to use euro in business 
     transactions in participating countries. An example of the impact would 
     be: companies may request to be invoiced in euro and the company writing 
     the invoice is obliged to do so. During the period of optional 
     compliance, a company may choose to run its financial systems in its 
     existing currency, or in euro.

--   As of January 1, 2002, there will be mandatory euro compliance in 
     participating countries. At this time, it will be necessary to make all 
     financial transactions within the participating countries using euro, as 
     well as run the financial systems with the "base currency" being euro.

--   In the past it was possible for a system to simply multiply or divide by 
     some factor to find the amount of exchange between two currencies. Under 
     the rules governing the euro, it will soon be necessary to "triangulate" 
     the exchange between any two non-euro currencies by first exchanging to 
     euro, then to the target currency. There are a minimum number of digits 
     of precision that are to be carried throughout all exchange calculations.

         RCF's computer system does not support the euro currency, and at 
this time it is believed that reprogramming the system is likely not an 
economically viable option. Until a euro solution is implemented, the current 
system must continue to be used. One major shortcoming of doing so is the 
ability of this system to invoice multiple currencies when a Value-Added Tax 
(VAT) is being applied. Currently, the system is only able to properly apply 
VAT to lira-denominated invoices. This means that euro invoices for Italian 
customers who request to be billed in euros instead of lira will need to be 
done external to the primary business system. Although the date for mandatory 
euro compliance is January 1, 2002, it is believed that the existing system 
will be utilized until mid-2001 after which time the effort to run a 
non-compliant system will increase to the point that it's no longer a 
feasible option.

                                    22
<PAGE>

         The task of making RCF euro-compliant has already begun with the 
investigation of alternate systems. The cost to achieve euro-compliance for 
RCF is currently unknown.

SHARE REPURCHASE PROGRAM

         The Company has been authorized by its board of directors to 
repurchase up to 850,000 shares of its outstanding common stock. These 
purchases may be executed through open market purchases at prevailing market 
prices, and may commence or be discontinued at any time. As of December 31, 
1998, the Company had repurchased approximately 600,000 shares under this 
program at a total cost of approximately $4.3 million.

ITEM 7A.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

         The Company does not have any derivative financial instruments as of 
December 31, 1998. However, the Company is exposed to interest rate risk. The 
Company employs established policies and procedures to manage its exposure to 
changes in the market risk of its marketable securities.

         The Company's interest income and expense are most sensitive to 
changes in the general level of U.S. and European interest rates. In this 
regard, changes in U.S. and European interest rates affect the interest 
earned on the Company's cash equivalents and marketable securities as well as 
interest paid on debt.

         The Company has lines of credit and other debt whose interest rates 
are based on various published prime rates that may fluctuate over time based 
on economic changes in the environment. The Company is subject to interest 
rate risk, and could be subject to increased interest payments if market 
interest rates fluctuate. The Company does not expect any change in the 
interest rates to have a material adverse effect on the Company's results 
from operations.

FOREIGN CURRENCY RISK

         The Company operates subsidiaries in Italy, the United Kingdom, 
Germany, France, the Netherlands and China. The Company's business and 
financial condition is, therefore, sensitive to currency exchange rates or 
any other restrictions imposed on their currencies.

         The Company employs foreign exchange hedging strategies for certain 
currencies to help mitigate the effect of currency fluctuations. To date, the 
foreign currency exchange rates have not significantly impacted the Company's 
profitability.

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See pages 24 through 39.

                                    23

<PAGE>


                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Board of Directors and Shareholders
Mackie Designs Inc.

      We have audited the accompanying consolidated balance sheets of Mackie 
Designs Inc. as of December 31, 1998 and 1997, and the related consolidated 
statements of income, shareholders' equity, and cash flows for each of the 
three years in the period ended December 31, 1998. Our audits also included 
the financial statement schedule listed in the Index at Item 14(a). These 
financial statements and schedule are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these financial 
statements and 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 financial statements referred to above present 
fairly, in all material respects, the consolidated financial position of 
Mackie Designs Inc. at December 31, 1998 and 1997, and the consolidated 
results of its operations and its cash flows for each of the three years in 
the period ended December 31, 1998, in conformity with generally accepted 
accounting principles. Also, in our opinion, the related financial statement 
schedule, when considered in relation to the basic financial statements taken 
as a whole, presents fairly in all material respects the information set 
forth herein.


                                                     Ernst & Young LLP

Seattle, Washington
February 26, 1999


                                    24

<PAGE>


                              MACKIE DESIGNS INC.
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                       1998               1997
                                                                                 ------------------ ------------------
<S>                                                                                    <C>                <C>
ASSETS
Current assets:
    Cash and cash equivalents                                                        $    123,611       $    975,180
    Available-for-sale securities                                                       6,309,659         10,864,401
    Accounts receivable, less allowance of $1,421,000 in 1998 and $481,000 in
       1997                                                                            30,501,951         10,614,515
    Inventories                                                                        39,748,903         17,761,462
    Prepaid expenses and other current assets                                           1,786,964          1,287,311
    Deferred taxes                                                                      1,770,000            670,000
                                                                                 ------------------ ------------------
       Total current assets                                                            80,241,088         42,172,869

Property, plant and equipment, net of accumulated depreciation                         24,569,027         10,605,164
Goodwill, net of accumulated amortization                                               7,868,783             --
Bonds                                                                                   4,293,524             --
Other assets                                                                            1,917,086            594,390
Deferred taxes                                                                            447,501             --
                                                                                 ------------------ ------------------

Total assets                                                                         $119,337,009       $ 53,372,423
                                                                                 ------------------ ------------------
                                                                                 ------------------ ------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                                 $ 14,351,463       $  3,822,239
    Bank line of credit and other short-term debt                                      12,057,654             --
    Commissions payable                                                                 2,001,716            664,983
    Accrued payroll and related taxes                                                   2,731,363            785,530
    Other accrued liabilities                                                           3,212,832            596,227
    Income taxes payable                                                                1,762,752            348,173
    Current portion of long-term debt                                                   8,339,468             --
                                                                                 ------------------ ------------------
       Total current liabilities                                                       44,457,248          6,217,152

Long-term debt                                                                         18,984,200             --
Employee and other liabilities                                                          4,026,514             --
Deferred taxes                                                                          1,973,328            596,000
Other deferred items                                                                      206,776             81,250
Minority interest                                                                         119,886             --

Shareholders' equity:
    Preferred stock, no par value:
       Authorized shares - 5,000,000; Outstanding shares - none 
    Common stock, no par value:
       Authorized shares - 40,000,000; Issued and outstanding shares -
         12,356,486 and 12,733,650 in 1998 and 1997, respectively                      27,102,335         29,657,210
    Retained earnings                                                                  22,401,585         16,820,811
    Accumulated other comprehensive income                                                 65,137             --
                                                                                 ------------------ ------------------
       Total shareholders' equity                                                      49,569,057         46,478,021
                                                                                 ------------------ ------------------

Total liabilities and shareholders' equity                                           $119,337,009       $ 53,372,423
                                                                                 ------------------ ------------------
                                                                                 ------------------ ------------------
</TABLE>

SEE ACCOMPANYING NOTES.

                                    25

<PAGE>


                              MACKIE DESIGNS INC.
                       CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                         1998                   1997                   1996
                                                  -------------------    -------------------    -------------------
<S>                                               <C>                    <C>                    <C>
Net sales                                              $100,975,066           $ 74,889,420           $ 73,235,925
Cost of goods sold                                       62,703,694             47,093,131             45,210,585
                                                  -------------------    -------------------    -------------------
Gross profit                                             38,271,372             27,796,289             28,025,340

Operating expenses:
    Marketing and sales                                  15,098,656              9,938,507              9,202,448
    Administrative                                        9,912,627              4,839,780              4,979,320
    Research and development                              5,094,333              5,892,178              3,602,727
                                                  -------------------    -------------------    -------------------
       Total operating expenses                          30,105,616             20,670,465             17,784,495
                                                  -------------------    -------------------    -------------------
Operating income                                          8,165,756              7,125,824             10,240,845

Interest income                                             781,861                790,687                862,518
Interest expense                                         (1,520,648)               --                     --
Other income (expense)                                      227,932                 (7,060)               (11,104)
                                                  -------------------    -------------------    -------------------

Income before income taxes and minority interest          7,654,901              7,909,451             11,092,259

Income tax provision                                      2,052,211              2,372,800              3,671,600
                                                  -------------------    -------------------    -------------------

Income before minority interest                           5,602,690              5,536,651              7,420,659

Minority interest                                           (21,916)               --                     --
                                                  -------------------    -------------------    -------------------

Net income                                             $  5,580,774           $  5,536,651           $  7,420,659
                                                  -------------------    -------------------    -------------------
                                                  -------------------    -------------------    -------------------

Basic income per share                                 $       0.44           $       0.43           $       0.58
                                                  -------------------    -------------------    -------------------
                                                  -------------------    -------------------    -------------------

Diluted income per share                               $       0.43           $       0.41           $       0.55
                                                  -------------------    -------------------    -------------------
                                                  -------------------    -------------------    -------------------
</TABLE>

SEE ACCOMPANYING NOTES.

                                    26
<PAGE>


                              MACKIE DESIGNS INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,
                                                                           1998                1997                 1996
                                                                    -------------------  ------------------   ------------------
<S>                                                                 <C>                  <C>                  <C>
OPERATING ACTIVITIES
     Net income                                                          $  5,580,774       $   5,536,651        $  7,420,659
     Adjustments to reconcile net income to net cash provided by
      operating activities:
       Depreciation and amortization                                        4,743,883           3,160,237           1,969,131
       Loss on asset dispositions                                               1,231             --                   11,104
       Increase in minority interest                                           21,916             --                   --
       Deferred income taxes                                                 (503,819)            266,000            (136,000)
       Changes in operating assets and liabilities:
         (Increase) decrease in accounts receivable                        (4,380,292)           (921,480)             10,892
         Increase in inventory                                             (6,279,108)         (7,444,522)         (2,674,048)
         Decrease in income taxes receivable                                  --                  182,627             196,473
         (Increase) decrease in prepaid expenses and other
            current assets                                                    799,572            (613,726)            (65,738)
         Increase in other assets                                          (1,085,594)           (257,114)           (341,059)
         Increase in accounts payable and accrued expenses                  1,574,960           2,245,660             567,300
         Increase (decrease) in commissions payable                            99,287              37,609            (109,816)
         Increase (decrease) in income taxes payable                         (415,255)            348,173              --
         Increase in other deferred items                                      19,627              39,000              42,250
                                                                    -------------------  ------------------   ------------------
       Net cash provided by operating activities                              177,182           2,579,115           6,891,148

INVESTING ACTIVITIES
    Acquisition of business, net of cash acquired                         (14,645,175)             --                   --
    Purchases of marketable securities                                    (18,769,653)        (20,422,495)        (45,287,047)
    Proceeds from sales of marketable securities                            7,375,556           6,311,193           6,362,768
    Proceeds from maturities of marketable securities                      15,948,839          14,935,414          38,011,708
    Purchases of property, plant and equipment                             (5,337,924)         (3,452,611)         (7,611,708)
    Proceeds from asset dispositions                                           28,799              --                  86,630
                                                                    -------------------  ------------------   ------------------
       Net cash used in investing activities                              (15,399,558)         (2,628,499)         (8,437,649)

FINANCING ACTIVITIES
    Proceeds from bank loans                                               18,073,280              --                   --
    Payments on bank loans                                                 (1,608,935)             --                   --
    Additions to employee liabilities                                         313,168              --                   --
    Payments on employee liabilities                                         (232,790)             --                   --
    Net proceeds on bank line of credit and short-term debt                    75,206              --                   --
    Repurchase and retirement of common stock                              (2,638,125)         (1,657,808)              --
    Net proceeds from exercise of stock options                                83,250             316,188              55,500
                                                                    -------------------  ------------------   ------------------
       Net cash provided by (used in) financing activities                 14,065,054          (1,341,620)             55,500
                                                                    -------------------  ------------------   ------------------

Translation adjustments                                                       305,753              --                   --
                                                                    -------------------  ------------------   ------------------

Net decrease in cash and cash equivalents                                    (851,569)         (1,391,004)         (1,491,001)

Cash and cash equivalents at beginning of period                              975,180           2,366,184           3,857,185
                                                                    -------------------  ------------------   ------------------

Cash and cash equivalents at end of period                               $    123,611       $     975,180        $  2,366,184
                                                                    -------------------  ------------------   ------------------
                                                                    -------------------  ------------------   ------------------

SUPPLEMENTAL DISCLOSURES
Cash paid for interest                                                   $  1,617,000       $      --            $      --
                                                                    -------------------  ------------------   ------------------
                                                                    -------------------  ------------------   ------------------
Cash paid for income taxes                                               $  2,397,000       $   1,576,000        $  3,611,000
                                                                    -------------------  ------------------   ------------------
                                                                    -------------------  ------------------   ------------------
</TABLE>
SEE ACCOMPANYING NOTES.

                                    27
<PAGE>


                             MACKIE DESIGNS INC.
               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                                
                                                                                                Accumulated Other
                                                                                  Retained        Comprehensive  
                                              Shares             Amount           Earnings            Income             Total
                                          ----------------  ----------------- ----------------- ------------------  ---------------
<S>                                       <C>               <C>               <C>               <C>                 <C>
Balance at December 31, 1995                 12,875,000       $ 30,943,330       $ 3,863,501         $   --           $ 34,806,831
    Issuance of common shares upon
       exercise of stock options                 10,000             55,500             --                --                 55,500
                                
    Net income                                    --                --             7,420,659             --              7,420,659
                                         ----------------  -----------------  ----------------  -----------------  ----------------

Balance at December 31, 1996                 12,885,000         30,998,830        11,284,160             --             42,282,990
    Issuance of common shares upon
       exercise of stock options                 56,250            316,188            --                 --                316,188
                                
    Repurchase of common shares                (207,600)        (1,657,808)           --                 --             (1,657,808)
    Net income                                    --                --             5,536,651             --              5,536,651
                                         ----------------  -----------------  ----------------  -----------------  ----------------

Balance at December 31, 1997                 12,733,650         29,657,210        16,820,811             --             46,478,021
    Issuance of common shares upon
       exercise of stock options                 15,000             83,250             --                --                 83,250
                                
    Repurchase of common shares                (392,164)        (2,638,125)            --                --             (2,638,125)

    Net income                                    --                --             5,580,774             --              5,580,774
    Foreign currency translation                  --                --                 --                65,137             65,137
                                                                                                                   ----------------
    Comprehensive income                                                                                                 5,645,911
                                         ----------------  -----------------  ----------------  -----------------  ----------------

Balance at December 31, 1998                  12,356,486      $ 27,102,335      $ 22,401,585          $  65,137       $ 49,569,057
                                         ----------------  -----------------  ----------------  -----------------  ----------------
                                         ----------------  -----------------  ----------------  -----------------  ----------------
</TABLE>
SEE ACCOMPANYING NOTES.

                                    28
<PAGE>


                             MACKIE DESIGNS INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             DECEMBER 31, 1998


1.  SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS
      Mackie Designs Inc. (the Company) develops, manufactures, sells, and 
supports high-quality, reasonably priced professional audio equipment.
      The Company sells to retailers and distributors throughout the world, 
generally on open credit terms. Sales to customers outside of the U.S. 
approximated 44%, 38%, and 38% of net sales in 1998, 1997, and 1996, 
respectively.

PRINCIPLES OF CONSOLIDATION
      The consolidated financial statements include the accounts of the 
Company and its wholly-owned subsidiaries. All significant intercompany 
accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES
      The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the amounts reported in the financial statements and 
accompanying notes. Actual results could differ from those estimates.

FOREIGN CURRENCY TRANSLATION
      Assets and liabilities denominated in foreign currencies are translated 
at the exchange rate on the balance sheet date. Net sales, costs and expenses 
are translated at average rates of exchange prevailing during the period. 
Translation adjustments resulting from this process are charged or credited 
to shareholders' equity, net of taxes. Realized and unrealized gains and 
losses on foreign currency transactions are included in other income 
(expense).

REVENUE RECOGNITION
      Generally, revenues from sales of products are recognized when products 
are shipped.

CASH EQUIVALENTS
      The Company considers all highly-liquid investments purchased with 
an initial maturity of three months or less to be cash equivalents.

MARKETABLE SECURITIES
      Management determines the appropriate classification of debt securities 
at the time of purchase and re-evaluates such designation as of each balance 
sheet date. Debt securities are classified as held-to-maturity when the 
Company has the positive intent and ability to hold the securities to 
maturity. Held-to-maturity securities are stated at amortized cost.
      Debt securities not classified as held-to-maturity or trading and 
marketable equity securities not classified as trading are classified as 
available-for-sale. Available-for-sale securities are primarily high-grade 
U.S. corporate securities, all of which are recorded at amortized cost which 
approximates fair value. Available-for-sale securities are classified in the 
balance sheet as current based on maturity dates.
      The amortized cost of debt securities classified as held-to-maturity is 
adjusted for accretion of discounts to maturity, over the estimated life of 
the security. Such amortization is included in interest income from 
investments.

INVENTORIES
      Inventories are carried at the lower of cost, using the first-in, 
first-out method, or market.

PROPERTY, PLANT AND EQUIPMENT
      Property, plant and equipment are stated at cost, less accumulated 
depreciation and amortization. Depreciation and amortization is computed 
using the straight-line method over the estimated useful lives of the assets 
of three to twenty years.

GOODWILL
      Goodwill represents the excess of the purchase price over the fair 
value of assets acquired. Goodwill is being amortized on a straight-line 
basis over twenty years.

                                    29
<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS
      The carrying amounts of the Company's cash, marketable securities, 
prepaid expenses and other current assets, accounts payable, commissions 
payable, accrued payroll and other accrued liabilities, and long-term debt 
approximate fair value.

WARRANTY COSTS
      The Company provides an accrual for future warranty costs at the time 
of sale of products. The warranty for the Company's products generally covers 
defects in materials and workmanship for a period of one to five years.

ADVERTISING COSTS
      The cost of advertising is expensed as incurred. For the years ended 
December 31, 1998, 1997, and 1996, the Company incurred advertising expenses 
of $3.7 million, $3.0 million, and $2.7 million, respectively.

STOCK COMPENSATION
      The Company has elected to apply the disclosure-only provisions of 
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for 
Stock-Based Compensation." Accordingly, the Company accounts for stock-based 
compensation using the intrinsic-value method prescribed in Accounting 
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," 
and related interpretations. Compensation expense for stock options is 
measured as the excess, if any, of the fair value of the Company's common 
stock at the date of grant over the stock option exercise price.

INCOME TAXES
      Income tax expense includes U.S. and foreign income taxes. Certain 
items of income and expense are not reported in both the tax returns and 
financial statement in the same year. The Company accounts for income taxes 
under the liability method. Under the liability method, deferred tax and 
liabilities are determined based on differences between financial reporting 
and tax bases of assets and liabilities, and are measured using the enacted 
tax rates and laws that will be in effect when the differences are expected 
to reverse. Valuation allowances are established when necessary to reduce 
deferred tax assets to the amounts expected to be realized.

INCOME PER SHARE
      Basic income per share excludes any dilutive effects of stock options. 
Basic income per share is computed using the weighted-average number of 
common shares outstanding during the period. Diluted income per share is 
computed using the weighted-average number of common shares and common 
equivalent shares outstanding during the period. Common stock equivalent 
shares are excluded from the computation if their effect is antidilutive.

CONCENTRATIONS OF CREDIT RISK
      The Company is subject to concentrations of credit risk from its 
holdings of cash, cash equivalents, and securities. The Company's credit risk 
is managed by investing its cash in high-quality money market instruments, 
securities of the U.S. Government and its agencies, and high-quality 
corporate issues. In addition, a significant portion of the Company's 
accounts receivable are due from sales outside of the U.S. No international 
country accounted for more than 10% of net sales in any of the periods 
presented.

COMPREHENSIVE INCOME
      As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting 
Comprehensive Income," which establishes standards for reporting and display 
of comprehensive income and its components in a full set of general-purpose 
financial statements and requires reclassification of financial statements 
for earlier periods to be provided for comparative purposes. The Company's 
comprehensive income includes all items which comprise net income and the 
effect of foreign currency translation. Comprehensive income is shown on the 
consolidated statement of shareholders' equity.

BUSINESS SEGMENTS
      As of January 1, 1998, the Company adopted SFAS No. 131, "Disclosures 
about Segments of an Enterprise and Related Information," which establishes 
standards for reporting information about operating segments in annual 
financial statements. It also establishes standards for related disclosures 
about products and services, geographic areas and major customers. 
Information related to segment disclosures is contained in Note 14.

                                    30
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS
      In June 1998, the Financial Accounting Standards Board issued SFAS No. 
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 
133 is effective for fiscal years beginning after June 15, 1999. SFAS No. 133 
requires that all derivative instruments be recorded on the balance sheet at 
their fair value. Changes in the fair value of derivatives are recorded each 
period in current earnings or other comprehensive income, depending on 
whether a derivative is designed as part of a hedge transaction and, if it 
is, the type of hedge transaction. The Company does not expect that the 
adoption of SFAS No. 133 will have a material impact on its consolidated 
financial statements because the Company does not currently hold any 
derivative instruments.

2.  ACQUISITION
      On June 29, 1998, the Company, through a wholly owned subsidiary, 
acquired 100% of the capital stock of Radio Cine Forniture (R.C.F.) S.p.A. 
("RCF"), an Italian corporation. RCF is a manufacturer of loudspeakers and 
speaker components based in Reggio Emilia, Italy. The acquisition was 
accounted for under the purchase method of accounting. The aggregate purchase 
price, plus related acquisition costs, was approximately $15 million. The 
excess of the purchase price over the fair value of net assets acquired, 
aggregating approximately $8 million, is included in goodwill. The results of 
operations of RCF have been included in the Company's consolidated results of 
operations beginning on July 1, 1998.

      The following table presents unaudited pro forma consolidated financial 
information for the years ended December 31, 1998 and 1997 as if the 
acquisition of RCF had occurred on January 1 of those years:
<TABLE>
<CAPTION>
                                                      Years Ended
                                                      December 31,
                                         -------------------------------------
                                                1998               1997
                                         ------------------ ------------------
<S>                                      <C>                <C>
           Net sales                        $125,958,000       $121,974,000
                                         ------------------ ------------------
                                         ------------------ ------------------

           Net income                       $  4,717,000       $  3,981,000
                                         ------------------ ------------------
                                         ------------------ ------------------

           Diluted income per share         $       0.36       $       0.30
                                         ------------------ ------------------
                                         ------------------ ------------------
</TABLE>

      The unaudited pro forma financial information is presented for 
informational purposes only and is not necessarily indicative of the 
operating results that would have occurred had the acquisition taken place on 
the basis assumed above. In addition, the pro forma results are not intended 
to be a projection of the future results and do not reflect any synergies 
that might have been achieved from the combined operations.

3.  INVESTMENTS
      The amortized cost of securities available-for-sale approximated fair 
market value and was as follows:
<TABLE>
<CAPTION>
                                                      December 31,
                                         -------------------------------------
                                                1998               1997
                                         ------------------ ------------------
<S>                                      <C>                <C>
     U.S. corporate securities               $ 6,309,659        $ 6,680,463
     U.S. Government securities                 --                4,183,938
                                         ------------------ ------------------
                                         ------------------ ------------------
                                             $ 6,309,659       $ 10,864,401
                                         ------------------ ------------------
                                         ------------------ ------------------
</TABLE>

      As of December 31, 1998, the securities available-for-sale have 
contractual maturities of one year or less.

      RCF holds various zero-coupon Italian bank bonds as collateral for two 
bank term loans (see Note 7). The bonds aggregated $4,293,524 at December 31, 
1998 and are carried at amortized cost which approximates market value. The 
bank bonds have various maturities ranging from 2002 to 2004. The interest 
rates on these bonds range from 4.9% to 9.5% (average rate was 7.0% at 
December 31, 1998).

                                    31
<PAGE>

4.  INVENTORIES
      Inventories consisted of the following:
<TABLE>
<CAPTION>
                                                      December 31,
                                         -------------------------------------
                                                1998               1997
                                         ------------------ ------------------
<S>                                      <C>                <C>
     Raw materials                           $ 17,044,196       $ 10,987,890
     Work in process                            5,012,847          2,901,785
     Finished goods                            17,691,860          3,871,787
                                         ------------------ ------------------
                                             $ 39,748,903       $ 17,761,462
                                         ------------------ ------------------
                                         ------------------ ------------------
</TABLE>

5.  PROPERTY, PLANT AND EQUIPMENT
      Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
                                                      December 31,
                                         -------------------------------------
                                                1998               1997
                                         ------------------ ------------------
<S>                                      <C>                <C>
     Land                                    $ 3,548,000        $   --
     Buildings                                 5,668,061            --
     Machinery and equipment                  17,227,588         10,115,125
     Furniture and fixtures                    7,307,409          5,211,871
     Leasehold improvements                    2,457,632          1,834,954
                                         ------------------ ------------------
                                              36,208,690         17,161,950

     Less accumulated depreciation 
       and amortization                       11,639,663          6,556,786
                                         ------------------ ------------------
                                            $ 24,569,027       $ 10,605,164
                                         ------------------ ------------------
                                         ------------------ ------------------
</TABLE>

6.  INCOME TAXES
      For financial reporting purposes, income before income taxes and minority
interest is as follows:

<TABLE>
<CAPTION>
                                                Years Ended December 31,
                                       1998                1997               1996
                              -------------------- ------------------ ------------------
<S>                           <C>                  <C>                <C>
     United States                  $ 8,790,207         $7,909,451        $11,092,259
     Foreign                         (1,135,306)            --                 --
                              -------------------- ------------------ ------------------
     Income before income 
      taxes and minority 
      interest                      $ 7,654,901         $7,909,451        $11,092,259
                              -------------------- ------------------ ------------------
                              -------------------- ------------------ ------------------
</TABLE>
      The provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                                Years Ended December 31,
                                       1998                1997               1996
                              -------------------- ------------------ ------------------
<S>                           <C>                  <C>                <C>
     Current taxes on income:
       United States                $  2,717,660         $2,106,800         $3,807,600
       Foreign                          (161,630)            --                  --
                              -------------------- ------------------ ------------------
     Total current taxes on 
       income                          2,556,030          2,106,800          3,807,600
     Deferred income taxes              (503,819)           266,000           (136,000)
                              -------------------- ------------------ ------------------
     Provision for income 
       taxes                        $  2,052,211         $2,372,800         $3,671,600
                              -------------------- ------------------ ------------------
                              -------------------- ------------------ ------------------
</TABLE>

                                    32
<PAGE>

      Significant components of the Company's deferred tax assets and 
liabilities are as follows:
<TABLE>
<CAPTION>
                                                      December 31,
                                                1998               1997
                                         ------------------ ------------------
<S>                                      <C>                <C>
     Deferred tax assets:
       Accrued expenses                       $  639,081          $ 238,000
       Bad debt reserves                         363,500            168,000
       Inventory adjustments                   1,042,500            175,000
       Other items, net                          172,420             89,000
                                         ------------------ ------------------
     Total deferred tax assets                 2,217,501            670,000

     Deferred tax liabilities:
       Fixed asset basis differences           1,973,328            596,000
                                         ------------------ ------------------
     Total deferred tax liabilities            1,973,328            596,000
                                         ------------------ ------------------
     Net deferred tax assets                  $  244,173          $  74,000
                                         ------------------ ------------------
                                         ------------------ ------------------
</TABLE>
      The net deferred tax assets are classified on the balance sheet as 
follows:
<TABLE>
<CAPTION>
                                                      December 31,
                                                1998               1997
                                         ------------------ ------------------
<S>                                      <C>                <C>
     Current assets                           $ 1,770,000          $ 670,000
     Long-term assets                             447,501              --
     Long-term liabilities                     (1,973,328)          (596,000)
                                         ------------------ ------------------
                                              $   244,173          $  74,000
                                         ------------------ ------------------
                                         ------------------ ------------------
</TABLE>

      In connection with the acquisition of RCF in 1998, the Company recorded 
a net deferred tax credit of $333,646.

      A reconciliation from the U.S. statutory rate to the effective rate is 
as follows:
<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                             1998                       1997                      1996
                                                   -------------------------- -------------------------- ------------------------
<S>                                                <C>                <C>     <C>                <C>     <C>              <C>
     Tax at the statutory rate                           $2,602,666    34.0%         $2,689,200   34.0%      $ 3,771,400   34.0%
     Effect of the research and development tax
        credit                                             (280,000)   (3.6)           (280,000)  (3.6)         (111,400)  (1.0)
     Foreign sales corporation tax benefit                 (251,090)   (3.3)           (357,900)  (4.5)         (353,000)  (3.2)
     Limitation of recognition of benefit of
        foreign operating losses                            179,094     2.3               --     --                --       --
     Nondeductible goodwill and other permanent                                           --     --                --       --
        differences                                         122,987     1.6
     Foreign tax greater than U.S. statutory rate            18,288     0.2               --     --                --       --

     Other items, net                                      (339,734)   (4.4)            321,500    4.1           364,600    3.3
                                                   ----------------- -------- -------------------------- ---------------- -------
                                                         $2,052,211    26.8%         $2,372,800   30.0%      $ 3,671,600   33.1%
                                                   ----------------- -------- -------------------------- ---------------- -------
                                                   ----------------- -------- -------------------------- ---------------- -------
</TABLE>

     Beginning January 1, 1998, companies doing business in Italy are subject 
to a 4.25% IRAP tax, a tax on productive activities, in addition to the 37% 
corporate income tax rate. The 4.25% IRAP tax is not considered by the 
Company to be an income tax. Accordingly, the Company has classified 
approximately $250,000 of the IRAP tax as a component of administrative 
expenses for the year ended December 31, 1998.

                                    33
<PAGE>

7.  DEBT
      In June 1998, the Company entered into a credit agreement with a bank 
to provide certain credit facilities to the Company, including a $14.0 
million loan for the acquisition of RCF of which $12.5 million was 
outstanding at December 31, 1998. Unused amounts under the loan may be used 
for general corporate purposes. The loan, which is secured by all of the 
Company's assets, bears interest at the bank's prime rate, or at a specified 
LIBOR rate plus a specified margin, whichever the Company chooses. Interest 
under the loan is payable monthly. The agreement also provides a $5.0 million 
unsecured line of credit to finance any unexpected working capital 
requirements. The line of credit bears interest at the same rate as the 
acquisition loan. The agreement also provides a $2.5 million credit facility 
for capital equipment purchases or general corporate purposes. Certain terms 
under this facility, such as interest rate, repayment period and collateral, 
will be determined at the time advances are made to the Company. The Company 
also has a $1.75 million line of credit for the purchase of foreign exchange 
contracts. These credit facilities (excluding the acquisition loan) expire 
April 30, 2000. Under the terms of the credit agreement, the Company must 
maintain certain financial ratios and tangible net worth. The Company is in 
compliance with all such covenants. The agreement also provides, among other 
matters, restrictions on additional financing, dividends, mergers, and 
acquisitions. The agreement also imposes an annual capital expenditure limit 
of $10 million. At December 31, 1998, there was $200,000 outstanding on the 
$5.0 million line of credit and there were no outstanding balances on the 
other credit lines.

      The Company also has entered into agreements with several banks that 
provide short-term credit facilities totaling approximately $25 million. At 
December 31, 1998, there was approximately $11.8 million outstanding under 
these facilities. The majority of these credit facilities are secured by 
RCF's receivables. Interest rates on these credit facilities range from 2.2% 
to 12.5%.

      The weighted-average interest rate of short-term borrowings at December 
31, 1998 was 5.5%.

      Long-term debt consisted of the following at December 31, 1998:

<TABLE>

     <S>                                 <C>
     Revolving Credit Note (A)           $ 12,500,000
     Bank Term Loan (B)                     5,438,066
     Bank Term Loan (C)                     4,506,254
     Bank Term Loan (D)                     1,037,729
     Various Notes (E)                      3,841,619
                                       ------------------
                                           27,323,668
     Less current portion                   8,339,468
                                       ------------------
                                         $ 18,984,200
                                       ------------------
                                       ------------------
</TABLE>

     (A)   Borrowings under the Revolving Credit Note ($14.0 million 
           acquisition loan) bear interest at the bank's prime rate, or at a 
           specified LIBOR rate plus a specified margin, whichever the 
           Company chooses. At December 31, 1998, the interest rate in effect 
           was 7.8%. Interest is payable monthly. Principal is payable in 
           installments equal to 1/7 of the amount borrowed ($12.8 million) 
           on September 30 of each year commencing September 30, 1999. All 
           outstanding principal and interest amounts are due on September 
           30, 2003.

     (B)   The Bank Term Loan bears interest at the six-month Euribor rate 
           plus 0.65% (3.7% at December 31, 1998). Interest-only payments are 
           made semi-annually and the principal is due in one payment in 
           2000. The Company has an option to extend this payment to 2001. 
           This loan requires the Company to maintain certain covenants with 
           respect to its subsidiary, RCF.

     (C)   The Bank Term Loan bears interest at the six-month LIBOR rate plus 
           2% (7.7% at December 31, 1998). Interest-only payments are made 
           semi-annually and the principal is due in one payment in 2003. 
           This loan is secured by a bank bond held by RCF, which at time of 
           maturity in 2003, will be used to repay the principal amount of 
           the loan.

                                    34
<PAGE>

     (D)   The Bank Term Loan bears a fixed interest rate of 3.1%, which will 
           change to a fixed interest rate of 7.7% in October 1999. 
           Interest-only payments are made semi-annually. In addition, 
           semi-annual principal payments of approximately $104,000 will 
           begin in October 1999 with the final principal payment due in 
           2004. This loan is secured by a bank bond held by RCF.

     (E)   The various other notes bear interest rates at December 31, 1998 
           of 6.1% to 8.8%. Principal payments on these loans are made in 
           varying amounts until 2007. Certain of these loans are secured by 
           specific assets of RCF.

      The Bank Term Loan described above in (B) contains several financial 
covenants. RCF was not in compliance with one of the covenants at December 
31, 1998. RCF is working with the financial institution to modify the 
existing and future debt covenants so that RCF can be in compliance with the 
terms of the loan. Management expects to obtain such modifications with the 
financial institution in the second quarter of 1999. As a result of RCF not 
being in compliance with the debt covenant at December 31, 1998, the loan has 
been included in the current portion of long-term debt.

      The long-term debt described above in (B) through (E) are denominated 
in Italian lira.

      Future aggregate annual principal payments of long-term debt are as 
follows:

<TABLE>

     <S>                          <C>
     1999                         $ 8,339,468
     2000                           2,668,071
     2001                           2,436,830
     2002                           2,456,439
     2003                          10,468,800
     Thereafter                       954,060
                            ------------------
                                 $ 27,323,668
                            ------------------
                            ------------------
</TABLE>
8.  EMPLOYEE AND OTHER LIABILITIES
      Under Italian law, RCF employees are entitled to severance benefits 
calculated primarily based upon compensation and length of service. These 
severance benefits vest immediately and are payable upon the employee's 
separation from the Company. This liability aggregated approximately $3.4 
million at December 31, 1998. In addition, RCF commissioned sales agents are 
entitled to similar severance benefits based upon commissions earned and 
length of service. This liability aggregated approximately $600,000 at 
December 31, 1998. Under these severance programs, RCF recognized severance 
expense of approximately $300,000 during the period ended December 31, 1998.

9.  RELATED-PARTY TRANSACTIONS
      The Company has an agreement to receive marketing and sales services 
from an entity affiliated with a shareholder of the Company. Transactions are 
summarized as follows:
<TABLE>
<CAPTION>
                                                                           Years Ended December 31,
                                                                  1998                1997               1996
                                                          --------------------- ------------------ ------------------
<S>                                                       <C>                   <C>                <C>
       Commissions expense                                       $279,972           $294,609           $371,968
                                                          --------------------- ------------------ ------------------
                                                          --------------------- ------------------ ------------------
       Commissions payable at end of year                        $ 22,789           $ 38,090           $ 35,102
                                                          --------------------- ------------------ ------------------
                                                          --------------------- ------------------ ------------------
</TABLE>

10.  EMPLOYEE BENEFIT PLANS

      The Company has a qualified profit-sharing plan (the Plan) under the 
provisions of Internal Revenue Code Section 401(k). The Plan is available to 
all employees meeting the eligibility requirements. Contributions by

                                    35
<PAGE>

the Company are based on a matching formula as defined in the Plan. 
Additional contributions are at the discretion of the Board of Directors. The 
Company made contributions of $112,000, $51,000, and $32,000 to the Plan in 
1998, 1997, and 1996, respectively.
      The Company insures health care costs for its eligible employees and 
dependents. The Company has obtained an insurance policy to cover claims 
incurred during the policy year in excess of $30,000 per person and has a $1 
million annual stop loss on total claims for all employees in the aggregate. 
Estimated costs of all incurred claims that are not covered by insurance are 
recognized in the financial statements.

11.  INCOME PER SHARE
      The following table sets forth the computation of basic and diluted 
income per share:
<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                                                 1998                1997               1996
                                                          ------------------- ------------------- ------------------
<S>                                                       <C>                 <C>                 <C>
     Numerator:
       Numerator for basic and diluted income per share
         - net income                                           $ 5,580,774         $ 5,536,651        $ 7,420,659
                                                          ------------------- ------------------- ------------------
                                                          ------------------- ------------------- ------------------
     Denominator:
       Denominator for basic income per share -
         weighted-average common shares                          12,594,090          12,825,949         12,881,038
       Effect of dilutive stock options, net                        351,080             575,201            730,012
                                                          ------------------- ------------------- ------------------
       Denominator for diluted income per share                  12,945,170          13,401,150         13,611,050
                                                          ------------------- ------------------- ------------------
                                                          ------------------- ------------------- ------------------

     Basic income per share                                     $      0.44         $      0.43        $      0.58
                                                          ------------------- ------------------- ------------------
                                                          ------------------- ------------------- ------------------

     Diluted income per share                                   $      0.43         $      0.41        $      0.55
                                                          ------------------- ------------------- ------------------
                                                          ------------------- ------------------- ------------------
</TABLE>

12.  SHAREHOLDERS' EQUITY

      In April 1995, the Company established a stock option plan for the 
granting of incentive and non-qualified stock options (the Plan). The 
exercise price of incentive stock options granted under the Plan may not be 
less than the fair market value of the common stock on the date of grant. The 
exercise price of non-qualified stock options granted under the Plan may be 
greater or less than the fair market value of the common stock on the date of 
grant, as determined by the stock option committee of the Company's Board of 
Directors at its discretion. The Company has reserved 3,500,000 shares of 
common stock for issuance under the Plan. The options vest over a period 
determined by the Plan administrator and expire no later than 10 years after 
the date of grant.
      The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>                                                                                             Weighted
                                                           Shares subject to      Option price        average
                                                                 option               range        exercise price
                                                          ------------------------------------------------------------
<S>                                                       <C>                   <C>                <C>
     Options outstanding at January 1, 1996                         1,784,700    $5.55 - 13.88         $ 5.64
        Granted                                                       367,000    $6.63 - 10.00         $ 8.78
        Canceled                                                     (141,000)   $5.55 - 10.00         $ 8.24
        Exercised                                                     (10,000)       $5.55             $ 5.55
                                                          ------------------------------------------------------------
     Options outstanding at December 31, 1996                       2,000,700    $5.55 - 13.88         $ 6.04
        Granted                                                     1,093,000     $5.55 - 6.88         $ 6.32
        Canceled                                                     (185,250)   $5.55 - 13.88         $ 7.78
        Exercised                                                     (56,250)    $5.55 - 8.75         $ 5.62
                                                          ------------------------------------------------------------
     Options outstanding at December 31, 1997                       2,852,200    $5.55 - 13.88         $ 6.04
        Granted                                                       608,200     $6.25 - 7.75         $ 6.56
        Canceled                                                      (27,500)       $8.75             $ 8.75
        Exercised                                                     (15,000)       $5.55             $ 5.55
                                                          ------------------------------------------------------------
     Options outstanding at December 31, 1998                       3,417,900    $5.55 - 13.88         $ 6.11
                                                          ------------------------------------------------------------
                                                          ------------------------------------------------------------
</TABLE>
                                    36
<PAGE>

     At December 31, 1998, 850 shares of common stock were available for 
future grants.

     The following table summarizes information about options outstanding and 
exercisable at December 31, 1998:
<TABLE>
<CAPTION>
                                           Options Outstanding
                                           -------------------
                                                      Weighted average remaining    Weighted average
      Range of exercise price    Options outstanding   contractual life (years)      exercise price
     --------------------------- -------------------- ---------------------------- --------------------
<S>                              <C>                  <C>                          <C>
           $5.55 -  8.00                  3,312,900              7.69                    $ 6.01
           $8.01 - 13.88                    105,000              7.03                    $ 9.24
     --------------------------------------------------------------------------------------------------
           $5.55 - 13.88                  3,417,900              7.67                    $ 6.11
     --------------------------------------------------------------------------------------------------
     --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                           Options Exercisable
                                           -------------------
                                                                          Weighted
                      Range of exercise             Options           average exercise
                           price                  exercisable              price
                   --------------------------- --------------------- -------------------
                   <S>                         <C>                   <C>
                         $5.55 -  8.00             1,955,950               $ 5.69
                         $8.01 - 13.88                55,000               $ 9.45
                   ---------------------------------------------------------------------
                         $5.55 - 13.88             2,010,950               $ 5.79
                   ---------------------------------------------------------------------
                   ---------------------------------------------------------------------
</TABLE>

      The Company follows the intrinsic value method in accounting for its 
stock options. Had compensation costs been recognized based on the fair value 
at the date of grant for options awarded under the Plan, the pro forma 
amounts of the Company's net income and net income per share for the years 
ended December 31, 1998, 1997, and 1996 would have been as follows:
<TABLE>
<CAPTION>
                                                                  1998                1997               1996
                                                          --------------------- ------------------ ------------------
<S>                                                       <C>                   <C>                <C>
     Net income  - as reported                                    $ 5,580,774        $ 5,536,651        $ 7,420,659
     Net income  - pro forma                                      $ 4,776,084        $ 4,869,064        $ 7,157,908
     Basic income per share - as reported                         $      0.44        $      0.43        $      0.58
     Basic income per share - pro forma                           $      0.38        $      0.38        $      0.56
     Diluted income per share - as reported                       $      0.43        $      0.41        $      0.55
     Diluted income per share - pro forma                         $      0.37        $      0.36        $      0.53
</TABLE>

      The fair value of each option grant was estimated using the 
Black-Scholes option-pricing model with the following weighted-average 
assumptions: risk-free interest rates of 4.3% to 7.2%; expected option life 
of three to six years; expected volatility of 0.40% to 0.48%; and no expected 
dividends. The weighted-average fair value of options granted during the 
years 1998, 1997, and 1996 was $2.15, $2.43, and $3.46, respectively.

13.  COMMITMENTS AND CONTINGENCIES
      In December 1994, the Company entered into a lease for office and 
manufacturing facilities with Mackie Holdings, LLC, an entity owned by three 
significant shareholders and directors of the Company. The lease commenced on 
December 31, 1994 and expires December 31, 2004. The monthly rent under this 
lease is $56,613, adjusted annually for changes in the Consumer Price Index 
(monthly rent expense in 1998 was $60,982). Taxes, insurance, utilities, and 
maintenance are the responsibility of the Company. Future minimum rental 
payments under this lease and other leases at December 31, 1998 are as 
follows:

                                    37
<PAGE>

<TABLE>

     <S>                              <C>
     1999                             $1,675,000
     2000                              1,649,000
     2001                              1,527,000
     2002                              1,441,000
     2003                              1,372,000
     Thereafter                        2,015,000
                                  ------------------
                                      $9,679,000
                                  ------------------
                                  ------------------
</TABLE>

      Total rent expense for the years ended December 31, 1998, 1997, and 
1996 was $1,731,000, $1,328,000, and $1,313,000, respectively.
      In June 1997, the Company filed a lawsuit against certain parties, 
including one of the Company's major competitors and a major dealer of the 
Company's products, alleging infringement of its intellectual property 
rights. The suit against the Company's former dealer has been settled in 
full, and the dealer will resume representation of Mackie's products on April 
2, 1999. The suit against the competitor claims damages in the amount of $327 
million. Cases are pending in the United States District Court for the 
Western District of Washington and a local court in the United Kingdom. The 
defendant has filed counterclaims alleging unspecified damages. While the 
Company intends to vigorously prosecute its claims and defend the 
counterclaims, there can be no assurance that the Company will prevail in any 
of these actions.       
      The Company is also involved in various legal 
proceedings and claims that arise in the ordinary course of business. 
Management currently believes that these matters will not have a material 
adverse impact on the Company's financial position, liquidity or results of 
operations.

14.  SEGMENT AND GEOGRAPHIC INFORMATION
      The Company has two reportable segments: Mackie Designs Inc. and its 
subsidiary, RCF. The Mackie segment offers audio mixers and other 
professional audio equipment. The RCF segment offers loudspeakers and speaker 
components. A summary of key financial data by segment is as follows:
<TABLE>
<CAPTION>
                                                                                           Elimination of
                                                                                            intercompany
                                                            Mackie             RCF             amounts           Total
                                                       ----------------- ---------------- ------------------ --------------
                                                                                  (in thousands)
<S>                                                    <C>               <C>               <C>                <C>
  Year ended December 31, 1998:
     Net sales                                                $ 78,467         $ 22,508           $   --         $100,975
     Operating income                                            8,050              116               --            8,166
     Interest income                                             1,276              148               (642)           782
     Interest expense                                             (583)          (1,580)               642         (1,521)
     Depreciation and amortization                               3,796              948               --            4,744
     Income tax provision                                        2,238             (186)              --            2,052
     Purchases of property, plant and equipment                  4,269            1,069               --            5,338
     Total property, plant and equipment, net                   11,184           13,385               --           24,569
     Total assets                                               57,222           63,037               (922)       119,337
</TABLE>

      Major operations of the Company outside the U.S. include manufacturing 
facilities in Italy, and sales and support offices in Germany, the United 
Kingdom, France and China. Geographic information for the three years ended 
December 31, 1998 is presented in the table that follows. Net sales, as shown 
in the table below, are based upon the geographic area into which the 
products were sold and delivered. As such, U.S. export sales of $24.1 
million, $28.1 million and $27.9 million in 1998, 1997 and 1996, 
respectively, have been excluded from U.S. reported net sales. The profit on 
transfers between geographic areas is not recognized until sales are made to

                                    38
<PAGE>

non-affiliated customers. Long-lived assets, excluding goodwill, bonds and 
deferred taxes, are those assets that can be directly associated with a 
particular geographic area.
<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                                        1998              1997              1996
                                                                  ----------------- ----------------- ------------------
                                                                                    (in thousands)
  <S>                                                                   <C>               <C>                <C>
  Net sales:
    U.S.                                                                 $ 56,811          $ 46,770           $ 45,319
    Europe                                                                 30,591            13,062             14,041
    The Americas, excluding U.S.                                            8,082             7,827              6,519
    Asia-Pacific, including Australia and New Zealand                       3,999             6,669              6,322
    Other                                                                   1,492               561              1,035
                                                                  ----------------- ----------------- ------------------
                                                                         $100,975          $ 74,889           $ 73,236
                                                                  ----------------- ----------------- ------------------
                                                                  ----------------- ----------------- ------------------
  Long-lived assets:
    U.S.                                                                 $ 11,718          $ 11,200           $ 10,650
    Europe                                                                 14,766               --                --
    Other                                                                       2               --                --
                                                                  ----------------- ----------------- ------------------
                                                                         $ 26,486          $ 11,200           $ 10,650
                                                                  ----------------- ----------------- ------------------
                                                                  ----------------- ----------------- ------------------
</TABLE>

15. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

1998                                          FIRST                   SECOND                    THIRD                   FOURTH
------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                     <C>                      <C>                       <C>
Net sales                                 $ 17,354                 $ 18,217                 $ 30,546                 $ 34,858
Gross profit                              $  6,829                 $  6,929                 $ 11,982                 $ 12,531
Net income                                $  1,158                 $  1,297                 $  1,776                 $  1,350
Basic income per share                    $   0.09                 $   0.10                 $   0.14                 $   0.11
Diluted income per share                  $   0.09                 $   0.10                 $   0.14                 $   0.11
</TABLE>
<TABLE>
<CAPTION>

1997                                          FIRST                   SECOND                    THIRD                   FOURTH
------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                     <C>                      <C>                       <C>
Net sales                                 $ 16,768                 $ 18,684                 $ 21,596                 $ 17,841
Gross profit                              $  6,391                 $  7,122                 $  7,850                 $  6,433
Net income                                $  1,140                 $  1,413                 $  1,818                 $  1,166
Basic income per share                    $   0.09                 $   0.11                 $   0.14                 $   0.09
Diluted income per share                  $   0.09                 $   0.11                 $   0.13                 $   0.09
</TABLE>

                                    39
<PAGE>

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

         None.


PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this Item is included in the Company's 
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders under 
the heading "Proposal No. 1: Election of Directors" and is incorporated 
herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

         The information required by this Item is included in the Company's 
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders under 
the heading "Executive Compensation" and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this Item is included in the Company's 
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders under 
the heading "Principal Shareholders" and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item is included in the Company's 
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders under 
the heading "Certain Transactions" and is incorporated herein by reference.

PART IV

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

      (a)  Documents filed as part of this report:
           1.  CONSOLIDATED FINANCIAL STATEMENTS:                   PAGE NUMBER
                                                                    -----------
               A. Report of Ernst & Young LLP, Independent Auditors....  24

               B. Consolidated Balance Sheets as of December 31, 1998
                   and December 31, 1997................................  25

               C. Consolidated Statements of Income for each of the 
                   three years in the period ended December 31, 1998....  26

               D. Consolidated Statements of Cash Flows for each of 
                   the three years in the period ended December 
                   31, 1998.............................................  27

                                    40
<PAGE>

               E. Consolidated Statements of Shareholders' Equity for 
                   each of the three years in the period ended December 
                   31, 1998.............................................  28

               F. Notes to Consolidated Financial Statements............ 29-39

           2.  FINANCIAL STATEMENT SCHEDULES:                       PAGE NUMBER
                                                                    -----------
               Schedule II - Valuation and Qualifying Accounts..........  43

               All financial statement schedules not listed are omitted 
               either because they are not applicable, not required, or the
               required information is included in the consolidated financial
               statements or notes thereto.

           3.  EXHIBITS: See Index to Exhibits on page 44.

      (b)  Reports on Form 8-K:

           None.

                                    41

<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.

                               MACKIE DESIGNS INC.

                               By:    /s/ Greg C. Mackie
                                      ---------------------------------------
                                      Greg C. Mackie
                                      CHAIRMAN OF THE BOARD, PRESIDENT AND
                                      CHIEF EXECUTIVE OFFICER

                               Date:   March 29, 1999


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 indicated on March 29, 1999.
<TABLE>
<CAPTION>
SIGNATURE                                   TITLE
---------                                   -----
<S>                                         <C>
/s/ Greg C. Mackie                          Chairman of the Board, President and Chief
-------------------------------             Executive Officer
Greg C. Mackie                              (Principal Executive Officer)

/s/ William A. Garrard                      Vice President, Finance and Chief Financial Officer
-------------------------------             (Principal Financial and Accounting Officer)
William A. Garrard


/s/ David M. Tully                          Treasurer and Director
-------------------------------
David M. Tully


/s/ Raymond B. Ferguson                     Director
-------------------------------
Raymond B. Ferguson


/s/ Walter Goodman                          Director
-------------------------------
Walter Goodman


/s/ Gregory Riker                           Director
-------------------------------
Gregory Riker


/s/ C. Marcus Sorenson                      Director
-------------------------------
C. Marcus Sorenson
</TABLE>

                                    42
<PAGE>


              SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                            MACKIE DESIGNS INC.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                             RCF        Additions
                                                            Balance at   Reserves at    Charged to                    Balance at
                                                            Beginning      Date of      Costs and     Deductions -      End of
                      Description                           of Period    Acquisition     Expenses       Describe        Period
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>          <C>            <C>           <C>             <C>
YEAR ENDED DECEMBER 31, 1998:
   Reserve and allowances deducted from asset accounts:
      Allowance for uncollectible accounts                   $ 481,000   $ 1,008,000     $ 279,000   $ 347,000 (1)   $ 1,421,000
      Reserve for inventories                                $ 445,000   $   698,000     $ 191,000   $     --        $ 1,334,000

   Reserve and allowances added to liability accounts:
      Reserve for warranty expenses                          $ 300,000   $      --       $ 120,000   $     --        $   420,000


YEAR ENDED DECEMBER 31, 1997:
   Reserve and allowances deducted from asset accounts:
      Allowance for uncollectible accounts                   $ 808,000   $      --       $     --    $ 327,000 (1)    $  481,000
      Reserve for inventories                                $ 632,000   $      --       $     --    $ 187,000 (2)    $  445,000

   Reserve and allowances added to liability accounts:
      Reserve for warranty expenses                          $ 180,000   $      --       $ 120,000   $     --         $   300,000


YEAR ENDED DECEMBER 31, 1996:
   Reserve and allowances deducted from asset accounts:
      Allowance for uncollectible accounts                   $ 514,000   $      --       $ 471,000   $  177,000 (1)   $   808,000
      Reserve for inventories                                $ 154,000   $      --       $ 478,000   $      --        $   632,000

   Reserve and allowances added to liability accounts:
      Reserve for warranty expenses                          $  60,000   $      --       $ 120,000   $      --         $  180,000
</TABLE>



(1) Uncollectible accounts written off, net of recoveries, and adjustment to 
    reserves.
(2) Inventories written off, net of recoveries, and adjustment to reserves.

                                    43
<PAGE>

                             INDEX TO EXHIBITS
<TABLE>
<CAPTION>
                                                                                                        SEQUENTIALLY
 EXHIBITS                                       DESCRIPTION                                             NUMBERED PAGE
 --------                                       -----------                                             -------------
<C>               <S>                                                                                   <C>
    2.1           Stock Purchase and Sale Agreement between the Company and Radio Cine Forniture
                  (R.C.F.) S.p.A. consisting of letters dated November 9, 1997, April 30, 1998,
                  June 25, 1998, and June 29, 1998.  Incorporated by reference to Exhibit 2.1 to
                  Registrant's Current Report on Form 8-K dated June 29, 1998...............

    3.1           Restated Articles of Incorporation.  Incorporated by reference to Exhibit 3.1
                  to Registrant's Registration Statement filed under the Securities Act of 1933
                  on Form S-1, as amended, Registration No. 33-93514........................

    3.2           Restated Bylaws.  Incorporated by reference to Exhibit 3.2 to Registrant's
                  Registration Statement filed under the Securities Act of 1933 on Form S-1, as
                  amended, Registration No. 33-93514........................................

    4.1           See Articles II, III and IV of Exhibit 3.1 and Sections 1, 5 and 9 of
                  Exhibit 3.2 confirming the rights of the holders of Common Stock..........

   10.1           Mackie Designs Inc. Amended and Restated 1995 Stock Option Plan, as amended on
                  March 11, 1997.  Incorporated by reference to Exhibit 10.1 to Registrant's
                  Annual Report on Form 10-K for the year ended December 31, 1996..................

   10.2           Amendment to Mackie Designs Inc. Amended and Restated 1995 Stock Option Plan,
                  dated May 19, 1998...............................................................

   10.3           Industrial Lease, dated December 15, 1994, by and between Mackie Holdings,
                  L.L.C. and Mackie Designs Inc.  Incorporated by reference to Exhibit 10.3 to
                  Registrant's Registration Statement filed under the Securities Act of 1933 on
                  Form S-1, as amended, Registration No. 33-93514...........................

   10.4           Industrial Real Estate Lease, dated April 28, 1995, by and between Intrawest
                  Properties Partnership U.S. and Mackie Designs Inc.  Incorporated by reference
                  to Exhibit 10.4 to Registrant's Registration Statement filed under the
                  Securities Act of 1933 on Form S-1, as amended, Registration No. 33-93514.

   10.5           Exhibit C to Industrial Real Estate Lease, dated  April 28, 1995, by and
                  between Intrawest Properties Partnership U.S. and Mackie Designs Inc.
                  Incorporated by reference to Exhibit 10.4A to Registrant's Registration
                  Statement filed under the Securities Act of 1933 on Form S-1, as amended,
                  Registration No. 33-93514.................................................

   10.6           Mackie Sales Representative Agreement, dated January 24, 1994, by and between
                  Mackie Designs Inc. and C.M. Sorenson Co. dba Calwest Marketing So.
                  Incorporated by reference to Exhibit 10.5 to Registrant's Registration
                  Statement filed under the Securities Act of 1933 on Form S-1, as amended,
                  Registration No. 33-93514.................................................

   10.7           Exhibit C to Mackie Sales Representative Agreement, dated  January 24, 1994,
                  by and between Mackie Designs Inc. and C. M. Sorenson Co. dba Calwest
                  Marketing So.  Incorporated by reference to Exhibit 10.5A to Registrant's
                  Registration Statement filed under the Securities Act of 1933 on Form S-1, as
                  amended, Registration No. 33-93514........................................

                                    44
<PAGE>


   10.8           Form of Authorized Dealer Agreement. Incorporated by reference
                  to Exhibit 10.13 to Registrant's Registration Statement filed
                  under the Securities Act of 1933 on Form S-1, as amended,
                  Registration No. 33-93514.................................................

   10.9           Form of Sales Representative Agreement. Incorporated by
                  reference to Exhibit 10.14 to Registrant's Registration
                  Statement filed under the Securities Act of 1933 on Form S-1,
                  as amended, Registration No. 33-93514.....................................

   10.10          Mackie Designs Inc. 401(k) Profit Sharing Plan dated December 20, 1993.
                  Incorporated by reference to Exhibit 10.15 to Registrant's Registration
                  Statement filed under the Securities Act of 1933 on Form S-1, as amended,
                  Registration No. 33-93514.................................................

   10.11          Agreement between A&R Technology and Mackie Designs Inc. for
                  the Development and Publishing of MIDI Mix Automation Software
                  dated December 5, 1993, as amended on August 16, 1994 and June
                  14, 1995. Incorporated by reference to Exhibit 10.16 to
                  Registrant's Registration Statement filed under the Securities
                  Act of 1933 on Form S-1, as amended, Registration No.
                  33-93514..................................................................

   10.12          Software License Agreement among Alexander Hopmann, Robert Tudor and Mackie
                  Designs Inc. dated February 9, 1996.  Incorporated by reference to
                  Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1995.........................................................

   10.13          Employee Agreement dated April 28, 1997 between Roy D. Wemyss and Mackie
                  Designs Inc.  Incorporated by reference to Exhibit 10.1 to Registrant's
                  Quarterly Report on Form 10-Q for the period ended June 30, 1997..........

   10.14          Employee Agreement dated April 28, 1997 between Patric Wiesmann and Mackie
                  Designs Inc.  Incorporated by reference to Exhibit 10.2 to Registrant's
                  Quarterly Report on Form 10-Q for the period ended June 30, 1997..........

   10.15          Employee Agreement dated May 19, 1997 between William A. Garrard and Mackie
                  Designs Inc.  Incorporated by reference to Exhibit 10.3 to Registrant's
                  Quarterly Report on Form 10-Q for the period ended June 30, 1997..........

   10.16          Employee Agreement dated June 20, 1997 between Robert May and Mackie Designs
                  Inc.  Incorporated by reference to Exhibit 10.4 to Registrant's Quarterly
                  Report on Form 10-Q for the period ended June 30, 1997....................

   10.17          Credit Agreement between U.S. Bank National Association and Mackie Designs
                  Inc.  Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly
                  Report on Form 10-Q for the period ended June 30, 1998....................

   10.18          Acquisition Note made by Mackie Designs Inc. to the order of U.S. Bank
                  National Association.  Incorporated by reference to Exhibit 10.2 to
                  Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 
                  1998......................................................................

                             45

<PAGE>

   10.19          Revolving Note made by Mackie Designs Inc. to the order of U.S. Bank National
                  Association.  Incorporated by reference to Exhibit 10.3 to Registrant's
                  Quarterly Report on Form 10-Q for the period ended June 30, 1998..........

   10.20          First Amendment to Credit Agreement dated June 29, 1998 between Mackie Designs
                  Inc. and U.S. Bank National Association.  Incorporated by reference to
                  Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the period
                  ended June 30, 1998.......................................................

   11.1           Computation of net income per share.  Incorporated by reference to the Notes
                  to Consolidated Financial Statements (Footnote 11) in the Annual Report to
                  Shareholders of Mackie Designs Inc. for the year ended December 31, 1998

  *13.1           Annual Report to Shareholders of Mackie Designs Inc. for the year ended
                  December 31, 1998......................................................... 47

  *21.1           Subsidiaries of Mackie Designs Inc........................................ 54

  *23.1           Consent of Ernst & Young LLP, Independent Auditors........................ 55

  *27.1           Financial Data Schedule................................................... 56
</TABLE>

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

* Filed herewith

                                    46