UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  FORM 10-KSB/A

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended March 31, 2002

                                    0 - 24968
                                    ---------
                             Commission File Number

                        THE SINGING MACHINE COMPANY, INC.
                        ---------------------------------
        (Exact Name of Small Business Issuer as Specified in its Charter)

                Delaware                                   95-3795478
---------------------------------------      ----------------------------------
        (State of incorporation)            (I.R.S. Employer Identification No.)

             6601 Lyons Road, Building A-7, Coconut Creek, FL 33073
             ------------------------------------------------------
                    (Address of principal executive offices)

                                 (954) 596-1000
                                 --------------
                (Issuer'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
      Common Stock                            American Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:
           -----------------------------------------------------------
                                      None

Check whether the Issuer: (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days. |X| Yes |_| No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. |_|

 State issuer's revenues for its most recent fiscal year:  $61,828,894.


The aggregate market value of the Registrant's voting stock held by
non-affiliates, based upon the closing price for the common stock of $10.00 per
share as reported on the American Stock Exchange on July 17, 2002 was
approximately $52,611,730 (based on 8,100,953 shares outstanding).

ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS: Indicate
whether the Issuer has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. |X| Yes |_| No

APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of
each of the Issuer's classes of common stock, as of the latest practicable date.

There were 8,134,701 shares of common stock, issued and outstanding at July 22,
2002.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

Transitional Small Business Disclosure Format (check one):  Yes |_|  No |X|

<PAGE>

                THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY


                      INDEX TO ANNUAL REPORT ON FORM 10-KSB

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2002

<TABLE>
<CAPTION>

                                                                                                      PAGE
                                     PART I

<S>            <C>                                                                                    <C>
Item 1.       Business                                                                                  1
Item 2.       Properties                                                                                5
Item 3.       Legal Proceedings                                                                         5
Item 4.       Submission of Matters to a Vote of Security Holders                                       5

                                    PART II

Item 5.       Market for Company's Common Equity and Related Stockholder Matters                        6
Item 6.       Management's Discussion and Analysis of Financial Condition and Results of                7
              Operations
Item 7.       Financial Statements                                                                     19
Item 8.       Changes in and Disagreements with Accountants on Accounting and Financial                19
              Disclosure

                                    PART III

Item 9.       Directors, Executive Officers, Promoters and Control Persons; Compliance with            19
              Section 16(a) of the Exchange Act
Item 10.      Executive Compensation                                                                   21
Item 11.      Security Ownership of Certain Beneficial Owners and Management                           26
Item 12.      Certain Relationships and Related Transactions                                           27
Item 13.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K                         28

SIGNATURES                                                                                             31
</TABLE>

                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-KSB, including
without limitation, statements containing the words "believes," "anticipates,"
"estimates," "expects," "intends," and words of similar import, constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in these forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in the section entitled "Management's Discussion and Analysis of
Financial Position and Results of Operations - Factors That May Affect Future
Results and Market Price of Stock."

Readers are cautioned not to place undue reliance on these forward- looking
statements, which reflect management's opinions only as of the date hereof. The
Company undertakes no obligation to revise or publicly release the results of
any revisions to these forward- looking statements. Readers should carefully
review the risk factors described in other documents the Company files from time
to time with the Securities and Exchange Commission.



<PAGE>

                                     PART I

FORWARD STOCK SPLIT

         On March 14, 2002, The Singing Machine Company, Inc. declared a 3-for-2
stock split to its stockholders of record as of March 4, 2002. All information
in this Annual Report on Form 10-KSB has been restated to give effect to this
3-for-2 stock split.

ITEM 1. BUSINESS
        --------

OVERVIEW

         The Singing Machine Company, Inc. (the "Company," "we" or "us") is
engaged in the production, distribution, marketing and sale of consumer karaoke
audio equipment, accessories and music. We contract for the manufacture of all
electronic equipment products with factories located in the Far East. We also
produce and market karaoke music, including CD plus graphics ("CD+G's"), and
audiocassette tapes containing music and lyrics of popular songs for use with
karaoke recording equipment. One track of those tapes offers music and vocals
for practice and the other track is instrumental only for performance by the
participant. Virtually all of the cassettes sold by us are accompanied by
printed lyrics, and our karaoke CD+G's contain lyrics, which appear on the video
screen. We contract for the reproduction of music recordings with independent
studios.

         We were incorporated in California in 1982. We originally sold our
products exclusively to professional and semi-professional singers. In 1988, we
began marketing karaoke equipment for home use. We believe we were the first
company to offer karaoke electronic recording equipment and music for home use
in the United States.

         In May 1994, we merged into a wholly owned subsidiary incorporated in
Delaware with the same name. As a result of that merger, the Delaware
corporation became the successor to the business and operations of the
California corporation and retained the name The Singing Machine Company, Inc.
In July 1994, we formed a wholly owned subsidiary in Hong Kong, now known as
International SMC (HK) Ltd. ("International SMC"), to coordinate our production
and finance in the Far East.

         In November 1994, we closed an initial public offering of 2,070,000
shares of our common stock and 2,070,000 warrants. In April 1997, we filed a
voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. On
March 17, 1998, our plan of reorganization was approved by the U.S. Bankruptcy
Court. On June 10, 1998, our plan of reorganization had been fully implemented.

         Since emerging from bankruptcy, our revenues have steadily increased.
Our revenues increased from $6.2 million in the fiscal year ended March 31, 1998
to $61.8 million in the fiscal year ended March 31, 2002. We had an operating
loss of approximately $1.6 million in the fiscal year ended March 31, 1998
compared to net income of $8.065 million in the fiscal year ended March 31,
2002.

PRODUCT LINES

         We currently have a product line of 18 different models of karaoke
machines, incorporating such features as CD plus graphics player sound
enhancement, graphic equalizers, echo tape record/playback features, and
multiple inputs and outputs for connection to compact disc players and video
cassette recorders. Our machines sell at retail prices ranging from $30 for
basic units to $400 for semi-professional units. We currently offer our music in
two formats - multiplex cassettes and CD+G's with retail prices ranging from
$6.99 to $19.99. We currently have a song library of over 3,000 recordings,
which we license from publishers. Our library of master recordings covers the
entire range of musical tastes including popular hits, golden oldies, country,
rock and roll, and rap. We even have backing tracks for opera and certain
foreign language recordings.



                                       1
<PAGE>

MARKETING, SALES AND DISTRIBUTION

MARKETING

         We rely on management's ability to determine the existence and extent
of available markets for our products. Our management has considerable marketing
and sales background and devotes a significant portion of its time to
marketing-related activities. We achieve both domestic and direct sales by
marketing our hardware and music products primarily through our own sales force
and 14 independent sales representatives. Our representatives are located in
various states and are paid a commission based upon sales in their respective
territories. The sales representative agreements are generally one (1) year
agreements, which automatically renew on an annual basis, unless terminated by
either party on 30 days' notice. We work closely with our major customers to
determine marketing and advertising plans.

         We also market our products at various national and international trade
shows each year. We regularly attend the following trade shows and conventions:
the Consumer Electronics Show each January in Las Vegas; the American Toy Fair
each February in New York and the Hong Kong Electronics Show each October in
Hong Kong, We spent approximately $181,800 on research and development in fiscal
2002, primarily to develop prototypes and working samples.

         Our karaoke machines and music are marketed under the Singing
Machine(R) trademark throughout the United States, primarily through department
stores, mass merchandisers, direct mail catalogs and showrooms, music and record
stores, national chains, specialty stores, and warehouse clubs. Our karaoke
machines and karaoke music are currently sold in such stores as Best Buy, J.C.
Penney, Sears, Target and Toys R Us.

         Our licensing agreements with MTV Networks and Nickelodeon have further
expanded our brand name and our customer base. Through our license with MTV, we
have begun to focus on the 12 to 24 year old market and through our agreement
with Nickelodeon, we have reached an even younger age group between the ages of
3-6.

         In November 2001, we signed an international distributorship agreement
with Arbiter Group, PLC ("Arbiter"). Arbiter is the exclusive distributor of
Singing Machine(R) karaoke machines and music products in the United Kingdom and
a non-exclusive distributor in all other European countries. The agreement
terminates on December 31, 2003, subject to an automatic renewal provision.

SALES

         As a percentage of total revenues, our net sales in the aggregate to
our five largest customers during the fiscal years ended March 31, 2002 and
2001, respectively, were approximately 87% and 78% respectively. In fiscal 2002
and 2001, Best Buy and Toys R Us accounted for more than 10% of our revenues.
Furthermore, in fiscal 2002, Costco accounted for more than 10% of our revenues.
Although we have long-established relationships with all of our customers, we do
not have long-term contractual arrangements with any of them. A decrease in
business from any of our major customers could have a material adverse effect on
our results of operations and financial condition.

         Returns of electronic hardware and music products by our customers are
generally not permitted except in approved situations involving quality defects,
damaged goods, goods shipped in error or goods that are shipped on a consignment
basis. Our policy is to give credit to our customers for the returns in
conjunction with the receipt of new replacement purchase orders. Our credit
policies are tailored to our customer base. We have not suffered significant
credit losses to date.

DISTRIBUTION

         We distribute hardware products to retailers and wholesale distributors
through two methods: shipment of products from inventory (domestic sales), and
shipments directly from our Hong Kong subsidiary or manufacturers in the Far
East of products (direct sales). Domestic sales, which account for substantially
all of our music sales, are made to customers located throughout the United
States from inventories maintained at our warehouse facilities in Florida or
California.


                                       2
<PAGE>



         Domestic Sales. Our strategy of selling products from a domestic
warehouse enables us to provide timely delivery and serve as a "domestic
supplier of imported goods." We purchase electronic recording products overseas
from certain factories in China for our own account, and warehouse the products
in leased facilities in Florida and California. We are responsible for costs of
shipping, insurance, customs clearance, duties, storage and distribution related
to such products and, therefore, warehouse sales command higher sales prices
than direct sales. We generally sell from our own inventory in less than
container-sized lots. In the fiscal year ended March 31, 2002, approximately 55%
of our sales were domestic sales.

         Direct Sales. We ship some hardware products sold by us directly to
customers from the Far East through International SMC. Sales made through
International SMC are completed by either delivering products to the customers'
common carriers at the shipping point or by shipping the products to the
customers' distribution centers, warehouses, or stores. Direct sales are made in
larger quantities (generally container sized lots) to customers in Italy,
England, Canada, South America and the United States, who pay International SMC
pursuant to their own international, irrevocable, transferable letters of credit
or on an open account. In the fiscal year ended March 31, 2002, approximately
45% of our sales were direct sales.

MANUFACTURING AND PRODUCTION

         Our karaoke machines are manufactured and assembled by third parties
pursuant to design specifications provided by us. Currently, we have ongoing
relationships with six factories, located in the Shenzhen province of the
People's Republic of China, who assemble our karaoke machines. In manufacturing
our karaoke related products, these factories use molds and certain other
tooling, some of which are owned by International SMC. Our products contain
electronic components manufactured by other companies such as Panasonic, Sanyo,
Toshiba, and Sony. Our manufacturers purchase and install these electronic
components in our karaoke machines and related products. The finished products
are packaged and labeled under our trademark, The Singing Machine(R).

         We have obtained copyright licenses from music publishers for all of
the songs in our music library. We contract with outside studios on a work-for
hire basis to produce recordings of these songs. After the songs have been
recorded, we use outside companies to mass-produce the CD+G's and
audiocassettes.

         While our equipment manufacturers purchase our supplies from a small
number of large suppliers, all of the electronic components and raw materials
used by us are available from several sources of supply, and we do not
anticipate that the loss of any single supplier would have a material long-term
adverse effect on our business, operations, or financial condition. Similarly,
although we primarily use three factories to manufacture our karaoke machines
and a small number of studios to record our music, we do not anticipate that the
loss of any single manufacturer or single studio would have a material long-term
adverse effect on our business, operations or financial condition. To ensure
that our high standards of product quality and factories meet our shipping
schedules, we utilize Hong Kong based employees of International SMC as our
representatives. These employees include product inspectors who are
knowledgeable about product specifications and work closely with the factories
to verify that such specifications are met. Additionally, key personnel
frequently visit our factories for quality assurance and to support good working
relationships.

         All of the electronic equipment sold by us is warranted to the end user
against manufacturing defects for a period of ninety (90) days for labor and
parts. All music sold is similarly warranted for a period of 30 days. During the
fiscal years ended March 31, 2002 and 2001, warranty claims have not been
material to our results of operations.

LICENSE AGREEMENTS WITH MTV AND NICKELODEON

         In November 2000, we entered into a multi-year merchandise license
agreement with MTV Networks, a division of Viacom International, Inc., to create
the first line of MTV karaoke machine and compact disks with graphics ("CD+G's")
featuring music for MTV's core audience. Under the licensing agreement, we
produced two MTV-branded machines for the fiscal 2002 year: (1) a large format
karaoke machine with a built in, fully functional television that enables users
to view song lyrics and (2) a small karaoke system that connects to a
television. We also produced exclusive CD+G's featuring music catering to MTV's
core audience that were distributed with the MTV branded karaoke machines. As of
March 31, 2002, we exceeded the minimum guaranteed royalty payments established
in the license agreement. For fiscal 2003, we are producing two additional MTV
karaoke machines, a duet microphone and additional MTV branded CD+G's titles. In
fiscal 2002, we sold 6 MTV branded CD+G's, in fiscal 2003, we expect to sell 20
different MTV CD+G titles. The MTV license expires on December 31, 2004.


                                       3
<PAGE>

         We distribute the MTV licensed products through our established
distribution channels, including Best Buy, Costco, JC Penny, Musicland, Sam's
Club, Sears and Toys R Us. Our distribution network also includes the online
versions of these retail customers.

         In December 2001, we entered into a multi-year license agreement with
the Nickelodeon division of MTV Networks. Under this license, we will create a
line of two Nickelodeon branded machines and music for the fiscal 2003 year.
These products will be distributed through our established distribution
channels. Our initial shipment date is scheduled for August 15, 2002. Over the
term of this license agreement, we are obligated to make guaranteed minimum
royalty payments of $450,000. We do not believe that the payment of these
guaranteed fees will adversely affect our ongoing operations. The Nickelodeon
license expires on December 31, 2004.

COMPETITION

         Our business is highly competitive. Our major competitors for karaoke
machines and related products are Casio Computer Corp., Grand Prix, Memorex, JVC
and Pioneer Corp. We believe that competition for karaoke machines is based
primarily on price, product features, reputation, delivery times, and customer
support. Our primary competitors for producing karaoke music are Pocket Songs
and Sound Choice. We believe that competition for karaoke music is based
primarily on popularity of song titles, price, reputation and delivery times.

         We try to stay ahead of our competition by introducing new products
each year and upgrading our existing products. We believe that we were one of
the first companies to introduce CD+G technology to karaoke machines. In fiscal
2003, we introduced 6 new karaoke models, including 2 MTV branded machines. In
fiscal 2003, we will be introducing a karaoke machine with a built-in-video
monitor and camera.

         In addition, we compete with all other existing forms of entertainment
including, but not limited to, motion pictures, video arcade games, home video
games, theme parks, nightclubs, television and prerecorded tapes, CD's, and
videocassettes. Our financial position depends, among other things, on our
ability to keep pace with changes and developments in the entertainment industry
and to respond to the requirements of our customers. Many of our competitors
have significantly greater financial, marketing, and operating resources and
broader product lines than we do.

TRADEMARKS

         We have registered various trademarks with the United States Patent &
Trademark Office for our Singing Machine(R) products and also have common law
rights in these trademarks. We have also registered our trademark in Germany,
the Benelux countries, Switzerland and the United Kingdom.

COPYRIGHTS AND LICENSES

         We hold federal and international copyrights to substantially all of
the music productions comprising our song library. However, since each of those
productions is a re-recording of an original work by others, we are subject to
contractual and/or statutory licensing agreements with the publishers who own or
control the copyrights of the underlying musical compositions. We are obligated
to pay royalties to the holders of such copyrights for the original music and
lyrics of all of the songs in our library that have not passed into the public
domain. We are currently a party to more than 3,000 different written copyright
license agreements.

         The majority of the songs in our song library are subject to written
copyright license agreements, oftentimes referred to as synchronization
licenses. Our written licensing agreements for music provide for royalties to be
paid on each song. The actual rate of royalty is negotiable, but typically
ranges from $0.09 to $0.18 per song on each CD or audiocassette that is sold.
Our written licenses typically provide for quarterly royalty payments, although
some publishers require reporting on a semi-annual basis.

         We currently have compulsory statutory licenses for approximately 30
songs in our song library, which are sold as audiocassettes. The Federal
Copyright Act creates a compulsory statutory license for all non-dramatic
musical works, which have been distributed to the public in the United States.
Royalties due under compulsory licenses are payable monthly and are based on the
statutory rate. The statutory rate is the greater of $0.08 per song for five
minutes of playing time or $0.0155 per minute of playing time or fraction
thereof with respect to each item of music produced and distributed by us. We
also have written license agreements for substantially all of the printed
lyrics, which are distributed with our audiocassettes, which licenses also
typically provide for quarterly payments of royalties at the statutory rate.


                                       4
<PAGE>

GOVERNMENT REGULATION

         Our karaoke machines must meet the safety standards imposed in various
national, state, local and provincial jurisdictions. Our karaoke machines sold
in the United States are designed, manufactured and tested to meet the safety
standards of Underwriters Laboratories, Inc. or Electronic Testing Laboratories.
Our production and sale of music products is subject to federal copyright laws.

         Our manufacturing operations in China are subject to foreign
regulation. China has permanent "normal trade relations" ("NTR") status under US
tariff laws, which provides a favorable category of US import duties. China's
NTR status became permanent on January 1, 2002, following enactment of a bill
authorizing such status upon China's admission to the World Trade Organization
("WTO") effective as of December 1, 2001. This substantially reduces the
possibility of China losing its NTR status, which would result in increasing
costs for the Company.

EMPLOYEES

         As of April 15, 2002, we employed 47 persons, all of whom are full-time
employees, including four executive officers. Thirteen of our employees are
located at International SMC's corporate offices in Hong Kong. The remaining
thirty-four employees are based in the United States, including the four
executive positions; twelve are engaged in warehousing and technical support,
and eighteen in accounting, marketing, sales and administrative functions.

ITEM 2. PROPERTIES
        ----------

         Our corporate headquarters are located in Coconut Creek, Florida in an
11,200 square foot office and warehouse facility. Our three leases for this
office space expire on August 30, 2004. We sublease showroom space at the
International Toy Center in New York City. We have leased 9,393 square feet of
office and showroom space in Hong Kong from which we oversee our China based
manufacturing operations. Our two leases for this space in the Ocean Center
building expire on April 30, 2005 and May 31, 2005, respectively.

         We have one central warehouse facility in Compton, California for
79,000 square feet. Our lease expires on February 23, 2008. We have also
subleased warehouse space in Carson, California, that we previously leased for
warehouse space to an unrelated third party until the expiration of the lease.

         We believe that the facilities are well maintained, in substantial
compliance with environmental laws and regulations, and adequately covered by
insurance. We also believe that these leased facilities are not unique and could
be replaced, if necessary, at the end of the term of the existing leases.

ITEM 3. LEGAL PROCEEDINGS
        -----------------

         We filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of Florida, case number 97-22199-BKC-RBR, on April 11, 1997. On March 17, 1998,
the U.S. Bankruptcy Court confirmed our First Amended Plan of Reorganization. As
of June 10, 1998, our plan has been fully implemented.

         We are not a party to any material legal proceeding, nor to the
knowledge of management, are any legal proceedings threatened against us. From
time to time, we may be involved in litigation relating to claims arising out of
our operations in the normal course of business.

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

         No matters were submitted to a vote of security holders through a
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.



                                       5
<PAGE>

                                     PART II

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

         Our common stock currently trades on the American Stock Exchange under
the symbol "SMD." We began trading on the AMEX on March 8, 2001. From January
26, 1996 through March 7, 2001, we traded on the National Association of
Securities Dealers, Inc.'s OTC Bulletin Board under the symbol "SING". Set forth
below is the range of high and low information for our common stock as traded on
the American Stock Exchange from March 8, 2001 through March 31, 2002, as
reported by Commodity Systems, Inc. Also, set forth is the range of our high and
low bid information for our common stock as traded on the OTC Bulletin Board
from April 1, 2000 through March 8, 2001, as reported by the National Quotation
Bureau, Inc. This information regarding trading on the OTC Bulletin Board
represents prices between dealers and does not reflect retail mark-up or
markdown or commissions, and may not necessarily represent actual market
transactions. This information contained in this table has been restated to give
effect to our 3-for-2 stock split to stockholders of record on March 4, 2002.
<TABLE>
<CAPTION>

       FISCAL PERIOD                                                         HIGH                     LOW
       2002:
       -----
<S>                                                                        <C>                     <C>
       First Quarter (April 1 - June 30, 2001)                             $ 4.45                  $ 2.90
       Second Quarter (July 1 - September 30, 2001)                          5.02                    3.70
       Third Quarter (October 1 - December 31, 2001)                        16.19                    4.30
       Fourth Quarter (January 1 - March 31, 2002)                          17.80                   12.53

       2001:
       -----
       First Quarter (April 1 - June 30, 2000)                              $3.00                   $1.65
       Second Quarter (July 1 - September 30, 2000)                          2.75                    1.46
       Third Quarter (October 1 - December 31, 2000)                         4.42                    2.33
       Fourth Quarter (January 1 - March 8, 2001)                            3.83                    2.42
       Fourth Quarter (March 8 - March 31, 2001)                             4.00*                   3.06*
</TABLE>

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

* The Company began trading on the American Stock Exchange on March 8, 2001 and
the following prices represent the high and low sales prices on the AMEX during
the period noted above.

         As of June 15, 2002, there were approximately 311 record holders of our
outstanding common stock.

COMMON STOCK
------------

         The Company has never declared or paid cash dividends on its common
stock and the Company's Board of Directors intends to continue its policy for
the foreseeable future. Furthermore, the Company's credit facility with LaSalle
Business Credit, Inc. restricts the Company from paying any dividends to its
shareholders, unless it obtains prior written consent from LaSalle. Future
dividend policy will depend upon the Company's earnings, financial condition,
contractual restrictions and other factors considered relevant by the Company's
Board of Directors and will be subject to limitations imposed under Delaware
law.

         On March 14, 2002, the Company effected a 3 for 2 stock split for all
shareholders on record as of March 4, 2002.


                                       6
<PAGE>


SALE OF UNREGISTERED SECURITIES

         During the three-month period ended March 31, 2002, nine employees and
one former director exercised stock options issued under our 1994 Amended and
Restated Management Stock Option Plan. The employees exercised options to
acquire an aggregate of 380,275 shares of our common stock. The names of the
option holders, the dates of exercise of the number of shares purchased, the
exercise price and the proceeds received by us are listed below.

                  Date of
   Name           Exercise   No. of Shares  Exercise Price   Proceeds

Eddie Steele      01-03-02     262,500         $  .287       $75,250
Eddie Steele      01-03-02      45,000         $ 1.107       $49,800
Eddie Steele      01-03-02      15,000         $ 2.04        $30,600
Alicia Haskamp    01-03-02       6,000         $ 2.04        $12,240
M. McElligott     02-06-02       3,750         $ 2.04        $ 7,650
Brian Cino        02-06-02         675         $  .287       $   193.50
Brian Cino        02-06-02       1,350         $ 2.04        $ 2,754
Jorge Otaeugi     02-06-02       2,250         $  .287       $   645
Jorge Otaeugi     02-06-02       2,250         $ 2.04        $ 4,590
John Steele       02-06-02       7,500         $ 2.04        $15,300
Terry Phillips    02-19-02         450         $ 2.04        $   918
Alan Schor        02-19-02       7,500         $ 2.04        $15,300
Robert Torrelli   03-07-02         150         $ 2.04        $   306
John DeNovi       03-07-02       2,550         $ 3.27        $ 8,330
John Steele       03-14-02      22,500         $ 2.04        $45,900
Terry Phillips    03-22-02         900         $ 2.04        $ 1,836

         Each of these employees and former director paid for the shares with
cash. The shares issued to our employees were registered under the Securities
Act on a registration statement on Form S-8. As such, no restrictive legends
were placed on the shares, except control legends were placed on the shares
issued to Eddie Steele.

         During the three-month period ended March 31, 2002, four warrant
holders exercised their warrants to acquire an aggregate of 78,000 shares of
common stock. The names of the warrant holders, the dates of exercise of the
number of shares purchased, the exercise price and the proceeds received by the
Company are listed below.

                          Date of
Name                      Exercise   No. of Shares     Exercise Price  Proceeds

Eddie Steele              01-03-02       12,000           $ 1.33     $16,000
Fred Merz                 02-19-02        6,000           $ 1.33     $ 8,000
FRS Investments           03-04-02       30,000           $ 0.917    $27,500
John Klecha               03-19-02       30,000           $ 1.33     $40,000

         Each of these warrant holders exercised their warrants in reliance upon
Section 4(2) of the Securities Act of 1933, because each of the holders was
sophisticated and had access to comprehensive information about the Company. The
Company placed legends on the certificates stating that the securities were not
registered under the Securities Act and set forth the restrictions on their
transferability and sale.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        -------------------------------------------------
        CONDITION AND RESULTS OF OPERATIONS
        -----------------------------------

         The following discussions and analysis should be read in conjunction
with, and is qualified in its entirety by, the Financial Statements included
elsewhere herein. Historical results are not necessarily indicative of trends in
operating results for any future period.

                                       7
<PAGE>


RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, certain
income and expense items expressed as a percentage of the Company's total
revenues:

                                                     YEAR ENDED MARCH 31,
                                                 ----------------------------
                                                  2002       2001       2000
                                                 ------     ------     ------

Total Revenues ..............................    100.0%     100.0%     100.0%

Cost of Sales ...............................     67.0       65.5       72.1

Operating expenses ..........................     19.7       19.8       19.9

Operating income ............................     13.3       14.7        8.0

Other expenses, net .........................      0.09       2.5        5.0

Income before taxes .........................     13.2       12.2        3.0

Provision (benefit) for income taxes ........       .2         .1       (0.8)

Income (loss) ...............................     13.0       12.0        3.8


THE YEAR ENDED MARCH 31, 2002 AS COMPARED TO THE YEAR ENDED MARCH 31, 2001

NET SALES

         Net sales for the fiscal year ended March 31, 2002 increased 80.2% to
$61,828,894 compared to $34,306,839 for the fiscal year ended March 31, 2001.
The Company's growth was driven by strong sales of the Company's MTV licensed
merchandise and the introduction of new karaoke machines and music titles. We
generated $23,354,270 million or 37.8% of our net sales from products sold under
the MTV license. In fiscal 2002, our sales of music increased to $6,306,547 or
10.2% of our net sales compared with $3,087,615 or 9% of our net sales in fiscal
2001.

GROSS PROFIT

         Gross profit for the fiscal year ended March 31, 2002 was $20,380,003
or 33% of sales compared to $11,833,690 or 34.5% of sales for the fiscal year
ended March 31, 2001. The decrease in gross margin compared to the prior year is
due to the realization of volume discounts by our largest customers. This was
offset to some degree by reduced prices that we paid our manufacturers for our
karaoke machines because of our increased purchases.

OPERATING EXPENSES

         Operating expenses increased to $12,144,623, or 19.7% of sales, for the
year ended March 31, 2002 from $6,806,097, or 19.8% of sales, for the year ended
March 31, 2001. This increase in operating expenses was primarily attributed to
the increase in expenses associated with: (1) the opening of the Company's Hong
Kong office, (2) the Company's first advertising campaign and (3) certain
expenses which are considered variable as they relate directly to the level of
sales.

         In December 2000, the Company's wholly-owned subsidiary, International
SMC, opened a Hong Kong office. For the fiscal year ended March 31, 2002, this
office incurred SG&A expenses of approximately $1,144,734 compared to $418,618
in the prior year. By opening this office, the Company saved the manufacturers
agency fees, which were paid on each shipment in prior years. The Hong Kong
office has fixed overhead expenses every month, as opposed to per shipment
agency fees. We realized the greatest benefit from our Hong Kong office in the
third quarter of fiscal 2002, when we purchased the largest amount of inventory.


                                       8
<PAGE>

         Our advertising expense increased to $2,377,638 for the fiscal year
ended March 31, 2002 compared to $921,359 for the fiscal year ended March 31,
2001. Advertising expense consists of two components: Co-operative advertising
and direct advertising expense. Co-operative advertising is paid directly to the
customer and is based directly on the amount of sales. The customer has complete
discretion as to the use of these funds. Co-operative advertising expenses
accounted for $972,000 of the increase in advertising expenses. In fiscal 2002,
the Company embarked on its first formal advertising campaign, which used print
advertising, radio spots, sponsorships, promotions and other media. The cost for
this advertising campaign was approximately $484,000 and this is a direct
advertising expense.

         Other expenses, termed variable expenses, contributed to the increase
in operating expenses. These expenses included royalty expense, sales
commissions, warehouse expenses, and travel. The largest increase can be seen in
royalty expense, which increased approximately $1,713,000 over the prior year,
primarily from the sale of items under the MTV licensing agreement. Our
commissions payable to our independent sales representatives increased by
$457,000 during fiscal 2002, because of increased sales. Our warehouse related
expenses also increased by $478,000. These expenses are due to the increased
importing of the Company's karaoke machines from Hong Kong. Our compensation
expenses increased by $569,935 during our last fiscal year. We grew from 22
employees at March 31, 2001 to 47 employees at March 31, 2002.

DEPRECIATION AND AMORTIZATION

         The Company's depreciation and amortization expenses were $394,456 for
the fiscal year ended March 31, 2002, up from $301,064 in the prior year. The
increase in depreciation and amortization expenses can be attributed to the
Company's acquisition of new fixed assets during fiscal 2002, which included
computers, furniture and other equipment in all of the Company's locations in
Florida, California and Hong Kong. It also included the addition of new molds
for our expanded product line. The amortization expense includes the
amortization of a fee paid to LaSalle Bank for our line of credit facility and
the amortization of remaining deferred guarantee fees related to the factoring
agreement we terminated in April 2001.

OTHER EXPENSES

         Other expenses were $50,821 for the fiscal year ended March 31, 2002
compared with net expenses of $839,572 for the fiscal year ended March 31, 2001.
The Company had a large decrease in these miscellaneous items primarily because
of the elimination of factoring fees and a decrease in interest expense
resulting in a net decrease of $543,279. The Company terminated its factoring
agreement in April 2001 and no longer incurs the fees and interest associated
with it. The Company replaced the factoring agreement with a lower cost credit
facility with LaSalle Business Credit in April 2001. The Company has also begun
to generate income from royalty payments received in Hong Kong for the use of
Company owned molds by other parties.

 INCOME BEFORE INCOME TAX EXPENSE

         The Company's income before income taxes increased 95.4% to $8,184,559
for the fiscal year ended March 31, 2002, compared to $4,188,021 for the fiscal
year ended March 31, 2001. This increase in profit is due primarily to the
increase in sales.

INCOME TAX EXPENSE

         The Company files separate tax returns for the parent and for the Hong
Kong Subsidiary. The income tax expense consists of taxes associated with
federal, foreign and state income taxes in the consolidated statement of income.

         During fiscal 2002, the Company showed a profit in both the U.S. parent
company and International SMC, its wholly-owned Hong Kong subsidiary. The U.S.
parent company's federal tax liability in fiscal 2002 was eliminated due to the
utilization of operating loss carryforwards from prior years. As a result of
this, the income tax recognized in fiscal 2002 in the amount of $119,277 is
primarily for state income taxes. As of March 31, 2002, the Company had usable
net operating loss carryforward of $714,159 for federal income tax purposes. The
Company expects to utilize the remaining NOL in fiscal 2003.


                                       9
<PAGE>

         The Company's Hong Kong subsidiary has applied for a Hong Kong offshore
claim income tax exemption based on the locality of the profits of the Hong Kong
subsidiary. Management believes that the exemption will be approved because the
source of all profits of the Hong Kong subsidiary is from exporting to customers
outside of Hong Kong. Accordingly, no provision for foreign income taxes on the
profits of the Hong Kong subsidiary have been provided in the accompanying
consolidated financial statements. As of June 25, 2002, the Company has not
received official approval of this Hong Kong tax exemption for fiscal 2002.

         In the event the exemption is not approved, the Hong Kong subsidiary
profits will be taxed at a flat rate of 16% resulting in an estimated income tax
expense of $725,000 and $460,000 for 2002 and 2001, respectively.

NET INCOME

         As a result of the foregoing, the Company's net income increased 93.7%
to $8,065,282 for the fiscal year ended March 31, 2002, compared to $4,164,701
for the fiscal year ended March 31, 2001.

THE YEAR ENDED MARCH 31, 2001 AS COMPARED TO THE YEAR ENDED MARCH 31, 2000

NET SALES

         Net sales increased 80.3% in the fiscal year ended March 31, 2001. The
increase in revenue from $19,032,320 in fiscal 2000 to $34,306,839 in fiscal
2001 can be attributed to the addition of a major customer and increased
awareness of karaoke in the retail community. The addition of this customer
alone added 20% to our revenues for fiscal 2001. Our sales of karaoke machines
and karaoke music comprised 93% and 7%, respectively, of our sales in fiscal
2000.

GROSS PROFIT

         Gross profit for fiscal 2001 was 34.5% of sales compared to 27.9% of
sales in fiscal year 2000. The increased gross margin in fiscal 2001 is due to a
favorable decrease in the cost of products, both hardware and music, resulting
primarily from volume discounts. Another factor of increased gross margin is the
increased percentage of music sales as compared to hardware sales. Overall, the
gross profit on music sales is higher than that of hardware.

OPERATING EXPENSES

         Operating expenses increased by 80.1% in fiscal 2001 compared to fiscal
2000. A good portion of this increase in operating expenses was due to the
significant increase in sales and its impact on variable selling expenses such
as freight expense, sales commissions, cooperative advertising, and travel
expenses, among others. Another factor of this change is the addition of
personnel, increasing compensation expense. The Company grew from 12 employees
at March 31, 2000 to 22 employees at March 31, 2001. The accrual for management
bonus also attributed to the increase in operating expenses. This expense is due
largely to increased sales, but also to fairly stable expenses for the fiscal
year.

DEPRECIATION AND AMORTIZATION

         Depreciation and amortization expenses increased from $116,369 in
fiscal 2000 to $301,064 in fiscal 2001. The addition of new product molds in
Hong Kong and the opening of a new Hong Kong office contributed to this
increase. Also contributing to this increase was the expansion of our home
office in Coconut Creek into another unit next to our existing office space.

OTHER EXPENSES

         Other expenses decreased from $947,982 in fiscal year 2000 to $839,572
in fiscal year 2001. This is primarily due to the expense in fiscal 2000 of
non-cash based guarantee fees.

         Loss on accounts receivable due to factoring was 0.25% of total
revenues in fiscal 2001 compared to 2.3% of total revenues in fiscal 2000. This
decrease is due to the favorable factoring rates negotiated for the year.


                                       10
<PAGE>

INCOME TAX EXPENSE

         The Company files separate tax returns for the parent and for the Hong
Kong Subsidiary. The income tax expense (benefit) consists of taxes associated
with federal, foreign and state income taxes in the consolidated statement of
income.

         During fiscal 2001, the Company showed a profit in both the U.S. parent
company and International SMC, its wholly-owned Hong Kong subsidiary. The U.S.
parent company's tax liability was eliminated due to the utilization of
operating loss carryforwards from prior years. As a result of this, the income
tax recognized in fiscal 2001 in the amount of $23,320 is a result of the
federal alternative minimum tax. Although the Company's NOL expires on various
dates through 2019, the Company expects to utilize the remaining NOL in fiscal
year 2003.

         The Company's Hong Kong subsidiary applied for a Hong Kong offshore
claim income tax exemption for the calendar year ended March 31, 2001.
Management believes that the exemption will be approved because the source of
all profits of the Hong Kong subsidiary is from exporting to customers outside
of Hong Kong. Accordingly, no provision for foreign income taxes on the profits
of the Hong Kong subsidiary has been made. As of June 20, 2002, the Hong Kong
offshore claim exemption for fiscal 2001 has not been approved.

NET INCOME

         Net income after taxes (tax benefit) for the fiscal year ended March
31, 2001 and 2000 was $4,164,701 and $737,985, respectively. The increase in
sales and stability of general expenses are attributed to the increased bottom
line. The tax expense for fiscal 2001 is due to alternative minimum tax. The
Company has remaining net operating loss carry forwards to cover US taxes that
may have been due on the profitability of the Company.

LIQUIDITY AND CAPITAL RESOURCES

         At March 31, 2002, the Company had current assets of $20,451,705 and
total assets of $21,664,451 compared to current assets of $9,016,324 and total
assets of $10,509,682 at March 31, 2001. This increase in current assets and
total assets is primarily due to the increase in (i) cash and cash equivalents
due to increased sales and collections of accounts receivable, (ii) accounts
receivable for sales in the fourth quarter and (iii) inventories. In the fourth
quarter of 2002, Best Buy began taking our goods on a consignment basis instead
of a purchase basis. We recorded approximately $2.875 million in sales returns
and reversed related costs of sales in February 2002 and Best Buy retained the
inventory on a consignment basis. From the date of the sales returns through
March 31, 2002, we recorded approximately $2.442 million of sales from the
consignment inventory. We increased our inventory levels as of March 31, 2002,
in anticipation of the potential strike by longshoremen and other dockworkers on
the California seaboard in July 2002.

         Current liabilities increased to $3,194,377 as of March 31, 2002,
compared to $1,591,021 at March 31, 2001. This increase in current liabilities
is primarily due to the accrual of expenses for royalties, management bonuses
and allowances for advertising expenses among others. At March 31, 2002, the
balance of the credit facility with LaSalle Business Credit was zero. Increased
royalty expenses include royalty expenses payable to MTV for the sale of
licensed merchandise, as well as other agencies and publishers with whom we hold
licenses for our recorded music.

         The Company's stockholders' equity increased to $18,470,074 as of March
31, 2002 from $8,918,661 as of March 31, 2001, due to the exercise of options
and warrants, the write off of deferred guarantee fees and the current fiscal
year net income.

         Cash flows provided by operating activities were $2,954,687 during the
fiscal year ended March 31, 2002. Cash flows were used in operating activities
primarily due to increases in accounts receivable in the amount of $3,114,627
and inventory in the amount of $4,460,890. Cash flows were provided by operating
activities primarily due to an increase in accounts payable and accrued expenses
in the amount of $1,563,603 and net income of $8,065,282. These increases are a
direct result of the increased volume of sales for the fiscal year.

         Cash provided by investing activities during this same period were
$230,049. Cash provided by investing activities resulted primarily from receipt
of $933,407 previously invested with the Company's factor. Other factors
provided by investing activities consisted of $117,425 received from our
officers as repayments on loans and $298,900 received from the sale of an
unconsolidated subsidiary. Cash used in investing activities consisted of
property and equipment in the amount of $613,691 and a $513,684 deposit placed
for a letter of credit facility with Hong Kong Shanghai Banking Corporation.


                                       11
<PAGE>

         Cash flows provided by financing activities were $1,319,190 during the
fiscal year ended March 31, 2002. This consisted of proceeds from the exercise
of warrants and options in the amount of $1,319,190. As the credit line at
LaSalle National Bank was zero at this date, the amount of loan proceeds and
repayments was the same, $21,856,653.

         The Company expects that its capital needs will increase during fiscal
2003. Our capital needs stem primarily from our need to purchase sufficient
levels of inventory for the Christmas season. Our principal sources of capital
in the next twelve months include our operating cash flows, borrowings under our
credit facility with LaSalle and advances made under three letters of credit
issued to our factories. At the present time, our credit facility with LaSalle
provides us with up to $10 million in financing depending upon the time of the
year. We are seeking increased financing from LaSalle or another third party by
the end of July 2002. We would like to have credit facilities in excess of $20
million available for the upcoming holiday season.

         We entered into a credit facility with LaSalle in April 2001. Under
this credit facility, LaSalle will advance up to 75% of the Company's eligible
accounts receivable, plus up to 40% of eligible inventory, plus up to 40% of
commercial letters of credit issued by LaSalle minus reserves as set forth in
the loan documents. The credit facility is subject to loan limits from zero to
$10,000,000 depending on the time of the year, as stipulated in the loan
documents. Advances made under the credit facility bear interest at LaSalle's
prime rate plus .5%. There is also an annual fee of 1% of the loan maximum, or
$100,000. The credit facility expires on April 26, 2004 and is automatically
renewable for one-year terms thereafter. Under the terms of the credit facility,
the Company is required to maintain certain financial ratios and conditions. The
loan contains a clean up period every 12 months where the loan amount must go to
zero for a period of time. The loan is secured by a first lien on all present
and future assets of the Company, except certain tooling located in China.

         Our Hong Kong subsidiary, International SMC, maintains a letter of
credit facility with the Hong Kong Shanghai Banking Corporation ("HSBC"). The
facility requires International SMC to maintain a separate deposit account in
the amount of $513,684. This amount is included in deposits at March 31, 2002.
During April and May 2002, HSBC agreed to issue International SMC two
documentary letters of credit to finance its purchases of karaoke machines from
our factories. One letter of credit provides for advances of up to $200,000 per
draw, provided that the total drawings do not exceed $2 million. The other
letter of credit is for $1 million. These letters of credit expire on December
21, 2002 and November 30, 2002, respectively and our factories are the
beneficiaries. In June 2002, International SMC obtained a $1 million documentary
letter of credit from Fortis Bank, formerly known as Belgian Bank, Hong Kong, a
subsidiary of Generale Bank, Belgium. This letter of credit expires on December
6, 2002 and one of our factories is the beneficiary.

         International SMC also has use of a $500,000 credit facility from
Fortis Bank. This facility is a revolving line based upon drawing down a maximum
of 15% of the value of export letters of credit held by Fortis Bank. There is no
maturity date except that Fortis Bank reserves the right to revise the terms and
conditions at the Bank's discretion. The cost of this credit facility is the
U.S. Dollar prime rate plus 1.25%. Repayment of principal plus interest shall be
made upon negotiation of the export letters of credit, but not later than ninety
(90) days after the advance. This credit facility is not currently in use and
the terms are being renegotiated.

         As of March 31, 2002, we do not have any material commitments for
capital expenditures, other than (i) our obligation to make certain guaranteed
minimum royalty payments in the amount of $450,000 under our licensing agreement
with Nickelodeon, (ii) our lease for our warehouse space in California and (iii)
our purchases of inventory from certain factories in China. We also have
contractual obligations under our real estates leases in Florida, Hong Kong and
California. Except for the foregoing, we do not have any present commitment that
is likely to result in our liquidity increasing or decreasing in any material
way. In addition, except for the Company's need for additional capital to
finance inventory purchases, the Company knows of no trend, additional demand,
event or uncertainty that will result in, or that is reasonably likely to result
in, the Company's liquidity increasing or decreasing in any material way.



                                       12
<PAGE>


EXCHANGE RATES

         We sell all of our products in U.S. dollars and pay for all of our
manufacturing costs in either U.S. or Hong Kong dollars. Operating expenses of
the Hong Kong office are paid in Hong Kong dollars. The exchange rate of the
Hong Kong dollar to the U.S. dollar has been fixed by the Hong Kong government
since 1983 at HK$7.80 to U.S.$1.00 and, accordingly, has not represented a
currency exchange risk to the U.S. dollar. We cannot assure you that the
exchange rate between the United States and Hong Kong currencies will continue
to be fixed or that exchange rate fluctuations will not have a material adverse
effect on our business, financial condition or results of operations.

SEASONAL AND QUARTERLY RESULTS

         Historically, the Company's operations have been seasonal, with the
highest net sales occurring in the second and third quarters (reflecting
increased orders for equipment and music merchandise during the Christmas
selling months) and to a lesser extent the first and fourth quarters of the
fiscal year. Sales in the Company's fiscal second and third quarter, combined,
accounted for approximately 81% of net sales in fiscal 2002 and 75% of net sales
in fiscal 2001.

         The Company's results of operations may also fluctuate from quarter to
quarter as a result of the amount and timing of orders placed and shipped to
customers, as well as other factors. The fulfillment of orders can therefore
significantly affect results of operations on a quarter-to-quarter basis.

INFLATION

         Inflation has not had a significant impact on the Company's operations.
The Company has historically passed any price increases on to its customers
since prices charged by the Company are generally not fixed by long-term
contracts.

CRITICAL ACCOUNTING POLICIES

         The U.S. Securities and Exchange Commission defines critical accounting
policies as "those that are both most important to the portrayal of a company's
financial condition and results, and require management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain". Preparation of our
financial statements involves the application of several such policies. These
policies include: estimates of accruals for product returns, the realizability
of the deferred tax asset, calculation of our allowance for doubtful accounts
and the Hong Kong income tax exemption.

         Accrual for product returns. We regularly receive requests from our
customers for product returns. Our accrual amount is based on historical
experience and is recorded as a reduction of sales and costs of sales and as a
liability equal to the resulting gross profit on the estimated returns. At March
31, 2002, the accrual was approximately $164,000.

         Realizability of Deferred Tax Asset. We eliminated our valuation
allowance on the deferred tax asset since we determined that it is more likely
than not that the deferred tax asset will be realized.

         Estimate for Doubtful Accounts. We estimate an allowance for doubtful
accounts using the specific identification method since a majority of accounts
receivable are concentrated with several customers whose credit worthiness is
evaluated periodically by us. The allowance was $12,022 at March 31, 2002.

         Hong Kong Income Tax Exemption. We estimated that the Hong Kong income
tax to be zero based on our assessment of the probability that the application
for the Hong Kong income tax exemption would be approved.

         In addition to the above policies, several other policies, including
policies governing the timing of revenue recognition, are important to the
preparation of our financial statements, but do not meet the definition of
critical accounting policies because they do not involve subjective or complex
judgments.


                                       13
<PAGE>


RISK FACTORS

         Set forth below and elsewhere in this Annual Report on Form 10-KSB and
in the other documents we file with the SEC are risks and uncertainties that
could cause actual results to differ materially from the results contemplated by
the forward looking statements contained in this Annual Report.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

WE RELY ON SALES TO A LIMITED NUMBER OF KEY CUSTOMERS WHICH ACCOUNT FOR A LARGE
PORTION OF OUR NET SALES

         As a percentage of total revenues, our net sales to our five largest
customers during the fiscal year ended March 31, 2002 and 2001were approximately
87% and 78% respectively. In fiscal 2002, Best Buy, Toys R Us and Costco
accounted for 35.7%, 27.8% and 10.5% of our net sales. In fiscal 2001, Best Buy
and Toys R Us accounted for 34.9% and 20.4% of our net sales. Although we have
long-established relationships with many of our customers, we do not have
long-term contractual arrangements with any of them. A substantial reduction in
or termination of orders from any of our largest customers could adversely
affect our business, financial condition and results of operations. In addition,
pressure by large customers seeking price reductions, financial incentives,
changes in other terms of sale or requesting that we bear the risks and the cost
of carrying inventory, such as consignment agreements, could adversely affect
our business, financial condition and results of operations. If one or more of
our major customers were to cease doing business with us, significantly reduced
the amount of their purchases from us or returned substantial amounts of our
products, it could have a material adverse effect on our business, financial
condition and results of operations.

OUR LICENSING AGREEMENT WITH MTV IS IMPORTANT TO OUR BUSINESS

         We generated $23,354,270, or 37.8% of our net sales, in fiscal 2002
from our sales of MTV licensed merchandise. Management values this license with
MTV and desires to continue this licensing relationship. If the MTV license were
to be terminated or failed to be renewed, our business, financial condition and
results of operations could be adversely affected. However, management believes
that our company has developed a strong brand name in the karaoke industry and
that it will be able to continue to develop and grow its business, even if the
MTV licensing relationship did not exist.

INVENTORY MANAGEMENT AND CONSIGNMENT ARRANGEMENT WITH BEST BUY, OUR LARGEST
CUSTOMER

         Because of our reliance on manufacturers in the Far East, our
production lead times are relatively long. Therefore, we must commit to
production in advance of customers orders. If we fail to forecast customers or
consumer demand accurately we may encounter difficulties in filling customer
orders or liquidating excess inventories, or may find that customers are
canceling orders or returning products. Distribution difficulties may have an
adverse effect on our business by increasing the amount of inventory and the
cost of storing inventory. During our fourth quarter, Best Buy began taking our
goods on a consignment basis. Additionally, changes in retailer inventory
management strategies could make inventory management more difficult. Any of
these results could have a material adverse effect on our business, financial
condition and results of operations.

OUR INABILITY TO COMPETE AND MAINTAIN OUR NICHE IN THE ENTERTAINMENT INDUSTRY
COULD HURT OUR BUSINESS

         The business in which we are engaged is highly competitive. Our major
competitors for karaoke machines and related products are Casio Computer Co,
Grand Prix, JVC, Memorex and Pioneer Corp. We believe that competition for
karaoke machines is based primarily on price, product features, reputation,
delivery times, and customer support. Our primary competitors for producing
karaoke music are Pocket Songs and Sound Choice. We believe that competition for
karaoke music is based primarily on popularity of song titles, price, reputation
and delivery times.

         We believe that our new product introductions and enhancements of
existing products are material factors for our continued growth and
profitability. In fiscal 2002, we produced 6 new karaoke machines. However, many
of our competitors are substantially larger and have significantly greater
financial, marketing and operating resources than we have. No assurance can be
given that we will continue to be successful in introducing new products or
further enhancing our existing products.


                                       14
<PAGE>

         In addition, we must compete with all the other existing forms of
entertainment including, but not limited to: motion pictures, video arcade
games, home video games, theme parks, nightclubs, television and prerecorded
tapes, CD's and video cassettes.

WE ARE SUBJECT TO SEASONALITY, WHICH IS AFFECTED BY VARIOUS ECONOMIC CONDITIONS
AND CHANGES RESULTING IN FLUCTUATIONS IN QUARTERLY RESULTS

         We have experienced, and will experience in the future, significant
fluctuations in sales and operating results from quarter to quarter. This is due
largely to the fact that a significant portion of our business is derived from a
limited number of relatively large customer orders, the timing of which cannot
be predicted. Furthermore, as is typical in the karaoke industry, the quarters
ended September 30 and December 31 will include increased revenues from sales
made during the holiday season.

         Additional factors that can cause our sales and operating results to
vary significantly from period to period include, among others, the mix of
products, fluctuating market demand, price competition, new product
introductions by competitors, fluctuations in foreign currency exchange rates,
disruptions in delivery of components, political instability, general economic
conditions, and the other considerations described in this section entitled Risk
Factors.

WE HAVE SIGNIFICANT FUTURE CAPITAL NEEDS WHICH ARE SUBJECT TO THE UNCERTAINTY OF
ADDITIONAL FINANCING

         We currently have a $10 million credit facility from LaSalle Business
Credit. In order to meet our projected needs for the holiday season, we would
like to obtain financing in excess of $20 million. We are seeking this
additional financing from LaSalle Business Credit or a different lender, if
LaSalle does not want to increase our credit line. If adequate funds are not
available on acceptable terms, or at all, we may be unable to sustain our rapid
growth, which would have a material adverse effect on our business, results of
operations, and financial condition.

OUR BUSINESS OPERATIONS COULD BE SIGNIFICANTLY DISRUPTED IF THE CALIFORNIA
LONGSHOREMEN GO ON STRIKE

         During fiscal 2002, approximately 55% of our sales were domestic sales,
which were made from our warehouses in California and Florida. During June and
July 2002, longshoremen and other dockworkers represented by the International
Longshore and Warehouse Union, have threatened to go on strike. Since we import
a significant amount of karaoke electronic recording equipment from the Far East
to California, the strike would have a material adverse effect on our business,
results of operations and financial condition. In the event that the strike
occurs, we have developed contingency plans. However, all of these contingency
plans will result in increased costs to our company and may reduce our
profitability in fiscal 2003.

WE MAY NOT BE ABLE TO SUSTAIN OR MANAGE OUR RAPID GROWTH

         We experienced rapid growth in net sales and net income in the last
year. Our net sales for the fiscal year ended March 31, 2002 increased 80.2% to
$61.8 million compared to $34.3 million for the fiscal year ended March 31,
2002. Similarly, our net income increased to $8.06 million for fiscal 2002
compared to $4.6 million for fiscal 2001. As a result, comparing our
period-to-period operating results may not be meaningful, and results of
operations from prior periods may not be indicative of future results. We cannot
assure you that we will continue to experience growth in, or maintain our
present level of, net sales or net income.

         Our growth strategy calls for us to continuously develop and diversify
our karaoke products by (i) developing new karaoke machines and music products,
(ii) entering into additional license agreements (iii) expanding into
international markets, (iv) developing new retail customers in the United States
and (v) obtaining additional financing. Our growth strategy will place
additional demands on our management, operational capacity and financial
resources and systems. To effectively manage future growth, we must continue to
expand our operational, financial and management information systems and train,
motive and manage our work force.

         In addition, implementation of our growth strategy is subject to risks
beyond our control, including competition, market acceptance of new products,
changes in economic conditions, our ability to maintain our licensing agreements
with MTV and Nickelodeon and our ability to finance increased levels of accounts
receivable and inventory necessary to support our sales growth, if any.
Accordingly, we cannot assure you that our growth strategy will be implemented
successfully.


                                       15
<PAGE>

THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE

         Market prices of the securities of companies in the toy and
entertainment industry are often volatile. The market prices of our common stock
may be affected by many factors, including:

         -quarterly variations in our operating results;

         -operating results that vary from the expectations of investors and
         securities analysts;

         -changes in expectations as to our future financial performance,
         including financial estimates by investors and securities analysts;

         - the actions of our customers and competitors (including new product
         line announcements and introduction);

         - regulations affecting our manufacturing operations in China;

         - other factors affecting the entertainment and consumer electronics
         industries in general; and

         - sales of our common stock into the public market.

         In addition, the stock market periodically has experienced significant
price and volume fluctuations which may have been unrelated to the operating
performance of particular companies.

OUR MANUFACTURING OPERATIONS ARE LOCATED IN THE PEOPLE'S REPUBLIC OF CHINA,
SUBJECTING US TO RISKS COMMON IN INTERNATIONAL OPERATIONS

         We are dependent upon six factories in the People's Republic of China
to manufacture all of our electronic products. Our arrangements with these
factories are subject to the risks of doing business abroad, such as import
duties, trade restrictions, work stoppages, foreign currency fluctuations,
limitations on the repatriation of earnings, political instability, and other
factors which could have an adverse impact on our business. Furthermore, we have
limited control over the manufacturing processes themselves. As a result, any
difficulties encountered by the third-party manufacturers that result in product
defects, production delays, cost overruns or the inability to fulfill orders on
a timely basis could adversely affect our business, financial condition and
results of operations. We believe that the loss of any one or more of our
manufacturers would not have a long-term material adverse effect on us because
other manufacturers with whom we do business would be able to increase
production to fulfill our requirements. However, the loss of certain of our
manufacturers, could, in the short-term, adversely affect our business until
alternative supply arrangements were secured.

WE MAY HAVE SIGNIFICANT RETURNS, MARKDOWNS AND PURCHASE ORDER CANCELLATIONS

         As is customary in the consumer electronics industry, the Company has,
on occasion, (i) permitted certain customers to return slow-moving items for
credit, (ii) provided price protection to certain customers by making price
reductions effective as to certain products then held by customers in inventory
and (ii) accepted customer cancellations of purchase orders issued to the
Company. The Company expects that it will continue to be required to make such
accommodations in the future. Any significant increase in the amount of returns,
markdowns or purchaser order cancellations could have a material adverse effect
on the Company's results of operations.

WE DEPEND ON THIRD PARTY SUPPLIERS FOR PARTS FOR OUR KARAOKE MACHINES AND
RELATED PRODUCTS, AND IF WE CANNOT OBTAIN SUPPLIES AS NEEDED, OUR OPERATIONS
WILL BE SEVERELY DAMAGED

         Our growth and ability to meet customer demand depends in part on our
capability to obtain timely deliveries of karaoke machines and our electronic
products. We rely on third party suppliers to produce the parts and materials we
use to manufacture and produce these products. If our suppliers are unable to
provide our factories with the parts and supplies, we will be unable to produce
our products. We cannot guarantee that we will be able to purchase the parts we
need at reasonable prices or in a timely fashion. In the last several years,
there have been shortages of certain chips that we use in our karaoke machines.
However, we have anticipated this shortage and have made commitments to our
factories to purchase chips in advance. If we are unable to purchase these parts
and materials, we will experience severe production problems, which may possibly
result in the termination of our operations.


                                       16
<PAGE>

CONSUMER DISCRETIONARY SPENDING MAY AFFECT KARAOKE PURCHASES AND IS AFFECTED BY
VARIOUS ECONOMIC CONDITIONS AND CHANGES

         Our business and financial performance may be damaged more than most
companies by adverse financial conditions affecting our business or by a general
weakening of the economy. Purchases of karaoke machines and music are considered
discretionary for consumers. Our success will therefore be influenced by a
number of economic factors affecting discretionary and consumer spending, such
as employment levels, business, interest rates, and taxation rates, all of which
are not under our control. Adverse economic changes affecting these factors may
restrict consumer spending and thereby adversely affect our growth and
profitability.

WE MAY BE INFRINGING UPON THE COPYRIGHTS OF THIRD PARTIES

         Each song in our catalog is licensed to us for specific uses. Because
of the numerous variations in each of our licenses for copyrighted music, there
can be no assurance that we have complied with scope of each of our licenses.
Additionally, third parties over whom we exercise no control may use our sound
recordings in such a way that is contrary to our license agreement and by
violating our license agreement we may be liable for contributory copyright
infringement. Any infringement claims may have a negative effect on our ability
to sell products.

WE HAVE SIGNIFICANT RELIANCE ON LARGE RETAILERS WHICH ARE SUBJECT TO CHANGES IN
THE ECONOMY

         We sell products to retailers, including department stores, lifestyle
merchants, direct mail retailers which are catalogs and showrooms, national
chains, specialty stores, and warehouse clubs. Certain of such retailers have
engaged in leveraged buyouts or transactions in which they incurred a
significant amount of debt, and some are currently operating under the
protection of bankruptcy laws. Despite the difficulties experienced by retailers
in recent years, we have not suffered significant credit losses to date.
Deterioration in the financial condition of our customers could have a material
adverse effect on our future profitability.

OUR NET INCOME MAY BE REDUCED IF OUR HONG KONG SUBSIDIARY DOES NOT RECEIVE AN
EXEMPTION FOR OFFSHORE INCOME TAX

         Our Hong Kong subsidiary has applied for a Hong Kong "offshore claim"
income tax exemption based on the locality of the profits of the Hong Kong
subsidiary. Management believes that since the source of all profits of the Hong
Kong subsidiary are from exporting to customers outside of Hong Kong, it is
likely that the exemption will be approved. Accordingly, no provision for
foreign income taxes has been provided in the Company's financial statements. In
the event the exemption is not approved, the Hong Kong subsidiary's profits will
be taxed at a flat rate of 16% resulting in an income tax expense of
approximately $725,000 and $460,000 for fiscal 2001. As a result, our net income
for fiscal 2002 would be $7,340,282 and $3,704,701 for fiscal 2001.

OUR BUSINESS OPERATIONS COULD BE SIGNIFICANTLY DISRUPTED IF WE LOSE MEMBERS OF
OUR MANAGEMENT TEAM

         Our success depends to a significant degree upon the continued
contributions of our executive officers, both individually and as a group.
Although we have entered into employment contracts with Edward Steele, our Chief
Executive Officer; John Klecha, our President, Chief Operating Officer; and Jack
Dromgold, our Executive Vice President of Sales and Marketing, the loss of the
services of any of these individuals could prevent us from executing our
business strategy. We cannot assure you that we will be able to find appropriate
replacements for Edward Steele, John Klecha or Jack Dromgold, if the need should
arise, and any loss or interruption of Mr. Steele, Mr. Klecha or Mr. Dromgold's
services could adversely affect our business, financial condition and results of
operations. Mr. Steele will be retiring in February 2003; however, we expect to
retain him as a consultant on product development for a period of at least
one-year after his retirement.

OUR OBLIGATION TO MAKE SEVERANCE PAYMENTS COULD PREVENT OR DELAY TAKEOVERS.

         Our employment agreements with Eddie Steele, John Klecha, April Green
and Jack Dromgold require us, under certain conditions, to make substantial
severance payments to them if they resign after a change of control. These
provisions could delay or impede a merger, tender, offer or other transaction
resulting in a change in control of the Company, even if such a transaction
would have significant benefits to our shareholder. As a result, these
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock.


                                       17
<PAGE>

WE MAY BE SUBJECT TO CLAIMS FROM THIRD PARTIES FOR UNAUTHORIZED USE OF THEIR
PROPRIETARY TECHNOLOGY, COPYRIGHTS OR TRADE SECRETS

         We believe that we independently developed the technology used in our
electronic and audio software products and that it does not infringe on the
proprietary rights, copyrights or trade secrets of others. However, we cannot
assure you that we have not infringed on the proprietary rights of third parties
or those third parties will not make infringement violation claims against us.
Any infringement claims may have a negative effect on our ability to manufacture
our products.

YOUR INVESTMENT MAY BE DILUTED

         If additional funds are raised through the issuance of equity
securities, your percentage ownership in our equity will be reduced. Also, you
may experience additional dilution in net book value per share, and these equity
securities may have rights, preferences, or privileges senior to those of yours.

RISKS ASSOCIATED WITH OUR CAPITAL STRUCTURE

FUTURE SALES OF OUR COMMON STOCK HELD BY CURRENT STOCKHOLDERS MAY DEPRESS OUR
STOCK PRICE

         As of March 31 2002, there were 8,020,027 shares of our common stock
outstanding. We have filed two registration statements registering an aggregate
4,792,234 of shares of our common stock ( a registration statement on Form S-3
registering the resale of 2,947,984 shares or our common stock and a
registration statement on Form S-8 to registering the sale of 1,844,250 shares
underlying options granted under our 1994 Stock Option Plan). We also intend to
file a registration statement on Form S-8 to register 1,950,000 shares of our
common stock underlying options granted under our Year 2001 Stock Option Plan.
The market price of our common stock could drop due to the sale of large number
of shares of our common stock, such as the shares sold pursuant to the
registration statements or under Rule 144, or the perception that these sales
could occur.

ADVERSE EFFECT ON STOCK PRICE FROM FUTURE ISSUANCES OF ADDITIONAL SHARES

         Our Certificate of Incorporation authorizes the issuance of 18,900,000
million shares of common stock. As of March 31, 2002, we had 8,020,027 shares of
common stock issued and outstanding and an aggregate of 1,064,475 outstanding
options and warrants. As such, our Board of Directors has the power, without
stockholder approval, to issue up to 9,815,498 shares of common stock.

         Any issuance of additional shares of common stock, whether by us to new
stockholders or the exercise of outstanding warrants or options, may result in a
reduction of the book value or market price of our outstanding common stock.
Issuance of additional shares will reduce the proportionate ownership and voting
power of our then existing stockholders.

PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY MAKE IT DIFFICULT FOR A
THIRD PARTY TO ACQUIRE OUR COMPANY AND COULD DEPRESS THE PRICE OF OUR COMMON
STOCK.

         Delaware law and our certificate of incorporation and bylaws contain
provisions that could delay, defer or prevent a change in control of our company
or a change in our management. These provisions could also discourage proxy
contests and make it more difficult for you and other stockholders to elect
directors and take other corporate actions. These provisions of our restated
certificate of incorporation include: authorizing our board of directors to
issue additional preferred stock, limiting the persons who may call special
meetings of stockholders, and establishing advance notice requirements for
nominations for election to our board of directors or for proposing matters that
can be acted on by stockholders at stockholder meetings.

         We are also subject to certain provisions of Delaware law that could
delay, deter or prevent us from entering into an acquisition, including the
Delaware General Corporation Law, which prohibits a Delaware corporation from
engaging in a business combination with an interested stockholder unless
specific conditions are met. The existence of these provisions could limit the
price that investors are willing to pay in the future for shares of our common
stock and may deprive you of an opportunity to sell your shares at a premium
over prevailing prices.


                                       18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
        --------------------

         The financial statements required pursuant to this Item 7 are included
in this Annual Report on Form 10-KSB, as amended, as a separate section
commencing on page F-1 and are incorporated herein by reference.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ------------------------------------------------
        ACCOUNTING AND FINANCIAL DISCLOSURE
        -----------------------------------

         No change or disagreement with Salberg & Company, P.A., the Company's
independent auditing firm, took place with respect to the preparation of the
Company's financial statements for the two (2) most recent fiscal years
contained in this Annual Report on Form 10-KSB, namely the fiscal years ended
March 31, 2002 and March 31, 2001. However, during fiscal 2001, the Company
changed accountants. Weinberg & Company, P.A. (the "Former Accountant"), was
replaced as independent certified public accountant and independent auditor for
the Company on November 28, 2000. The Company's decision to change accountants
was approved by its Board of Directors because Scott Salberg, the auditor who
has been responsible for the Company's account, left the Former Accountant to
start his own accounting firm.

         The report of the Former Accountant on the financial statements of the
Company for the year ended March 31, 2000, did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. During the Company's fiscal year ended
March 31, 2000, and through November 28, 2000, there were no disagreements with
the Former Accountant on any matters of accounting principles or practices,
financial statement disclosure or auditing scope procedure, which, if not
resolved to the satisfaction of the Former Accountant would have caused it to
make reference to the subject matter of the disagreement in connection with its
report on these financial statements for those periods.

         On November 28, 2000, the Company engaged Salberg & Company, P.A., as
its independent auditor and independent certified public accountant. The Company
did not consult with Salberg and Company, P.A. regarding the application of
accounting principles to a specific transaction of the type of audit opinion
that might be rendered on the Company's financial statements, and no written or
oral advice was provided by Salberg & Company, P.A. that was a factor considered
by the Company in reaching a decision as to the accounting, auditing or
financial reporting issues.

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
        ----------------------------------------------------
        PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
        ----------------------------------------------------------

         The following table sets forth certain information with respect to our
executive officers and directors as of March 31, 2002.

            Name                     Age       Position
            ----                     ---       --------
            Edward Steele             72       Chief Executive Officer
                                               and Director
            John F. Klecha            51       President, Chief Operating
                                               Officer, Secretary, Treasurer,
                                               and Director
            Jack S. Dromgold          58       Senior Vice-President, Sales and
                                               Marketing
            April J. Green            38       Chief Financial Officer
            Josef A. Bauer            64       Director
            Howard W. Moore           71       Director
            Robert J. Weinberg        53       Director

                                       19
<PAGE>


         Edward Steele has served as the Chief Executive Officer and as a
director of the Singing Machine from September 1991 through the present date. He
also served as our President from September 1991 through March 2001. From
October 1988 to September 1991, Mr. Steele was our sales director and was
responsible for the development of our electronic hardware products in the Far
East. Prior to joining us, Mr. Steele served in executive capacities at a number
of companies in the toy and electronics fields, including as managing director
in charge of worldwide sales of Concept 2000, a manufacturer of consumer
electronics from 1971 to 1978; as President of Wicely Corp., a distributor of
electronic toys and consumer electronics from 1978 to 1983; and as President of
Justin Products Corp., an electronic toy manufacturer from 1983 to 1988.

         John Klecha has served as our Chief Financial Officer, Secretary,
Treasurer and Director from October 10, 1997 through the present date. Since
June 28, 1999 through the present date, Mr. Klecha has also served as our Chief
Operating Officer and since March 2001, Mr. Klecha has served as our President.
Mr. Klecha is in charge of all administrative, and operational functions of the
Singing Machine. Prior to joining us, Mr. Klecha served in executive and senior
management capacities at a number of companies in the toy and other consumer
products industries, including as a senior financial and administrative
executive of a privately held toy design, manufacturing and distribution company
from 1987 through 1997; as Vice President, Director and Chief Financial Officer
of Sussex Nautilus from 1984 to 1987; and Vice President of Finance and
Administration for Lazzaroni Sarrono, Ltd. from 1982 to 1984.

         Jack Dromgold has served as our Senior Vice President of Sales and
Marketing since April 16, 2002 through the present date. Prior to joining us,
Mr. Dromgold served as Vice President of Sales for Hasbro Games from 1993
through April 2002. Mr. Dromgold is a 35-year veteran of the toy and game
industry and has been involved in the development of sales programs to support
the launch of many new products over the years.

         April Green has served as our Chief Financial Officer since March 15,
2002. Ms. Green joined our company in June 1999 as our controller and was
promoted to the position of Director of Finance & Administration in January 1,
2000. Prior to joining us, Ms. Green held various positions of increasing
responsibility with Monogram International, a large, Florida-based novelty and
toy company from February 1993 to June 1999. At Monogram, Ms. Green rose from
Staff Accountant to Controller. Prior to June 1999, she served in a variety of
financial positions in the automotive industry in the Tampa area. Ms. Green is a
Certified Public Accountant and a member of the American Institute of Certified
Public Accountants.

         Josef A. Bauer has served as a director from October 15, 1999 through
the present date. Mr. Bauer previously served as a director of the Singing
Machine from February 1990 until September 1991 and from February 1995 until May
1998. Mr. Bauer presently serves as the Chief Executive Officer of the following
three companies: Banisa Corporation, a privately owned investment company, since
1975; Trianon, a jewelry manufacturing and retail sales companies since 1978 and
Seamon Schepps, also a jewelry manufacturing and retail sales company since
1999.).

         Howard Moore has served as a director since August 2000 through the
present date. From 1984, when Mr. Moore joined Toys 'R' Us as executive vice
president and general merchandise manager, until 1990, when he retired, sales
increased from $480 million to $4.8 billion. Mr. Moore served on the Toys 'R' Us
board of directors from 1984 until June 2000. He is also founder and president
of Howard Moore Associates, a company, which provides marketing, product
licensing, packaging and merchandising consulting to the toy industry.
Previously, he was president and CEO of Toy Town, USA, Inc. after founding and
operating two other toy chain stores. Mr. Moore is currently serving as the
Chairman of the Advisory Board of Leapfrog Enterprises, Inc.

         Robert Weinberg has served as a director from March 9, 2001 through the
present date. Mr. Weinberg has considerable experience in toy products,
marketing, licensing, merchandising and packaging. He is currently the founder
and president of RJW & Associates, a marketing consulting firm based in Saddle
River, New Jersey. Previously, he served in various positions of increasing
responsibility with Toys `R Us, rising through the ranks from buyer trainee in
1971 to Senior Vice President - General Merchandise Manager in 1997. In these
later positions, he was responsible for purchasing advertising/marketing,
imports, product development, store planning and allocations. He retired from
Toys `R' Us in March 2000.

         Our directors serve for a term of one year, or until their successors
shall have been elected and qualified. Our executive officers are appointed and
serve at the discretion of the Board of Directors. There are no family
relationships among any of our directors and executive officers. However, one of
our key personnel, John Steele, our Director of Sales - International, is the
son of Edward Steele, our Chief Executive Officer and Director.


                                       20
<PAGE>

BOARD COMMITTEES

         We have an audit committee, an executive compensation/stock option
committee and a nominating committee. The audit committee consists of Messrs.
Bauer, Moore and Weinberg. The audit committee recommends the engagement of
independent auditors to the board, initiates and oversees investigations into
matters relating to audit functions, reviews the plans and results of audits
with our independent auditors, reviews our internal accounting controls, and
approves services to be performed by our independent auditors. The executive
compensation/stock option committee consists of Messrs. Bauer, Moore and
Weinberg. The executive compensation/stock option committee considers and
authorizes remuneration arrangements for senior management and grants options
under, and administers our employee stock option plan. The entire Board of
Directors operates as a nominating committee. The nominating committee is
responsible for reviewing the qualifications of potential nominees for election
to the Board of Directors and recommending the nominees to the Board of
Directors for such election.

DIRECTOR'S COMPENSATION

         During fiscal 2002, our non-employee directors received a $1,000 cash
stipend for serving on our Board and reimbursement for all reasonable expenses
incurred in attending meetings. During fiscal 2003, we are increasing our annual
cash stipend to non-employee directors to $10,000 per year. We also grant each
of our outside directors 10,000 options for each year of service on the Board.
Effective as of July 2, 2002, we granted each of our three outside directors
options to purchase 30,000 shares of the Company's common stock, with 10,000
options vesting each year on the day before our annual shareholder's meetings.
The exercise price of the options will be equal to the fair market value of the
Company's common stock on the date of grant. The options will be immediately
vested and are exercisable for a period of five years after the vesting date.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         To our knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that during the year ended March 31,
2002, its officers, directors and 10% shareholders complied with all Section
16(a) filing requirements, except that, as a result of administrative errors:
Mr. Steele filed a Form 4 reporting his exercise of two tranches of options in
September 2001 one month late, (2) Mr. Moore filed a Form 4 reporting his seven
separate purchases of the Company's common stock in September 2001 five days
late and (3) Mr. Bauer filed a Form 4 reporting his exercise of four tranches of
options and warrants in September 2001 one day late. Both of the Form 4's filed
by Mr. Bauer and Mr. Moore were signed before the filing date, but it appears
that the SEC did not receive the forms until after the filing date.

ITEM 10. EXECUTIVE COMPENSATION
         ----------------------

         The following table sets forth certain compensation information for the
fiscal years ended March 31, 2000, 2001 and 2002 with regard to Edward Steele,
our Chief Executive Officer, and each of our other executive officers whose
compensation exceeded $100,000 on an annual basis (the "Named Officers"):



                                       21
<PAGE>

<TABLE>
<CAPTION>

                                              SUMMARY COMPENSATION TABLE
                                              --------------------------

                                         Annual Compensation                        Long Term Compensation
                                ------------------------------------------------------------------------------------------
                                                                                Awards                   Payments
                                                                      ----------------------------------------------------
                                                                                    Securities
Name of Individual and                                Other Annual    Restricted    Underlying/  LTIP     All Other
-----------------------                               -------------   -----------   ------------ -----    ---------
Principal Position       Year   Salary     Bonus(1)   Compensation    Stock Award(s)Options/ SARsPayouts  Compensation
------------------       ----   ------     --------   ------------    ----------------------------------  ------------
<S>                      <C>    <C>        <C>               <C>            <C>       <C>            <C>      <C>
Edward Steele            2002   $364,145   $192,133         -0-            -0-        15,000        -0-      -0-
   CEO                   2001   $320,865   $256,289         -0-            -0-       315,000        -0-      -0-
                         2000   $189,363   $ 54,570         -0-       $377,500 (2)    45,000        -0-      -0-

John Klecha              2002   $286,111   $157,200         -0-            -0-        15,000        -0-      -0-
   President,  Chief     2001   $255,777   $205,031         -0-            -0-       300,000        -0-      -0-
   Operating Officer     2000   $114,394   $ 43,656         -0-       $253,125 (3)    58,500        -0-      -0-



April Green
   Chief Financial
   Officer (4)           2002   $ 88,825  $  25,000         -0-            -0-        30,000        -0-      -0-
                         2001   $ 83,658  $  17,000         -0-            -0-         7,500        -0-      -0-
                         2000   $ 44,850  $   3,500         -0-            -0-           -0-        -0-      -0-
</TABLE>

(1)  The amounts disclosed in this column for fiscal 2002 and 2001 include the
     Company's contributions under its 401(k) savings plan and automobile
     allowances. The amounts disclosed for fiscal 2000 represent automobile
     allowances only.

(2)  As consideration for guaranteeing a loan, Mr. Steele received 200,000
     shares of our common stock on June 28, 1999. The fair market value of the
     stock on the date of grant was $1.6875.

(3)  As consideration for guaranteeing a loan, Mr. Klecha received 150,000
     shares of our common stock on June 28, 1999. The fair market value of the
     stock on the date of grant was $1.6875 per share.

(4)  Ms. Greene has served as our Chief Financial Officer since March 15, 2002.
     She served as the Director of Finance and Administration from January 1,
     2000 through March 14, 2002 and as our controller from June 1999 through
     December 2000.

OPTION GRANTS IN FISCAL 2002
----------------------------

         The following table sets forth information concerning all options
granted to our officers and directors during the year ended March 31, 2002. No
stock appreciation rights ("SAR's") were granted.
<TABLE>
<CAPTION>

                                                                                 Potential Realizable
                                                                                 Value at Assumed
                                                                                 Annual Rates of Stock
                                   Total Options                                 Price Appreciation
                  Shares           Granted to                                    for Option Term(2)
                Underlying         Employees in    Exercise Price  Expiration    ----------------------
Name           Options Granted(1)  Fiscal Year     Per Share       Date            5%        10%
-------------------------------------------------------------------------------------------------------
<S>             <C>                  <C>             <C>           <C>           <C>       <C>
Edward Steele   15,000               50%             $4.23         8/15/06       $17,550   $38,700

John Klecha     15,000               50%             $4.23         8/15/06       $17,500   $38,700

April Green        -0-               -0-               -0-             -0-           -0-       -0-
</TABLE>

(1)  All options were granted pursuant to the Year 2001 Stock Option Plan.
     Option exercise prices were at the market when granted.

(2)  The dollar amounts under these columns are the result of calculations based
     on the market price on the date of grant at an assumed annual rate of
     appreciation over the maximum term of the option at 5% and 10% as required
     by applicable regulations of the SEC and, therefore, are not intended to
     forecast possible future appreciation, if any of the common stock price.
     Assumes all options are exercised at the end of their respective terms.
     Actual gains, if any, on stock option exercises depend on the future
     performance of the common stock.


                                       22
<PAGE>

AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 2002 AND OPTION
VALUES

         The following table sets forth information as to the exercise of stock
options during the fiscal year ended March 31, 2002 by our officers listed in
our Summary Compensation Table and the fiscal year-end value of unexercised
options.
<TABLE>
<CAPTION>
                                                                                                    Value of
                                                                        Number of                  Unexercised
                                                                       Unexercised                 In-the-Money
                                                                        Options at                  Options at
                                                                      Fiscal Year End             Fiscal Year End(2)
                                                                      ---------------             ------------------
                        Shares Acquired           Value                Exercisable/                 Exercisable/
Name of Individual       Upon Exercise          Realized(1)            Unexercisable                Unexercisable
-----------------------------------------------------------------------------------------------------------------
<S>                        <C>                  <C>                    <C>                     <C>
Edward Steele              604,500              $5,390,260             191,250/146,250         $2,259,637.50/$2,034,337.50

John Klecha                130,000              $  731,100             232,500/135,000         $2,961,390.00/$1,877,850.00

April Green                  6,000             $    41,283               13,500/13,500        $   187,785.00/$  187,785.00
</TABLE>

(1)  Value realized is based on the difference between the closing price of our
     common stock on the date of exercise and the option exercise prices times
     the number of outstanding options.

(2)  Value of unexercised options equals the closing price of $15.95 on March
     28, 2002, less the option exercise price multiplied by the number of shares
     exercisable or unexercisable.

EMPLOYMENT AND CONSULTING AGREEMENTS

         Edward Steele. In February 2002, Edward Steele announced that he would
be retiring as our Chief Executive Officer on March 1, 2003, and that he would
remain affiliated with our Company after his retirement as a product development
consultant. In June 2002, our Board of Directors approved the terms of
consulting agreement with Mr. Steele, which would commence on March 1, 2003
(subject to finalization of the terms of Mr. Steele's services in a definitive
consulting agreement). Under this agreement, Mr. Steele will provide the company
with consulting services related to product design, packaging, administration
and training his replacement for a period of one year after his retirement. Mr.
Steele will receive a consulting fee equal to $250,000 per year and will be
entitled to all benefits that he received while he was employed by the Company.
The consulting agreement will provide that Mr. Steele cannot directly or
indirectly compete with our company in the karaoke industry in the United States
during the term of the consulting agreement and for a period of one year after
its termination. Additionally, in recognition of Mr. Steele's fourteen years of
service with the company, the Board approved a $200,000 appreciation bonus to be
paid to Mr. Steele on his retirement date.

         Until February 28, 2003, Mr. Steele will continue to be employed as our
Chief Executive Officer under his current employment agreement with the company,
which consists of his employment agreement dated March 1, 1998 and an amendment
effective as of May 5, 2000. Under Mr. Steele's employment agreement, his annual
salary is $385,875 for the period from June 1, 2002 through May 31, 2003. The
agreement also provides for an annual bonus, as determined by the Board of
Directors in its sole discretion. In the event of a termination of Mr. Steele's
employment in the event of a change in control (as defined in the employment
agreement), Mr. Steele would be entitled to a lump sum payment of 300% of the
amount of his total compensation in the twelve months preceding such
termination. Additionally, if Mr. Steele is terminated without cause, he is
entitled to a lump sum payment equal to 300% of his annual compensation.

         John Klecha. In June 2002, we decided that Mr. Klecha would become our
Chief Executive Officer, when Mr. Steele retired on February 28, 2003 (subject
to finalization of the terms of Mr. Klecha's employment in a definitive
employment agreement). We agreed that Mr. Klecha's annual compensation as Chief
Executive Officer would be $367,500 per year and that Mr. Klecha would be
entitled to a bonus equal to 1/3 of the Company's bonus pool. The bonus pool
available to Mr. Klecha and all of the Company's other employees will be equal
to 10% of the growth in the Company's net income between two consecutive fiscal
years. Until we enter into a new employment agreement, Mr. Klecha will continue
to be employed under his current employment agreement, which expires on May 31,
2003.


                                       23
<PAGE>

         Under Mr. Klecha's current employment agreement, his annual
compensation is $303,187.50 for the period from June 1, 2002 through May 31,
2003. The employment agreement provides for an annual bonus, as determined by
the Board of Directors in its sole discretion. In the event of a termination of
his employment following a change-in-control (as defined in the employment
agreement), Mr. Klecha is entitled to a lump sum payment of 200% of the amount
of his total compensation in the twelve months preceding such termination.
Additionally, if Mr. Klecha is terminated without cause, he is entitled to a
lump sum payment equal to 300% of his annual compensation.

         Jack Dromgold. On April 15, 2002, we entered into a three-year
employment agreement with Jack Dromgold, our Senior Vice President of Sales and
Marketing, expiring on April 14, 2005. Mr. Dromgold's employment agreement will
be automatically be extended for an additional year, unless either party gives
written notice at least sixty days prior to the end of the three-year term.. It
is our intent that Mr. Dromgold will eventually become our Executive Vice
President and then our President. However, we did not guarantee Mr. Dromgold
that he would be promoted to those positions during his term of employment with
our company. Pursuant to Mr. Dromgold 's employment agreement, he is entitled to
receive an annual salary of $220,000 per year, which amount automatically
increases during the second and third fiscal years by not less than the greater
of 5% or the annual increase in the consumer price index.

         As a signing bonus, we agreed to pay Mr. Dromgold $50,000, with $25,000
payable within 10 days of employment and the remaining $25,000 payable after six
months of employment. If Mr. Dromgold completes one year of employment with the
Company, he does not have an obligation to repay the signing bonus. We also
agreed to grant Mr. Dromgold 50,000 options. After his first year of employment,
Mr. Dromgold can elect to return the 50,000 options to the Company or one of our
representatives for $100,000. As of July 14, 2002, we have not granted the
options to Mr. Dromgold. During his first year of employment, Mr. Dromgold's
bonus will be equal to 1% of new accounts shipped, but shall be a minimum of
$50,000. During the second year of his employment, Mr. Dromgold's bonus will be
switched to 10% of the Company's then current bonus plan, subject to Board
approval. We also agreed to pay Mr. Dromgold's certain moving and relocation
expenses in connection with his move from Massachusetts to Florida. As of July
8, 2002, we estimate that these moving expenses are approximately $39,000. In
the event of a termination of Mr. Dromgold's employment in the event of a change
in control (as defined in the employment agreement), Mr. Dromgold is entitled to
a lump sum payment of 50% of the amount of his total compensation in the twelve
months preceding such termination.

         April Green. On March 15, 2002, we entered into a three-year employment
agreement with April Green, our Chief Financial Officer, expiring on March 14,
2005. Ms. Green's employment agreement will be automatically be extended for an
additional year, unless either party gives written notice at least sixty days
prior to the end of the three-year term Pursuant to Ms. Green's employment
agreement, she is entitled to receive base compensation of $122,200 per year,
which amount automatically increases during the second and third fiscal years by
not less than the greater of 5% or the annual increase in the consumer price
index. The agreement also provides for an annual bonus, as determined by the
Board of Directors, in its sole discretion. During her second year of
employment, Ms. Green's bonus will be equal to 8% of the Company's then current
bonus plan, subject to Board approval. In the event of a termination of her
employment following a change of control (as defined in her employment
agreement), Ms. Green is entitled to a lump sum payment of 50% of the amount of
her total compensation in the twelve months preceding such termination.

EQUITY COMPENSATION PLANS AND 401(K) PLAN

     The Company has two stock option plans: the 1994 Amended and Restated Stock
Option Plan ("1994 Plan") and the Year 2001 Stock Option Plan ("Year 2001
Plan"). Both the 1994 Plan and the Year 2001 Plan provide for the granting of
incentive stock options and non-qualified stock options to our employees,
officers, directors and consultants As of March 31, 2001, we had 970,225 options
issued and outstanding under our 1994 Plan and 81,750 options are issued and
outstanding under our Year 2001 Plan. Furthermore, as of March 31, 2002, we had
52,500 warrants issued and outstanding to FRS Investments, Inc. a consulting
company, which were subsequently exercised by FRS in April 2002.

     The following table gives information about equity awards under our 1994
Plan, the Year 2001 Plan and FRS Investment's warrants.


                                       24
<PAGE>

<TABLE>
<CAPTION>


                        Number of securities to be    Weighted-average           Number of securities remaining
                        issued upon exercise          exercise price of          available for future issuance under
                        or outstanding options,       outstanding options,       equity compensation plans
Plan Category           warrants and rights           warrants and rights        (excluding securities in column (a))
-------------           -------------------           -------------------        ------------------------------------
<S>                        <C>                            <C>                           <C>
Equity Compensation
Plans approved by
Security holders             1,011,975                      $ 2.17                        1,218,250


Equity Compensation
Plans not approved by
Security holders                52,500*                     $  .92                           52,500*
</TABLE>

*FRS Investments exercised these warrants in April 2002.

1994 PLAN

         Our 1994 Plan was originally adopted by our Board of Directors in May
1994 and it was approved by our shareholders on June 29, 1994. Our shareholders
approved amendments to our 1994 Plan in March 1999 and September 2000. The 1994
Plan reserved for issuance up to 1,950,000 million share of our common stock
pursuant to the exercise of options granted under the Plan. As of March 31,
2002, we had granted all the options that are available for grant under our 1994
Plan. As of March 31, 2002, we have 970,225 options issued and outstanding under
the 1994 Plan, of which 494,362.5 of these options are vested. On December 1,
2002, all options granted under the 1994 Plan will become fully vested .

YEAR 2001 PLAN

         On June 1, 2001, our Board of Directors approved the Year 2001 Plan and
it was approved by our shareholders at our special meeting held September 6,
2001. The Year 2001 Plan was developed to provide a means whereby directors and
selected employees, officers, consultants, and advisors of the Company may be
granted incentive or non-qualified stock options to purchase common stock of the
Company. The Year 2001 Plan authorizes an aggregate of 1,950,000 shares of the
Company 's common stock and a maximum of 450,000 shares to any one individual in
any one fiscal year. The shares of common stock available under the Year 2001
Plan are subject to adjustment for any stock split, declaration of a stock
dividend or similar event. At March 31, 2002, we had granted 81,750 options
under the Year 2001 Plan, all of which are fully vested.

         The Year 2001 Plan is administered by our Stock Option Committee
("Committee"), which consists of two or more directors chosen by our Board. The
Committee has the full power in its discretion to (i) grant options under the
Year 2001 Plan, (ii) determine the terms of the options (e.g. - vesting,
exercise price), (iii) to interpret the provisions of the Year 2001 Plan and
(iv) to take such action as it deems necessary or advisable for the
administration of the Year 2001 Plan.

         Options granted to eligible individuals under the Year 2001 Plan may be
either incentive stock options ("ISO's"), which satisfy the requirements of Code
Section 422, or nonstatutory options ("NSO's"), which are not intended to
satisfy such requirements. Options granted to outside directors, consultants and
advisors may only be NSO's. The option exercise price will not be less than 100%
of the fair market value of the Company's common stock on the date of grant.
ISO's must have an exercise price greater to or equal to the fair market value
of the shares underlying the option on the date of grant (or, if granted to a
holder of 10% or more of our common stock, an exercise price of at least 110% of
the under underlying shares fair market value on the date of grant). The maximum
exercise period of ISO's is 10 years from the date of grant (or five years in
the case of a holder with 10% or more of our common stock). The aggregate fair
market value (determined at the date the option is granted) of shares with
respect to which an ISO are exercisable for the first time by the holder of the
option during any calendar year may not exceed $100,000. If that amounts exceeds
$100,000, our Board of the Committee may designate those shares that will be
treated as NSO's.

         Options granted under the Year 2001 Plan are not transferable except by
will or applicable laws of descent and distribution. Except as expressly
determined by the Committee, no option shall be exercisable after thirty (30)
days following an individual's termination of employment with the Company or a



                                       25
<PAGE>

subsidiary, unless such termination of employment occurs by reason of such
individual's disability, retirement or death. The Committee may in its sole
discretion, provide in a grant instrument that upon a change of control (as
defined in the Year 2001 Plan) that all outstanding option issued to the grantee
shall automatically, accelerate and become full exercisable. Additionally, the
obligations of the Company under the Year 2001 Plan are binding on (1) any
successor corporation or organization resulting from the merger, consolidation
or other reorganization of the Company or (2) any successor corporation or
organization succeeding to all or substantially all of the assets and business
of the Company. In the event of any of the foregoing, the Committee may, at its
discretion, prior to the consummation of the transaction, offer to purchase,
cancel, exchange, adjust or modify any outstanding options, as such time and in
such manner as the Committee deems appropriate.

FRS INVESTMENTS, INC. CONSULTING AGREEMENT

         In July 1999, we entered into a financial consulting agreement with FRS
Investments, Inc. pursuant to which FRS agreed to provide certain consulting
services to our company. In connection with this agreement, we issued an
aggregate of 127,500 warrants to FRS at an exercise price of $0.92 per share and
an expiration date of June 8, 2002. As of June 8, 2002, all of these warrants
were exercised.

401(K) PLAN

         Effective January 1, 2001, we adopted a voluntary 401(k) plan. All
employees with at least one year of service are eligible to participate in our
401(k) plan. In fiscal 2002, we made a matching contribution of 100% of salary
deferral contributions up to 3% of pay, plus 50% of salary deferral
contributions from 3% to 5% of pay for each payroll period.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         -----------------------------------------------
         AND MANAGEMENT
         --------------

         The following table sets forth, as of July 17, 2002, certain
information concerning beneficial ownership of our common stock by (i) each
person known to us to own 5% or more of our outstanding common stock, (ii) all
directors of the Singing Machine and (iii) all directors and officers of the
Singing Machine as a group. At July 17, 2002, we had 8,134,701 shares of our
common stock issued and outstanding. Unless otherwise indicated, the address for
each person is The Singing Machine Company, Inc., 6601 Lyons Road, Building A-7,
Coconut Creek, Florida 33073.

         As used herein, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or direct
the vote) and/or sole or shared investment power (including the power to dispose
or direct the disposition of) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise, including a right to
acquire such power(s) during the next 60 days. Unless otherwise noted,
beneficial ownership consists of sole ownership, voting and investment rights.



                                       26
<PAGE>



                                    Shares Beneficially      Percent of
Name & Address                      Owned                      Class
-----------------------------------------------------------------------

John Klecha                             934,611(1)             11.2%
Edward Steele                         1,158,546(2)             14.0%
Josef Bauer                             951,272(3)             11.7%
Howard Moore                            265,977(4)              3.3%
Robert Weinberg                          50,322(5)               *
April Green                              14,450(6)               *
Jack Dromgold                               600(7)               *

All Directors and Executive           3,375,778(8)             39.1%
Officers as a Group (5 persons)


(1) Includes 232,500 shares issuable upon the exercise of stock options that are
exercisable within 60 days of July 17, 2002.

(2) Includes 191,250 shares issuable upon the exercise of stock options that are
exercisable within 60 days of July 17, 2002 and 152,910 shares held by Mr.
Steele's wife. Mr. Steele disclaims beneficial ownership of any shares held by
his wife.

(3) Includes 360,000 shares held by Mr. Bauer's pension plan, 200,000 shares
held by Mr. Bauer's wife and 51,475 shares held jointly by Mr. Bauer and his
wife. Also includes 162,600 shares held by the Bauer Family Limited Partnership,
of which Mr. Bauer and his wife own a 98% interest. Includes 10,000 shares that
are issuable upon the exercise of stock options that are exercisable within
sixty days of July 17, 2002. Mr. Bauer disclaims beneficial ownership of any
shares held by his wife.

(4) Includes 189,400 shares held by Mr. Moore, as trustee for the Howard & Helen
Moore Living Trust, 30,750 shares held by Howard Moore Associates, Inc. Defined
Benefit Pension Plan and 2,077 shares held by the Howard & Helen Moore
Irrevocable Insurance Trust. Also include 10,000 shares issuable upon the
exercise of stock options that are exercisable within 60 days of July 17, 2002.

(5) Includes 4,500 shares held by a limited liability company, of which Mr.
Weinberg is a 50% owner, 372 shares held by Mr. Weinberg's IRA and 450 shares
held by Mr. Weinberg's spouse. Also includes 45,000 shares issuable upon the
exercise of stock options that are exercisable within 60 days of July 17, 2002.
Mr. Weinberg disclaims beneficial ownership of any shares held by his wife.

(6) Includes 13,500 shares issuable upon the exercise of stock options that are
exercisable within 60 days of July 17, 2002.

(7) Shares are held jointly by Mr. Dromgold and his wife.

(8) Includes 502,250 shares issuable upon the exercise of stock options that are
exercisable within 60 days of July 17, 2002.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         ----------------------------------------------

         On July 1, 1999, we loaned $55,000 to each of Eddie Steele and John
Klecha to purchase 2 units in our private placement. These loans bore interest
at the rate of 9% per annum and were due on June 28, 2001. Mr. Klecha and Mr.
Steele repaid these loans and all accrued interest in June 2001.

         In June 1999, we arranged a credit facility with Main Factors, whereby
Main Factors purchased certain of our accounts receivable. To secure the credit
facility, John Klecha, our Chief Operating Officer and Chief Financial Officer,
provided his personal payment guaranty. In July 1999, we entered into an
agreement with EPK Financial Corporation ("EPK") whereby EPK provided letters of
credit with our factories to import inventory for distribution to our customers.
To secure the EPK facility, Edward Steele and John Klecha provided their
personal guarantees. In consideration for providing their personal guarantees of
these credit facilities, we issued 200,000 shares of our common stock to Mr.
Steele and 150,000 shares of our common stock to Mr. Klecha in June 1999. Both
agreements with Main Factors and EPK were terminated in April 2001. We amortized
the value of these deferred guarantee fees over a two year period, which was
completed in the first quarter of fiscal 2002.


                                       27
<PAGE>

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
         ---------------------------------------------------------------

(A)      Exhibits

3.1      Certificate of Incorporation of the Singing Machine filed with the
         Delaware Secretary of State on February 15, 1994 (incorporated by
         reference to Exhibit 3.1 in the Company's registration statement on
         Form SB-2 filed with the SEC on March 7, 2000).
3.2      Certificate of Agreement of Merger between the Singing Machine Company,
         Inc., a California corporation, and the Singing Machine Company, Inc.,
         a Florida corporation, filed with the Delaware Secretary of State on
         May 3, 1994 (incorporated by reference to Exhibit 3.1 in the Company's
         registration statement on Form SB-2 filed with the SEC on March 7,
         2000).
3.3      Certificate of Amendment of the Singing Machine filed with the Delaware
         Secretary of State on July 19, 1994 (incorporated by reference to
         Exhibit 3.1 in the Company's registration statement on Form SB-2 filed
         with the SEC on March 7, 2000).
3.4      Certificate of Amendment of the Singing Machine filed with the Delaware
         Secretary of State on July 26, 1994 (incorporated by reference to
         Exhibit 3.1 in the Company's registration statement on Form SB-2 filed
         with the SEC on March 7, 2000).
3.5      Certificate of Amendment of the Singing Machine filed with the Delaware
         Secretary of State on November 4, 1994 (incorporated by reference to
         Exhibit 3.1 in the Company's registration statement on Form SB-2 filed
         with the SEC on March 7, 2000).
3.6      Certificate of Renewal of the Singing Machine filed with the Delaware
         Secretary of State on April 2, 1998 (incorporated by reference to
         Exhibit 3.1 in the Company's registration statement on Form SB-2 filed
         with the SEC on March 7, 2000).
3.7      Certificate of Amendment of the Singing Machine filed with the Delaware
         Secretary of State on April 20, 1998 (incorporated by reference to
         Exhibit 3.1 in the Company's registration statement on Form SB-2 filed
         with the SEC on March 7, 2000).
3.8      Certificate of Amendment of the Singing Machine filed with the Delaware
         Secretary of State on May 7, 1998 (incorporated by reference to Exhibit
         3.1 in the Company's registration statement on Form SB-2 filed with the
         SEC on March 7, 2000).
3.9      Certificate of Amendment of the Singing Machine filed with the Delaware
         Secretary of State on April 13, 1999 (incorporated by reference to
         Exhibit 3.1 in the Company's registration statement on Form SB-2 filed
         with the SEC on March 7, 2000).
3.10     Certificate of Designations, Preferences and Rights of Preferred Stock
         of the Singing Machine filed with the Delaware Secretary of State on
         April 15, 1999 (incorporated by reference to Exhibit 3.1 in the
         Company's registration statement on Form SB-2 filed with the SEC on
         March 7, 2000).
3.11     Certificate of Amendment of the Singing Machine filed with the Delaware
         Secretary of State on September 29, 2000 (incorporated by reference to
         Exhibit 3.1 in the Company's Quarterly Report on Form 10-QSB for the
         period ended September 30, 1999 filed with the SEC on November 14,
         2000).
3.12     Certificate of Correction filed with the Delaware Secretary of State on
         March 29, 2001 correcting the Amendment to our Certificate of
         Incorporation dated April 20, 1998 (incorporated by reference to
         Exhibit 3.11 in the Company's registration statement on Form SB-2 filed
         with the SEC on April 11, 2000).*
3.13     Certificate of Correction filed with the Delaware Secretary of State on
         March 30, 2001 correcting the Amendment to our Certificate of
         Incorporation dated May 7, 1998 (incorporated by reference to Exhibit
         3.11 in the Company's registration statement on Form SB-2 filed with
         the SEC on April 11, 2001).
3.14     Amended By-Laws of the Singing Machine Company (incorporated by
         reference to Exhibit 3.14 in the Company's Annual Report on Form 10-KSB
         for the year ended March 31, 2001 filed with the SEC on June 29, 2001).
4.1      Form of Certificate Evidencing Shares of Common Stock (incorporated by
         reference to Exhibit 3.3. of the Company's registration statement on
         Form SB-2 filed with the SEC on March 7, 2000)
4.2      Form of Warrant Certificate (incorporated by reference to Exhibit 3.4
         of the Company's registration statement on Form SB-2 filed with the SEC
         on March 7, 2000).
10.1     Lease Agreement dated April 10, 2000 between The Singing Machine
         Company, Inc. and Rocco Ferrera & Co., Inc. and Lee S. Lasser, trustee
         of the Lee Lasser Trust dated August 25, 1972, as amended d/b/a Lyons
         Corporate Park for Office and warehouse space in Coconut Creek, Florida
         (incorporated by reference to Exhibit 10.1. of the Company's
         registration statement on Form SB-2 filed with the SEC on March 28,
         2001).


                                       28
<PAGE>

10.2     Lease Agreement dated November 9, 2000 between the Singing Machine
         Company, Inc. and Marcel George & Joanne Marie George, trustees of
         Marcel George family trust of September 2, 1982 for warehouse space in
         Carson, California (incorporated by reference to Exhibit 10.2 of the
         Company's registration statement on Form SB-2 filed with the SEC on
         March 28, 2001.)
10.3     Lease Agreement dated August 2000 between Koon Wah Mirror Holdings
         Limited and International SMC (HK) Limited for office space in Hong
         Kong (incorporated by reference to Exhibit 10.3 of the Company's
         registration statement on Form SB-2 filed with the SEC on March 28,
         2001).
10.4     Lease Agreement dated March 12, 2002, by and between Lyons Corporate
         Park LLP and The Singing Machine Company, Inc. for office space in
         Coconut Creek, Florida.(incorporated by reference to Exhibit 10.4 of
         the Company's Form 10-KSB filed with the SEC on July 1, 2002)
10.5     Sublease dated May 28, 2002 by and between The Singing Machine Company,
         Inc. and Busung America Corp. for warehouse space in Carson City,
         California (incorporated by reference to Exhibit 10.5 of the Company's
         Form 10-KSB filed with the SEC on July 1, 2002).
10.6     Lease documents for Ocean Centre dated April and June 2002 by and
         between Harbour City Management Limited and International SMC (HK) Ltd.
         for office space in Hong Kong. (incorporated by reference to Exhibit
         10.6 of the Company's Form 10-KSB filed with the SEC on July 1, 2002).
10.7     Industrial Lease dated March 1, 2002, by and between AMP Properties,
         L.P. and The Singing Machine Company, Inc. for warehouse space in
         Compton, California (incorporated by reference to Exhibit 10.7 of the
         Company's Form 10-KSB filed with the SEC on July 1, 2002).
10.8     Employment Agreement dated May 1, 1998 between the Singing Machine and
         Edward Steele (incorporated by reference to Exhibit 10.1 of the
         Company's registration statement on Form SB-2 filed with SEC on March
         7, 2000).
10.9     Employment Agreement dated June 1, 2000 between the Singing Machine and
         John Klecha (incorporated by reference to Exhibit 10.5 of the Company's
         registration statement on Form SB-2 filed with the SEC March 28, 2001).
10.10    Loan and Security Agreement dated April 2000 between LaSalle Business
         Credit, Inc. and the Singing Machine Company (incorporated by reference
         to Exhibit 3.1 in the Company's Quarterly Report on Form 10-QSB for the
         period ended September 30, 1999 filed with the SEC on November 14,
         2000).
10.11    First Amendment to Loan and Security Agreement dated October 1, 2001
         between LaSalle Business Credit, Inc. and the Singing Machine Company
         (incorporated by reference to Exhibit 10.11 to the Company's Annual
         Report on Form 10-KSB for the year ended March 31, 2002 filed with the
         SEC on July 1, 2002).
10.12    Second Amendment to Loan and Security Agreement dated November 20, 2001
         between LaSalle Business Credit, Inc. and the Singing Machine Company
         (incorporated by reference to Exhibit 10.12 to the Company's Annual
         Report on Form 10-KSB for the year ended March 31, 2002 filed with the
         SEC on July 1, 2002).
10.13    Third Amendment to Loan and Security Agreement dated November 28, 2001
         between LaSalle Business Credit, Inc. and the Singing Machine Company
         (incorporated by reference to Exhibit 10.13 to the Company's Annual
         Report on Form 10-KSB for the year ended March 31, 2002 filed with the
         SEC on July 1, 2002).
10.14    Fourth Amendment to Loan and Security Agreement dated February 28, 2002
         between LaSalle Business Credit, Inc. and the Singing Machine Company,
         Inc. (incorporated by reference to Exhibit 10.14 to the Company's
         Annual Report on Form 10-KSB for the year ended March 31, 2002 filed
         with the SEC on July 1, 2002).
10.15    Amended and Restated 1994 Management Stock Option Plan (incorporated by
         reference to Exhibit 10.6 to the Company's registration statement on
         Form SB-2 filed with the SEC on March 28, 2001).
10.16    Factoring Agreement dated April 7, 2000 between the Singing Machine and
         Main Factors, Inc. (incorporated by reference to Exhibit 10.7 to the
         company's registration statement on Form SB-2 filed with the SEC on
         March 28, 2001).
10.17    Master Agreement dated July 31, 1999 between EPK Financial Corporation
         and the Singing Machine (incorporated by reference to Exhibit 10.4 of
         the Company's registration statement on Form SB-2 filed with the SEC on
         March 7, 2000).
10.18    Singing Machine's Amended Bankruptcy Plan of Reorganization dated
         December 17, 1997 (incorporated by reference to Exhibit 10.5 of the
         Company's registration statement on Form SB-2 filed with the SEC on
         March 7, 2000).
10.19    Bankruptcy Court's Order Confirming the Plan of Reorganization
         (incorporated by reference to Exhibit 10.5 of the Company's
         registration statement on Form SB-2 filed with the SEC on March 7,
         2000).

                                       29
<PAGE>

10.20    Employment Agreement between the Company and Jack Dromgold dated April
         14, 2002*
10.21    Employment Agreement between the Company and April Green dated March
         15, 2002.*
10.22    Lease Agreement dated March 31, 1999 between The Singing Machine
         Company, Inc. and Rocco Ferrera & Co., Inc. and Lee S. Lasser, trustee
         of the Lee S. Lasser Trust dated August 25, 1972, as amended d/b/a
         Lyons Corporate Park for office space in Coconut Creek, Florida.*
21.1     List of Subsidiaries*
23.1     Consent of Salberg & Company, P.A.*

         *Filed herewith

(B)      Reports on Form 8-K

         We did not file any reports on Form 8-K during the fourth quarter ended
March 31, 2002.


                                       30
<PAGE>



SIGNATURES


         In accordance with the requirements of Section 13 and 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                           THE SINGING MACHINE COMPANY, INC.


Dated: July 22, 2002       By:   /s/ John F. Klecha
                             ---------------------------------------------------
                             John F. Klecha, President, Chief Operating Officer,
                             Secretary, Treasurer and Director
                             (Principal Executive Officer)

In accordance with the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

Signature                                  Capacity                                   Date
---------                                  --------                                   ----
<S>                                        <C>                                        <C>
/s/ Edward Steele                          Chief Executive Officer                    July 22, 2002
---------------------------                And Director
Edward Steele                              (Principal Executive Officer)


/s/ John F. Klecha                         President, Chief Operating                 July 22, 2002
---------------------------                Officer, Secretary, Treasurer
John F. Klecha                             and Director
                                           (Principal Executive Officer)


/s/ April Green                            Chief Financial Officer                    July 22, 2002
--------------------                       (Principal Financial and
April Green                                Accounting Officer)


/s/ Josef A. Bauer                         Director                                   July 22, 2002
---------------------------
Josef A. Bauer

/s/ Howard W. Moore                        Director                                   July 22, 2002
---------------------------
Howard W. Moore

/s/ Robert J. Weinberg                     Director                                   July 22, 2002
---------------------------
Robert J. Weinberg
</TABLE>



                                       31
<PAGE>

<PAGE>


                        The Singing Machine Company, Inc.
                                 and Subsidiary

                        Consolidated Financial Statements

                                 March 31, 2002




<PAGE>




                        The Singing Machine Company, Inc.
                                 and Subsidiary


                                    Contents
                                    --------


                                                                    Page(s)
                                                                  -------------
Independent Auditors' Report                                         F-1

Consolidated Balance Sheet                                           F-2

Consolidated Statements of Income                                    F-3

Consolidated Statements of Changes in Stockholders' Equity           F-4

Consolidated Statements of Cash Flows                                F-5

Notes to Consolidated Financial Statements                        F-6 - F-22


<PAGE>

                          Independent Auditors' Report
                          ----------------------------


Board of Directors and Shareholders:
   The Singing Machine Company, Inc.
   and Subsidiary

We have audited the accompanying consolidated balance sheet of The Singing
Machine Company, Inc., and Subsidiary as of March 31, 2002, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years ended March 31, 2002 and 2001. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Singing Machine
Company, Inc. and Subsidiary as of March 31, 2002, and the results of their
operations and their cash flows for the years ended March 31, 2002 and 2001 in
conformity with accounting principles generally accepted in the United States of
America.



SALBERG & COMPANY, P.A.
Boca Raton, Florida
May 23, 2002



                                      F-1
<PAGE>


                The Singing Machine Company, Inc. and Subsidiary
                           Consolidated Balance Sheet
                                 March 31, 2002
                                 --------------

<TABLE>
<CAPTION>
                                     Assets
                                     ------

<S>                                                                                       <C>
Current Assets
Cash and cash equivalents                                                                 $ 5,520,147
Accounts receivable, net                                                                    3,536,903
Due from manufacturer                                                                         488,298
Inventories                                                                                 9,274,352
Prepaid expenses and other current assets                                                   1,118,321
Deposits                                                                                      513,684
                                                                                          -----------
Total Current Assets                                                                       20,451,705
                                                                                          -----------

Property and Equipment, Net                                                                   574,657
                                                                                          -----------

Other Assets
Reorganization intangible, net                                                                185,416
Deferred tax asset                                                                            452,673
                                                                                          -----------
Total Other Assets                                                                            638,089
                                                                                          -----------

Total Assets                                                                              $21,664,451
                                                                                          ===========


                      Liabilities and Stockholders' Equity
                      ------------------------------------

Current Liabilities
Accounts payable                                                                          $ 1,846,238
Accrued payroll                                                                               519,714
Accrued royalties                                                                             301,873
Accrued advertising                                                                           136,551
Other accrued expenses                                                                        331,459
Income tax payable                                                                             58,542
                                                                                          -----------
Total Current Liabilities                                                                   3,194,377
                                                                                          -----------

Stockholders' Equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized,
  no shares issued and outstanding                                                                 --
Common stock, Class A, $0.01 par value, 100,000 shares authorized,
  no shares issued and outstanding                                                                 --
Common stock, $0.01 par value, 18,900,000 shares authorized,
  8,020,027 shares issued and outstanding                                                      80,200
Additional paid-in capital                                                                  4,602,828
Retained earnings                                                                          13,787,046
                                                                                          -----------

Total Stockholders' Equity                                                                 18,470,074
                                                                                          -----------

Total Liabilities and Stockholders' Equity                                                $21,664,451
                                                                                          ===========
</TABLE>

           See accompanying notes to consolidated financial statements


                                      F-2
<PAGE>



                The Singing Machine Company, Inc. and Subsidiary
                        Consolidated Statements of Income
                       Years Ended March 31, 2002 and 2001
                       -----------------------------------

<TABLE>
<CAPTION>
                                                                        2002            2001
                                                                    ------------    ------------
<S>                                                                  <C>             <C>
Net Sales                                                            $61,828,894     $34,306,839

Cost of Sales                                                         41,448,891      22,473,149
                                                                    ------------    ------------

Gross Profit                                                          20,380,003      11,833,690
                                                                    ------------    ------------

Operating Expenses
Compensation                                                           2,486,547       1,916,612
Agency fees                                                                   --         647,908
Commissions                                                            1,294,543         837,222
Advertising                                                            2,377,638         921,359
Bad debt                                                                  45,078          85,302
Royalties                                                              1,862,116         148,643
Selling, general and administrative expenses                           4,078,701       2,249,051
                                                                    ------------    ------------
Total Operating Expenses                                              12,144,623       6,806,097
                                                                    ------------    ------------

Income from Operations                                                 8,235,380       5,027,593
                                                                    ------------    ------------

Other Income (Expenses)
Other income                                                             215,840          32,617
Interest income                                                           16,934          50,242
Interest expense                                                        (112,123)       (424,104)
Stock based guarantee fees                                              (171,472)       (267,029)
Factoring fees                                                                --        (231,298)
                                                                    ------------    ------------
Net Other Expenses                                                       (50,821)       (839,572)
                                                                    ------------    ------------

Income Before Income Taxes                                             8,184,559       4,188,021

Income Tax Expense                                                       119,277          23,320
                                                                    ------------    ------------

Net Income                                                           $ 8,065,282     $ 4,164,701
                                                                    ============    ============

Earnings per Share:
Basic                                                                $      1.13     $      0.66
                                                                    ============    ============
Diluted                                                              $      1.02     $      0.56
                                                                    ============    ============

Weighted Average Common and Common Equivalent
  Shares Outstanding:
Basic                                                                  7,159,142       6,291,792
                                                                    ============    ============
Diluted                                                                7,943,473       7,457,173
                                                                    ============    ============
</TABLE>

           See accompanying notes to consolidated financial statements


                                      F-3
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
           Consolidated Statements of Changes in Stockholders' Equity
                       Years Ended March 31, 2002 and 2001
                       -----------------------------------

<TABLE>
<CAPTION>
                                                                                 Common Stock and
                                                                                Common Stock to be
                                                     Preferred Shares                Issued
                                             ---------------------------   ----------------------------
                                               Shares          Amount          Shares          Amount
                                             -----------    ------------     ----------    ------------

<S>                                           <C>           <C>              <C>              <C>
Balance March 31, 2000                        1,000,000     $ 1,000,000      $4,541,430       $45,414

Conversion of preferred stock                (1,000,000)     (1,000,000)      1,500,000        15,000

Exercise of warrants                                 --              --         570,000         5,700

Exercise of employee stock options                   --              --           2,250            23

Cancellation of shares                               --              --         (75,000)         (750)

Warrants issued for services and as loan
  fees                                               --              --              --            --

Amortization of deferred guarantee fees              --              --              --            --

Net Income, 2001                                     --              --              --            --
                                             ----------     -----------    ------------    ------------

Balance March 31, 2001                               --              --       6,538,680        65,387

Amortization of deferred guaranteed fees             --              --              --            --

Exercise of warrants                                 --              --         581,100         5,811

Exercise of employee stock options                   --              --         900,525         9,005

Fractional share adjustment pursuant to
  3:2 stock split                                    --              --            (278)           (3)

Net Income, 2002                                     --              --              --            --
                                             ----------     -----------      ----------    ----------

Balance, March 31, 2002                              --     $        --       8,020,027       $80,200
                                             ----------     ===========      ==========    ==========
[restub]
<CAPTION>
                                              Additional                       Deferred
                                               Paid-in        Retained         Guarantee
                                               Capital        Earnings           Fees          Totals
                                              ----------     -----------       ---------     ----------

<S>                                           <C>            <C>               <C>          <C>
Balance March 31, 2000                        $1,703,910     $ 1,557,063       (400,101)    $ 3,906,286

Conversion of preferred stock                    985,000              --             --              --

Exercise of warrants                             574,300              --             --         580,000

Exercise of employee stock options                   622              --             --             645

Cancellation of shares                               750              --             --              --

Warrants issued for services and as loan
  fees                                            38,400              --             --          38,400

Amortization of deferred guarantee fees               --              --        228,629         228,629

Net Income, 2001                                      --       4,164,701             --       4,164,701
                                              ----------     -----------       --------      -----------

Balance March 31, 2001                         3,302,982       5,721,764       (171,472)      8,918,661

Amortization of deferred guaranteed fees              --              --        171,472         171,472

Exercise of warrants                             584,239              --             --         590,050

Exercise of employee stock options               720,135              --             --         729,140

Fractional share adjustment pursuant to
  3:2 stock split                                 (4,528)             --             --          (4,531)

Net Income, 2002                                      --       8,065,282             --       8,065,282
                                              ----------     -----------       --------     -----------

Balance, March 31, 2002                       $4,602,828     $13,787,046             --     $18,470,074
                                              ==========     ===========       ========     ===========
</TABLE>
           See accompanying notes to consolidated financial statements


                                      F-4
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                      Consolidated Statements of Cash Flows
                       Years Ended March 31, 2002 and 2001
                       -----------------------------------

<TABLE>
<CAPTION>
                                                                            2002            2001
                                                                        ------------    ------------
<S>                                                                     <C>             <C>
Cash Flow from Operating Activities:
Net income                                                              $  8,065,282    $  4,164,701
Adjustments to reconcile net income to net cash provided by (used in)
  operating activities
Depreciation and amortization                                                394,456         301,064
Stock based expenses                                                         171,472         267,029
Bad debt                                                                      45,078          85,302
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable                                                       (2,626,329)       (312,916)
Due from manufacturer                                                        210,798        (699,096)
Inventories                                                               (4,460,891)     (3,326,255)
Prepaid expenses and other assets                                           (444,004)       (394,176)
Increase (decrease) in:
Accounts payable                                                           1,364,158         467,491
Accrued expenses                                                             199,445         672,342
Income taxes payable                                                          35,222          11,326
                                                                        ------------    ------------
Net Cash Provided by Operating Activities                                  2,954,687       1,236,812
                                                                        ------------    ------------

Cash Flow from Investing Activities
Purchase of property and equipment                                          (613,691)       (373,409)
Deposits                                                                    (513,684)             --
Proceeds from repayment of related parties loans                               7,692              --
Proceeds from repayment of officer loans                                     117,425              --
Proceeds from investment in factor                                           933,407              --
Investment in and advances to unconsolidated subsidiary                           --        (374,730)
Proceeds from sale of unconsolidated subsidiary                              298,900              --
Net proceeds from related parties                                                 --         386,261
                                                                        ------------    ------------
Net Cash Provided by (Used in) Investing Activities                          230,049        (361,878)
                                                                        ------------    ------------

Cash Flow from Financing Activities
Loan proceeds                                                             21,856,653         600,000
Loan repayments                                                          (21,856,653)       (600,000)
Proceeds from exercise of stock options and warrants                       1,319,190         580,645
Due from factor                                                                   --        (818,206)
                                                                        ------------    ------------
Net Cash Provided by (Used in) Financing Activities                        1,319,190        (237,561)
                                                                        ------------    ------------

Increase in Cash and Cash Equivalents                                      4,503,926         637,373

Cash and Cash Equivalents - Beginning of Year                              1,016,221         378,848
                                                                        ------------    ------------

Cash and Cash Equivalents - End of Year                                 $  5,520,147    $  1,016,221
                                                                        ============    ============

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest                                  $    112,123    $    424,104
                                                                        ============    ============
Cash paid during the year for income taxes                              $    102,415    $     11,994
                                                                        ============    ============
</TABLE>
           See accompanying notes to consolidated financial statements


                                      F-5
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

Note 1  Nature of Operations and Summary of Significant Accounting Policies
---------------------------------------------------------------------------

         (A) Nature of Operations

         The Singing Machine Company, Inc., a Delaware corporation, and
         Subsidiary (the "Company") is primarily engaged in the production,
         marketing, and sale of consumer karaoke audio equipment, accessories,
         and recordings. The products are sold directly to distributors and
         retail customers.

         (B) Principles of Consolidation

         The consolidated financial statements include the accounts of The
         Singing Machine Company, Inc. and its wholly-owned Hong Kong
         Subsidiary, International SMC (HK) Limited ("Hong Kong Subsidiary").
         All significant intercompany accounts and transactions have been
         eliminated in consolidation.

         (C) Foreign Currency Translation

         The functional currency of the Company's Hong Kong Subsidiary is the
         local currency. The financial statements of the subsidiary are
         translated to United States dollars using year-end rates of exchange
         for assets and liabilities, and average rates of exchange for the year
         for revenues, costs, and expenses. Net gains and losses resulting from
         foreign exchange transactions are included in the consolidated
         statements of operations and were not material during the periods
         presented. The cumulative translation adjustment and effect of exchange
         rate changes on cash at March 31, 2002 was not material.

         (D) Use of Estimates

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States of America requires
         management to make estimates and assumptions that affect the reported
         amounts of assets and liabilities and disclosure of contingent assets
         and liabilities at the date of the financial statements and the
         reported amounts of revenues and expenses during the reporting period.
         Actual results could differ from those estimates.

         (E) Cash and Cash Equivalents

         For purposes of the cash flow statement, the Company considers all
         highly liquid investments with maturities of three months or less at
         the time of purchase to be cash equivalents.

         (F) Concentration of Credit Risk

         The Company maintains its cash in bank deposit accounts, which, at
         times, exceed federally insured limits. At March 31, 2002, the Company
         had $213,940 in United States bank deposits, which exceed federally
         insured limits and $5,219,326 in commercial paper, which is not
         insured. The Company has not experienced any losses in such accounts
         through March 31, 2002.



                                      F-6
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

         (G) Inventories

         Inventories primarily consist of finished goods, which are comprised of
         electronic karaoke audio equipment, accessories, and compact discs.
         Inventories are stated at the lower of cost or market, as determined
         using the first in, first out method. Inventory consigned to one
         customer at March 31, 2002 was $2,020,172. (See Note 13)

         (H) Property and Equipment

         Property and equipment are stated at cost, less accumulated
         depreciation and amortization. Expenditures for repairs and maintenance
         are charged to expense as incurred. Depreciation is provided using an
         accelerated method over the estimated useful lives of the related
         assets over 3 to 7 years.

         (I) Long-Lived Assets

         The Company reviews long-lived assets and certain identifiable assets
         related to those assets for impairment whenever circumstances and
         situations change such that there is an indication that the carrying
         amounts may not be recoverable. If the non-discounted future cash flows
         of the enterprise are less than their carrying amount, their carrying
         amounts are reduced to fair value and an impairment loss is recognized.

         (J) Stock-Based Compensation

         The Company accounts for stock options issued to employees in
         accordance with the provisions of Accounting Principles Board ("APB")
         Opinion No. 25, "Accounting for Stock Issued to Employees," and related
         interpretations. As such, compensation cost is measured on the date of
         grant as the excess of the current market price of the underlying stock
         over the exercise price. Such compensation amounts are amortized over
         the respective vesting periods of the option grant. The Company adopted
         the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
         Compensation," which permits entities to provide pro forma net income
         (loss) and pro forma earnings (loss) per share disclosures for employee
         stock option grants as if the fair-valued based method defined in SFAS
         No. 123 had been applied.

         The Company accounts for stock options and stock issued to
         non-employees for goods or services in accordance with SFAS 123.

         (K) Revenue Recognition

         Revenue from the sale of equipment, accessories, and recordings are
         recognized upon shipment and are reported net of actual and estimated
         future returns and allowances. Revenues from sales of consigned
         inventory is recognized upon sale of product by the consignee. The
         Company offers a consumer product warranty for returns up to 90 days
         after purchase.


                                      F-7
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

         (L) Advertising

         In accordance with Accounting Standards Executive Committee Statement
         of Position 93-7, ("SOP 93-7") costs incurred for producing and
         communicating advertising of the Company, are charged to operations as
         incurred. The Company has cooperative advertising arrangements with its
         vendors and accrues the cost of advertising against the related
         revenues. Advertising expense for the years ended March 31, 2002 and
         2001 was $2,377,638 and $921,359, respectively.

         (M) Income Taxes

         Income taxes are accounted for under the asset and liability method of
         Statement of Financial Accounting Standards No. 109, "Accounting for
         Income Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and
         liabilities are recognized for the future tax consequences attributable
         to differences between the financial statement carrying amounts of
         existing assets and liabilities and their respective tax bases.
         Deferred tax assets and liabilities are measured using enacted tax
         rates expected to apply to taxable income in the years in which those
         temporary differences are expected to be recovered or settled. Under
         SFAS 109, the effect on deferred tax assets and liabilities of a change
         in tax rates is recognized in income in the period that includes the
         enactment date.

         (N) Earnings Per Share

         In accordance with, Statement of Financial Accounting Standards No. 128
         "Earnings per Share", basic earnings per share is computed by dividing
         the net income less preferred dividends for the period by the weighted
         average number of common shares outstanding. Diluted earnings per share
         is computed by dividing net income less preferred dividends by the
         weighted average number of common shares outstanding including the
         effect of common stock equivalents.

         The following table presents a reconciliation of basic and diluted
         earnings per share:

                                                   2002         2001
                                                ----------   ----------
Net income                                      $8,065,282   $4,164,701
                                                ----------   ----------
Income available to common shares                8,065,282    4,164,701
Weighted average shares outstanding - basic      7,159,142    6,291,792
EPS - Basic                                     $     1.13   $     0.66
                                                ==========   ==========

Income available to common shares               $8,065,282   $4,164,701
Weighted average shares outstanding - basic      7,159,142    6,291,792

Effect of dilutive securities:
Stock options                                      784,331    1,127,555
Warrants issued with preferred stock                    --       37,826
                                                ----------   ----------
Weighted average shares outstanding - diluted    7,943,473    7,457,173
EPS - Diluted                                   $     1.02   $     0.56
                                                ==========   ==========


                                      F-8
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

         In 2001, the 2,484,000 public warrants and 45,000 common stock options
         (as restated for the 3 for 2 stock split) were not included in the
         computation of diluted earnings per share as their effect would have
         been anti-dilutive.

         (O) Reorganization under United States Bankruptcy Code and Fresh Start
             Reporting

         On April 11, 1997, the Company filed for protection under the
         provisions of the United States Bankruptcy Code. In March 1998, the
         United States Bankruptcy Court approved the Company's Plan of
         Reorganization, as Amended, and the Company emerged from Chapter 11
         Bankruptcy. At that time, the Company applied Fresh Start Reporting in
         accordance with the American Institute of Certified Public Accountants'
         Statement of Position 90-7, "Financial Reporting by Entities in
         Reorganization Under the Bankruptcy Code ("SOP 90-7")." As a result of
         the application of SOP 90-7, the Company restated its assets and
         liabilities to their fair values as necessary, and reclassified its
         accumulated deficit of $6,841,684 against available additional paid-in
         capital of $6,200,262 resulting in a reorganization intangible asset of
         $641,422, which was being amortized on a straight-line basis over a
         period of seven years. (See Note 5) Pursuant to SAS 142, effective on
         April 1, 2002, the Company no longer amortizes the remaining balance of
         the Reorganization Intangible.

         (P) Fair Value of Financial Instruments

         Statement of Financial Accounting Standards No. 107, "Disclosures about
         Fair Value of Financial Instruments," requires disclosures of
         information about the fair value of certain financial instruments for
         which it is practicable to estimate that value. For purposes of this
         disclosure, the fair value of a financial instrument is the amount at
         which the instrument could be exchanged in a current transaction
         between willing parties, other than in a forced sale or liquidation.

         The carrying amounts of the Company's short-term financial instruments,
         including accounts receivable, accounts payable, accrued expenses, and
         income taxes payable approximate fair value due to the relatively short
         period to maturity for these instruments.

         (Q) Recent Accounting Pronouncements

         Statement No. 141 "Business Combinations" establishes revised standards
         for accounting for business combinations. Specifically, the statement
         eliminates the pooling method, provides new guidance for recognizing
         intangible assets arising in a business combination, and calls for
         disclosure of considerably more information about a business
         combination. This statement is effective for business combinations
         initiated on or after July 1, 2001. The adoption of this pronouncement
         on July 1, 2001 did not have a material effect on the Company's
         financial position, results of operations or liquidity.

         Statement No. 142 "Goodwill and Other Intangible Assets" provides new
         guidance concerning the accounting for the acquisition of intangibles,
         except those acquired in a business combination, which is subject to
         SFAS 141, and the manner in which intangibles and goodwill should be
         accounted for subsequent to their initial recognition. Generally,
         intangible assets with indefinite lives, and goodwill, are no longer
         amortized; they are carried at lower of cost or market and subject to
         annual impairment evaluation, or interim impairment evaluation if an
         interim triggering


                                      F-9
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

         event occurs, using a new fair market value method. Intangible assets
         with finite lives are amortized over those lives, with no stipulated
         maximum, and an impairment test is performed only when a triggering
         event occurs. This statement is effective for all fiscal years
         beginning after December 15, 2001. The Company believes that the
         implementation of SFAS 142 on April 1, 2002 will not have a material
         effect on the Company's financial position, results of operations or
         liquidity.

         Statement No. 143, "Accounting for Asset Retirement Obligations,"
         requires entities to record the fair value of a liability for an asset
         retirement obligation in the period in which it is incurred. When the
         liability is initially recorded, the entity capitalizes a cost by
         increasing the carrying amount of the related long-lived asset. Over
         time, the liability is accreted to its present value each period, and
         the capitalized cost is depreciated over the useful life of the related
         asset. Upon settlement of the liability, an entity either settles the
         obligation for its recorded amount or incurs a gain or loss upon
         settlement. The standard is effective for fiscal years beginning after
         June 15, 2002. The adoption of SFAS No. 143 is not expected to have a
         material impact on the Company's financial statements.

         Statement No. 144 "Accounting for the Impairment or Disposal of
         Long-Lived Assets" supercedes Statement No. 121 "Accounting for the
         Impairment of Long-Lived Assets and for Long-Lived Assets to be
         Disposed of" ("SFAS 121"). Though it retains the basic requirements of
         SFAS 121 regarding when and how to measure an impairment loss, SFAS 144
         provides additional implementation guidance. SFAS 144 excludes goodwill
         and intangibles not being amortized among other exclusions. SFAS 144
         also supercedes the provisions of APB 30, "Reporting the Results of
         Operations," pertaining to discontinued operations. Separate reporting
         of a discontinued operation is still required, but SFAS 144 expands the
         presentation to include a component of an entity, rather than strictly
         a business segment as defined in SFAS 131, Disclosures about Segments
         of an Enterprise and Related Information. SFAS 144 also eliminates the
         current exemption to consolidation when control over a subsidiary is
         likely to be temporary. This statement is effective for all fiscal
         years beginning after December 15, 2001. The Company believes that the
         future implementation of SFAS 144 on April 1, 2002 will not have a
         material effect on the Company's financial position, results of
         operations or liquidity.

         Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
         Amendment of FASB Statement No. 13, and Technical Corrections,"
         updates, clarifies, and simplifies existing accounting pronouncements.
         Statement No. 145 rescinds Statement 4, which required all gains and
         losses from extinguishment of debt to be aggregated and, if material,
         classified as an extraordinary item, net of related income tax effect.
         As a result, the criteria in Opinion 30 will now be used to classify
         those gains and losses. Statement 64 amended Statement 4, and is no
         longer necessary because Statement 4 has been rescinded. Statement 44
         was issued to establish accounting requirements for the effects of
         transition to the provisions of the motor Carrier Act of 1980. Because
         the transaction has been completed, Statement 44 is no longer
         necessary. Statement 145 amends Statement 13 to require that certain
         lease modifications that have economic effects similar to
         sale-leaseback transactions be accounted for in the same manner as
         sale-leaseback transactions. This amendment is consistent with FASB's
         goal requiring similar accounting treatment for transactions that have
         similar economic effects. The adoption of SFAS No. 145 is not expected
         to have a material impact on the Company's consolidated financial
         statements.


                                      F-10
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

         (R) Reclassifications

         Certain amounts in the 2001 consolidated financial statements have been
         reclassified to conform to the 2002 presentation.

Note 2  Accounts Receivable and Factor Agreement
------------------------------------------------

Accounts receivable at March 31, 2002 was as follows:

Accounts receivable                        $3,548,925
Allowance for doubtful accounts               (12,022)
                                           ----------
                                           $3,536,903
                                           ==========

During 2001, the Company sold certain trade accounts receivable, primarily
without recourse, pursuant to a factoring agreement. The Company terminated the
factoring agreement in April 2001 upon obtaining a new Loan and Security
Agreement with a commercial lender. (See Note 7)

During 2000, two officers of the Company entered into guarantee agreements
related to the factor agreement resulting in deferred guarantee fees of
$400,101, which was being amortized over the term of the factor agreement. Upon
termination of the factor agreement, the remaining deferred guarantee fees of
$171,472 were charged to operations as amortization. For the year ending March
31, 2001, the Company incurred $429,509 in factoring fees and interest. The
portion representing factor interest expense was $198,208 of the $429,506.

Note 3  Sale of Unconsolidated Subsidiary
-----------------------------------------

In November 2000, the Company closed on an acquisition of 60% of the ordinary
voting shares of a Hong Kong toy company for a total purchase price of $170,000.
The Company believed that the acquiree had agreed to extend the effective date
to June 2001, but a dispute arose and the Company committed to dispose of the
entire investment. Accordingly, pursuant to Statement of Financial Accounting
Standards No. 94 "Consolidation of All Majority-Owned Subsidiaries," the Company
treated the control of the subsidiary as temporary and recorded the investment
of $170,000 and advances of $220,661 at cost. The Company completed a contract
selling the 60% interest on September 11, 2001. The transaction resulted in a
net loss on investment of $48,912 included in selling, general, and
administrative expenses. The balance receivable at March 31, 2002 was $75,831
included in prepaids and other current assets.

Note 4  Property and Equipment
------------------------------

Property and equipment at March 31, 2002 is as follows:

Computer and office equipment                       $  230,025
Furniture and fixtures                                 106,164
Leasehold improvements                                  62,483
Molds and tooling                                    1,022,900
                                                    ----------
                                                     1,421,572
Less accumulated depreciation                         (846,915)
                                                    ----------
Total                                               $  574,657
                                                    ==========


                                      F-11
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

Depreciation expense for the years ended March 31, 2002 and 2001 was $302,824
and $209,432, respectively.

Note 5   Reorganization Intangible
----------------------------------

The reorganization intangible resulted from the application of Fresh Start
Accounting in March 1998 pursuant to the American Institute of Certified Public
Accountants Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code." (See Note 1(O)) The reorganization
intangible was being amortized over a period of seven years using a
straight-line basis. In accordance with SFAS 109, in 2001, the reorganization
intangible was reduced by $89,479 of an income tax benefit realized as a result
of an increase in deferred tax assets resulting from a reduced valuation
allowance. (See Note 12)

The reorganization intangible at March 31, 2002 consisted of the following:

Reorganization intangible                 $ 641,422
Less accumulated amortization              (366,527)
Less allocated income tax benefit           (89,479)
                                          ---------
                                          $ 185,416
                                          =========

Amortization expense on the reorganization intangible in each of the years ended
March 31, 2002 and 2001 was $91,632.

Note 6  Deposit for Letter of Credit Facility
---------------------------------------------

The Company, through its Hong Kong subsidiary, maintains a letter of credit
facility with a major international bank. The Company's subsidiary is required
to maintain a separate deposit account in the amount of $513,684. This amount is
included in deposits at March 31, 2002.

Note 7   Loans and Letters of Credit
------------------------------------

         (A) Credit Facility

         On May 19, 1999, as amended on February 14, 2000, the Company, through
         its Hong Kong Subsidiary, obtained a credit facility of $500,000 from a
         Hong Kong subsidiary of a Belgian bank. This facility is a revolving
         line of credit based upon drawing down a maximum of 15% of the value of
         export letters of credit lodged with Belgian Bank. There is no
         expiration date to this agreement, except that Belgian Bank reserves
         the right to revise the terms and conditions at the Bank's discretion.
         The cost of this credit facility is the U.S. Dollar prime rate plus
         1.25%. Repayment of principal plus interest shall be made upon
         negotiation of the export letters of credit, but not later than 90-days
         after the advance. As of March 31, 2002, there was no outstanding
         balance on this credit facility.


                                      F-12
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

         (B)      Loan and Security Agreement

         On April 26, 2001, the Company executed a Loan and Security Agreement
         (the "Agreement") with a commercial lender (the "Lender").

         The Lender will advance up to 75% of the Company's eligible accounts
         receivable, plus up to 40% of the eligible inventory, plus up to 40% of
         the commercial letters of credit opened for the purchase of eligible
         inventory, less reserves of up to $1,200,000 as defined in the
         agreement.

         The outstanding loan limit varies between zero and $10,000,000
         depending on the time of year, as stipulated in the Agreement. The
         Lender also provides the Company the ability to issue commercial
         letters of credit up to $2,500,000, which shall reduce the loan limits
         above. The loans bear interest at the commercial lender's prime rate
         plus 0.5% and an annual fee equal to 1% of the maximum loan amount or
         $100,000 is payable. The term of the loan facility expires on April 26,
         2004 and is automatically renewable for one-year terms. All amounts
         under the loan facility are due within 90 days of demand. The loans are
         secured by a first lien on all present and future assets of the Company
         except for certain tooling located at a vendor in China.

         The Agreement contains a financial covenant stipulating a minimum
         tangible net worth of $7,200,000 as of March 31, 2002 with escalations
         as defined in the Agreement. There was no balance outstanding at March
         31, 2002.

Note 8   Commitments and Contingencies
--------------------------------------

         (A) Leases

         On March 31, 1999 and April 10, 2000, the Company entered into lease
         agreements for office and warehouse facilities in Florida for a term of
         61 months and 52 months, respectively. The terms began on August 1,
         1999 and April 14, 2000. Pursuant to the terms of the leases, the
         Company must pay maintenance and real estate taxes of approximately
         $13,000 per year. On November 9, 2000, the Company leased a warehouse
         in California commencing January 1, 2001 for 37 months with base rent
         of $11,500 per month. This space has been subleased starting June 1,
         2002 through January 31, 2002 for $12,393 per month. The Company leases
         a showroom in New York commencing September 1, 2001 through August 31,
         2002 at a rate of $3,000 a month. The Company also leases office space
         in Hong Kong for $4,655 per month which lease expires October 31, 2002.
         In addition, the Company maintains various warehouse equipment and
         computer equipment leases. (See Note 16) Total rent expense was
         approximately $172,500 and $142,500 for 2002 and 2001, respectively.

         Future minimum lease payments under non-cancelable operating leases
         with terms exceeding one year as of March 31, 2002 are as follows:


                                      F-13
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

                  Year ending March 31:
                                                2003            $  578,449
                                                2004               604,015
                                                2005               412,460
                                                2006               407,640
                                                2007               407,640
                                                Thereafter         339,700
                                                                ----------
                                                                $2,749,904
                                                                ==========

         (B) Employment Agreements

         The Company has employment contracts with three key officers as of
         March 31, 2002 (See Note 16). The agreements call for base salaries,
         with annual cost of living adjustments and travel allowances. The
         agreements also call for aggregate Board approved performance bonuses
         of up to 10% of net income before those performance bonuses, interest,
         and taxes. Such bonus is allocated to the three key officers and
         certain other key employees. During 2002 and 2001, the bonus percentage
         was 5% and 10%, respectively.

         (C) Merchandise License Agreements

         On November 1, 2000, as amended on November 29, 2001, the Company
         entered into a merchandise license agreement to license a name,
         tradename, and logo of a music oriented television network. The term of
         the agreement is from November 1, 2000 to December 31, 2003. However,
         shipment of related products did not begin until after March 31, 2001.
         Accordingly, none of the minimum royalty was charged to operations as
         of March 31, 2001. The Company pays a royalty rate of a percentage of
         stipulated sales, as defined in the agreement, with $686,250 guaranteed
         minimum royalties for the term, payable on a scheduled basis as
         stipulated in the agreement. Through 2002, the royalties expense
         exceeded the minimum royalty for the entire contract. (See Note 11)

         On December 1, 2001, the Company entered into an additional agreement
         with a division of above licensor for additional license properties and
         products. The license term is January 1, 2002 to December 31, 2004 with
         an initial stipulated ship date of August 15, 2002. The agreement
         stipulates a royalty rate as a percentage of net sales (defined as
         gross sales less discounts, allowances and damaged goods returns not to
         exceed 8% of gross sales), payable quarterly, with a guaranteed minimum
         royalty for the license term of $450,000 payable as follows:

                  $25,000 on execution of agreement
                  $85,000 on or before September 1, 2002
                  $85,000 on or before December 1, 2002
                  $85,000 on or before March 1, 2003
                  $85,000 on or before June 1, 2003; and
                  $85,000 on or before September 1, 2003

         The guaranteed royalty is non-refundable and not recoupable against any
         other license agreements with the licensor.


                                      F-14
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

         (D) Significant Estimates

         The Company records an accrual for product returns in the normal course
         of business. The accrual is estimated based on historical experience
         and is recorded as a liability equal to the gross profit on estimated
         returns. At March 31, 2002, the accrual was approximately $164,000.

         The Company estimates an allowance for doubtful accounts using the
         specific identification method since a majority of accounts receivable
         are concentrated with several customers. The allowance was $12,022 at
         March 31, 2002.

         (E) Legal Matters

         The Company is subject to litigation relating to claims arising in the
         normal course of business.

Note 9  Related Party Transactions
----------------------------------

The Company's Hong Kong Subsidiary operates as an intermediary to purchase
karaoke hardware from factories located in China on behalf of the Company. A
primary manufacturer affiliated with a former director of the Company credited
the Company for past purchases of approximately $799,000 as of March 31, 2001
for a portion of expenses incurred from product returns. The $799,000 amount was
credited to cost of goods sold in 2001. The balance including some new credits
as of March 31, 2002 was $488,298. The total goods purchased from this
manufacturer during 2002 and 2001 aggregated approximately 51% and 80% of the
total purchases, respectively.
(See Note 13)

Note 10 Stockholders' Equity
----------------------------

         (A) Amendment to Authorized Shares

         During September 2000, the Company filed an amendment to its Articles
         of Incorporation decreasing the authorized shares of the Company's
         common stock to 18,900,000 shares and 100,000 Class A common shares.

         (B) Stock Split

         On March 15, 2002, the Company affected a 3 for 2 stock split. All
         share and per share data have been retroactively restated in the
         accompanying consolidated financial statements to reflect the split.

         (C) Preferred Stock and Warrants

         During April 1999, the Company issued a private placement memorandum,
         pursuant to Rule 506 of Regulation D of the 1933 Securities Act, as
         amended, to offer a minimum of 40 units and a maximum of 50 units of
         stock and warrants. Each unit consisted of 30,000 shares of the
         Company's 9% non-voting convertible preferred stock and 6,000 common
         stock purchase warrants. The purchase price for each unit was $ 27,500.
         Each share of preferred stock was convertible, at the option of the
         holder, into one share of the Company's common stock at any time after
         issuance, and was to automatically convert into one share of common
         stock on April 1,


                                      F-15
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

         2000. All preferred shares automatically converted on April 1, 2000.
         Each warrant entitles the holder to purchase one share of the Company's
         common stock at $2.00 per share. The warrants expire three years from
         the private placement memorandum date. Through June 1999, the maximum
         number of 50 units had been sold and $1,375,000 gross funds were raised
         ($1,331,017 after related costs), at which time the offer was closed.
         During 2000, 2001, and 2002, 24,000, 201,000, and 75,000 warrants were
         converted for $32,000, $268,000, and $100,000, respectively leaving no
         warrants outstanding at March 31, 2002.

         (D) Common Stock Warrants Expiration

         In November 2001, 2,484,000 public warrants expired unexercised.

         (E) Common Stock Issuances

         During 2002, the Company issued 1,418,625 common shares for cash
         proceeds of $1,319,190 upon exercise of options and warrants.

         (F) Guarantee Fees

         During the year ended March 31, 2000, the Company issued 525,000 shares
         of common stock to two officers of the Company in exchange for
         guarantees related to the Company's factor agreement (See Note 2), and
         letter of credit agreement. (See Note 7) These guarantee fees totaled
         $590,625 and are amortized over a period of 31 months. Accordingly, in
         2000, the Company recognized $190,524 as guarantee fees and recorded
         $400,101 as deferred guarantee fees, presented as a deduction from
         equity. In 2001, $228,629 of deferred fees were charged to operations.
         During June 2001, the Company terminated its letter of credit and
         factor agreements and recognized the remaining amortization at that
         time.

         During the year ended March 31, 2001, the Company issued 37,500 common
         stock options for services and 45,000 common stock warrants to two
         investors as loan fees. The fair market value of the options totaling
         $38,400 was charged to operations.

         (G) Stock Options

         On June 1, 2001, the Board of Directors approved the 2001 Stock Option
         Plan, which replaced the 1994 Stock Option Plan, as amended, (the
         "Plan"). The Plan was developed to provide a means whereby directors
         and selected employees, officers, consultants, and advisors of the
         Company may be granted incentive or non-qualified stock options to
         purchase common stock of the Company. As of March 31, 2002, the Plan
         authorizes options up to an aggregate of 1,950,000 shares of the
         Company's common stock and up to 300,000 shares for any one individual
         in any fiscal year.

         In accordance with SFAS 123, for options issued to employees, the
         Company applies APB Opinion No. 25 and related interpretations in
         accounting for its plan. On August 15, 2001, the Company issued options
         to purchase an aggregate 75,000 common shares to directors at an
         exercise price of $4.23, which equals the fair market value of the
         common stock at the grant date. Accordingly, no compensation cost has
         been recognized for options issued under the Plan in 2002


                                      F-16
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

         or 2001. Had compensation cost for the Company's stock-based
         compensation plan been determined on the fair value at the grant dates
         for awards under that plan, consistent with Statement of Accounting
         Standards No 123, "Accounting for Stock Based Compensation" (Statement
         No. 123), the Company's net income for the year ended March 31, 2001
         would not have changed and the net income for the year ended March 31,
         2002 would have been decreased to the pro-forma amounts indicated
         below.

                                                                         2002
                                                                      ----------

         Net income                                  As reported      $8,065,282
                                                     Pro forma        $7,949,793
         Net income per share - basic                As reported      $     1.13
                                                     Pro forma        $     1.11
         Net income per share - diluted              As reported      $     1.02
                                                     Pro forma        $     1.00

         The effect of applying Statement No. 123 is not likely to be
         representative of the effects on reported net income for future years
         due to, among other things, the effects of vesting.

         For stock options and warrants issued to consultants, the Company
         applies SFAS 123. Accordingly, consulting expense of $38,400 was
         charged to operations in 2001. There was no consulting expense relating
         to grants in 2002.

         For financial statement disclosure purposes and for purposes of valuing
         stock options and warrants issued to consultants, the fair market value
         of each stock option granted was estimated on the date of grant using
         the Black-Scholes Option-Pricing Model in accordance with SFAS 123
         using the following weighted-average assumptions in 2001: expected
         dividend yield 0%, risk-free interest rate of 6.08% to 6.81%,
         volatility 42% and expected term of two years.

         A summary of the options issued under the employment and consulting
         agreements as of March 31, 2002 and 2001 and changes during the years
         is presented below:

<TABLE>
<CAPTION>
                                                    2002                                2001
                                        ----------------------------------------------------------------------------
                                         Number of       Weighted           Number of          Weighted
                                        Options and       Average          Options and          Average
                                          Warrants     Exercise Price        Warrants         Exercise Price
                                        -----------    --------------      -----------        --------------
<S>                                      <C>              <C>               <C>                 <C>
Stock Options
Balance at beginning of period           2,403,300        $1.31             1,593,300           $0.67
Granted                                     82,800        $3.92             1,215,750           $2.01
Exercised                               (1,406,625)       $0.87              (371,250)          $0.84
Forfeited                                  (15,000)       $2.04               (34,500)          $0.92
                                        ----------        -----             ---------           -----
Balance at end of period                 1,064,475        $2.11             2,403,300           $1.31
                                        ==========        =====             =========           =====

Options exercisable at end of period     1,064,475        $2.11             1,420,050           $0.70
Weighted average fair value of options
  granted during the period                               $1.54                                 $0.85
                                                          =====                                 =====
</TABLE>



                                      F-17
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

         The following table summarizes information about employee stock options
         and consultant warrants outstanding at March 31, 2002:

<TABLE>
<CAPTION>
                              Options and Warrants Outstanding                       Options and Warrants Exercisable
                 ----------------------------------------------------------------    --------------------------------

                                                       Weighted
                                                        Average          Weighted                            Weighted
                 Range of            Number            Remaining          Average           Number            Average
                 Exercise        Outstanding at       Contractual        Exercise       Exercisable at       Exercise
                   Price         March 31, 2002          Life             Price         March 31, 2002         Price
                 ---------       --------------       -----------        --------    ------------------      --------
                   <S>               <C>               <C>                <C>               <C>               <C>
                  $2.04              851,025           4.67 Years         $2.04             425,513           $2.04
                   4.23               60,000           4.38 Years          4.23              60,000            4.23
                   3.27               42,450           3.95 Years          3.27              21,225            3.27
                   1.11               58,500           2.24 Years          1.11              58,500            1.11
                   0.92               52,500           0.19 Years          0.92              52,500            0.92
                                   ---------                              -----             -------           -----
                                   1,064,475                              $2.11             617,738           $2.11
                                   =========                              =====             =======           =====
</TABLE>

Note 11 Royalty Expense
-----------------------

The Company enters into licensing and royalty agreements with music publishers
(the "Licensors") in the normal course of business. In addition, the Company
pays royalties under a merchandise license agreement. (See Note 8(C)) Royalty
expense during 2002 and 2001 was $1,862,116 and $148,643, respectively.

Note 12 Income Taxes
--------------------

The Company files separate tax returns for the parent and for the Hong Kong
Subsidiary. The income tax expense (benefit) for federal, foreign, and state
income taxes in the consolidated statement of income consisted of the following
components for 2002 and 2001:

                            2002        2001
                          --------    --------
Current:
U.S. Federal              $     --    $21,320
Foreign                         --         --
State                      119,277      2,000
                          --------    -------
                           119,277     23,320
                          --------    -------
Deferred:
U.S. Federal                    --         --
Foreign                         --         --
                          --------    -------
                                --         --
                          --------    -------
Total                     $119,277    $23,320
                          ========    =======

The Company's Hong Kong subsidiary has applied for a Hong Kong "offshore claim"
income tax exemption based on the locality of the profits of the Hong Kong
subsidiary. Management believes that since the source of all profits of the Hong
Kong subsidiary are from exporting to customers outside of



                                      F-18
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

Hong Kong; it is likely the exemption will be approved. Accordingly, no
provision for foreign income taxes on the profits of the Hong Kong subsidiary
have been provided in the accompanying consolidated financial statements.

In the event the exemption is not approved, the Hong Kong subsidiary profits
will be taxed at a flat rate of 16% resulting in an income tax expense of
approximately $725,000 and $460,000 for 2002 and 2001, respectively.

The actual tax expense differs from the "expected" tax expense for the years
ended March 31, 2002 and 2001 (computed by applying the U.S. Federal Corporate
tax rate of 34 percent to income before taxes) as follows:

<TABLE>
<CAPTION>
                                                               2002           2001
                                                           -----------     -----------
<S>                                                        <C>             <C>
Computed "expected" tax expense                            $ 2,782,750     $1,423,927
State income taxes, net of Federal income tax benefit           78,723             --
Indefinite deferral of foreign earnings                     (1,541,493)      (978,309)
Stock based guarantee fees                                      20,405         27,207
Disqualifying ISO dispositions                                 (26,926)            --
Non-qualified stock options exercised                               --        (51,185)
Meals and entertainment                                          6,999          2,982
Usage of United States net operating loss carryforwards     (1,201,181)      (424,622)
United States alternative minimum tax                               --         23,320
                                                           -----------     ----------
                                                           $   119,277     $   23,320
                                                           ===========     ==========
</TABLE>

The Company has not recognized a deferred tax liability for its foreign income
in 2002 and 2001 since the reversal of this temporary difference is indefinite.
Accordingly, the amounts of $1,541,493 and $978,309, respectively, which
represent 34% of the foreign net income, have been reflected as a permanent
difference at March 31, 2002 and 2001, respectively.

The actual tax expense may be significantly larger in future years as the net
operating loss is expected to be fully absorbed (except for the limited portion)
during the 2003 fiscal year. In addition, the indefinite deferral of future and
accumulated foreign earnings will depend on the Company's domestic versus
foreign strategic plans.

The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at March 31, 2002 are as follows:


                                      F-19
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------


Deferred tax assets:
United States net operating loss carryforward    $261,255
State net operating loss carryforward              89,315
Bad debt reserve                                    4,087
Reserve for sales return                           55,886
Stock based expense                                13,056
Amortization of reorganization intangible          36,400
                                                 --------
Total Gross Deferred Assets                       459,999
Less valuation allowance                               --
                                                 --------
                                                  459,999
Deferred tax liability:
Depreciation                                       (7,326)
                                                 --------
Net Deferred Tax Asset                           $452,673
                                                 ========

On September 3, 1991, the Company underwent a change of ownership (as defined by
Internal Revenue Code Section 382). This change limits the Company's ability to
utilize it's approximately $4,057,000 of net operating loss carryforwards
(NOL's) to $54,240 at a rate of $13,560 per year (these NOL's expire from 2004
to 2007).

At March 31, 2002, the Company had useable net operating loss carryforwards of
approximately $714,159 for federal income tax purposes, (which are not subject
to the above limitations) which is immediately available to offset future
taxable income of the United States entity expiring through 2019.

The valuation allowance at April 1, 2001 was $1,059,089. The net change in the
valuation allowance during the year ended March 31, 2002 was a decrease of
$1,059,089.

In accordance with SFAS 109, the year 2001 income tax benefit of $89,479 arising
from the net increase in deferred tax assets has been allocated at March 31,
2001 to reduce the reorganization intangible. (See Note 5)

Note 13 Concentrations of Credit Risk, Customers, Suppliers, and Financing
--------------------------------------------------------------------------

The Company derives primarily all of its revenues from retailers of products in
the United States. Financial instruments, which potentially subject the Company
to concentrations of credit risk, consist of accounts receivable. The Company's
allowance for doubtful accounts is based upon management's estimates and
historical experience and reflects the fact that accounts receivable are
concentrated with several large customers whose credit worthiness have been
evaluated be management. At March 31, 2002, 65% of accounts receivable were due
from five U.S. customers and accounts receivable from two customers that
individually owed over 10% of accounts receivable at March 31, 2002 was 36% and
35%. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral.

Revenues derived from five customers in 2002 and 2001 were 87% and 78% of
revenues, respectively. Revenues derived from three customers in 2002 and two
customers in 2001, respectively, which individually purchased greater than 10%
of the Company's total revenues, were 37%, 28%, and 10% in 2002 and 32% and 23%
in 2001.


                                      F-20
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

In the fourth quarter of the fiscal 2002, a major customer that provided 37% of
the Company's revenue in 2002 converted its purchase method to a consignee
basis. The Company recorded approximately $2,875,000 of sales returns and
reversal of related cost of sales of $2,112,000 in February and the customer
retained the inventory on a consignment basis. (See Note 1(G)) From that date of
sales returns, through March 31, 2002 the Company recorded $2,442,384 of sales
from consignment inventory.

The Company is dependent upon foreign companies for manufacture of all of its
electronic products. The Company's arrangements with manufacturers are subject
to the risk of doing business abroad, such as import duties, trade restrictions,
work stoppages, foreign currency fluctuations, political instability, and other
factors, which could have an adverse impact on its business. The Company
believes that the loss of any one or more of their suppliers would not have a
long-term material adverse effect because other manufacturers with whom the
Company does business would be able to increase production to fulfill their
requirements. However, the loss of certain suppliers in the short-term could
adversely affect business until alternative supply arrangements are secured.

During fiscal 2002 and 2001, manufacturers in the People's Republic of China
(China) accounted for in excess of 95% and 94%, respectively of the Company's
total product purchases, including virtually all of the Company's hardware
purchases. The Company expects purchasing for 2003 to fall within the above
range as well.

Purchases of products derived from three vendors based in China during 2002 were
51%, 39%, and 5% and from two manufacturers based in China during 2001 were 80%
and 14%, respectively. (See Note 9)

The Company finances its sales primarily through a loan facility with one
lender. (See Note 7) Although management believes there are other sources
available, a loss of the current credit facility could be in the short term,
adversely affect operations until an alternate lending arrangement is secured.

Net sales derived from the Company's Hong Kong based subsidiary aggregated
approximately $27,176,000 in 2002 and $12,595,800 in 2001. The carrying value of
net assets held by the Company's Hong Kong based subsidiary was approximately
$1,488,160 at March 31, 2002.

Note 14 Segment Information
---------------------------

The Company operates in one segment and maintains its records accordingly. Sales
by customer geographic region were as follows:

                       2002           2001
                   -----------    -----------
United States      $61,686,942    $33,823,028
Asia                    49,314             --
Canada                  47,565         11,420
Central America          5,756             --
Europe                      --        433,821
South America           39,317         38,570
                   -----------    -----------
                   $61,828,894    $34,306,839
                   ===========    ===========


                                      F-21
<PAGE>

                The Singing Machine Company, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                 --------------

Note 15 Defined Contribution Benefit Plan
-----------------------------------------

The Company maintains a 401-K plan for the benefit of its employees. Employer
contributions to the plan and administrative costs during 2002 and 2001 were
$41,733 and $8,682, respectively.

Note 16 Subsequent Events
-------------------------

In April 2002, 10,000 common shares were issued upon exercise of warrants for
gross proceeds of $0.92 per share or $9,200 and 16,500 common shares were issued
upon exercise of employee options at a price of $2.04 per share or $33,660.

On April 15, 2002, the Company entered into a three-year employment agreement
with a new Executive Vice President of Sales and Marketing. The agreement
stipulates a salary and bonuses and a 50% of annual pay severance clause. The
agreement grants 50,000 options for each year of employment. The employee may
elect to return the first year options to the Company for $100,000. As of the
date of the accompanying audit report, the options have not been issued.

In June 2002, the Board of Directors approved the terms of a consulting
agreement effective on February 28, 2003 with the current CEO when he retires on
that day. The CEO will receive $250,000 per year and will also receive an
appreciation bonus of $200,000 on February 28, 2003.

In May and June 2002, the Company's subsidiary entered into new office leases in
Hong Kong, each for 36 months at an aggregate $13,364 per month.

Effective May 1, 2002, the Company signed a 5-year warehouse lease in California
for $33,970 per month. The Company also subleased out its space in the other
California warehouse for rent income of $12,393 per month through January 31,
2004.

Effective June 1, 2002, the Company signed an additional 27-month lease to
expand its corporate headquarters. The additional rent is $1,987 per month.

The company's Hong Kong subsidiary opened a letter of credit at April 16, 2002
with an international bank for up to $1,000,000.


                                      F-22





<PAGE>


                                INDEX TO EXHIBITS


EXHIBIT
NUMBER                   DESCRIPTION
------                   -----------


10.20    Employment Agreement between the Company and Jack Dromgold
         dated April 14, 2002

10.21    Employment Agreement between the Company and April Green
         dated March 15, 2002

10.22    Lease Agreement dated March 31, 1999 between The Singing Machine
         Company, Inc. and Rocco Ferrera & Co., Inc. and Lee S. Lasser, trustee
         of the Lee S. Lasser Trust dated August 25, 1972, as amended d/b/a
         Lyons Corporate Park for office space in Coconut Creek, Florida.

21.1     List of Subsidiaries

23.1     Consent of Salberg & Company, P.A.