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EXHIBIT 10.3

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

                                            Date of Issuance: September __, 2003

                                                                $_______________

                            8% CONVERTIBLE DEBENTURE
                              DUE FEBRUARY 20, 2006

         THIS DEBENTURE is one of a series of duly authorized and issued 8%
Convertible Debentures of The Singing Machine Company, Inc., a Delaware
corporation, having a principal place of business at 6601 Lyons Road, Building
A-7, Coconut Creek, FL 33073 (the "Company"), designated as its 8% Convertible
Debenture, due February __, 2006 (the "Debentures").

         FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "Holder"), the principal
sum of $_______________ on February __, 2006 or such earlier date as the
Debentures are required or permitted to be repaid as provided hereunder (the
"Maturity Date"), and to pay interest to the Holder on the aggregate unconverted
and then outstanding principal amount of this Debenture at the rate of 8% per
annum, payable quarterly on March 1, June 1, September 1 and December 1,
beginning on the first such date after the Original Issue Date and on each
Conversion Date (as to that principal amount then being converted) and on the
Maturity Date (except that, if any such date is not a Business Day, then such
payment shall be due on the next succeeding Business Day) (each such date, an
"Interest Payment Date"), in cash or shares of Common Stock at the Interest
Conversion Rate, or a combination thereof; provided, however, payment in shares
of Common

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Stock may only occur if: (i) there is an effective Underlying Shares
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares of Common Stock to be issued
in lieu of cash (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (ii) the
Common Stock is listed for trading on a Principal Market (and the Company
believes, in good faith, that trading of the Common Stock on a Principal Market
will continue uninterrupted for the foreseeable future), (iii) there is a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares issuable pursuant to the
Transaction Documents, including the shares to be issued for interest in lieu of
cash and (iv) there is then existing no Event of Default or event which, with
the passage of time or the giving of notice, would constitute and Event of
Default, and (v) the issuance of such shares, when added to the shares issued or
issuable upon conversion of the Debentures in full and issued and issuable upon
exercise of the Warrants in full would violate the limitations set forth in
Section 4(a)(ii). Subject to the terms and conditions herein, the decision
whether to pay interest hereunder in shares of Common Stock or cash shall be at
the discretion of the Company. Not less than 20 Trading Days prior to each
Interest Payment Date, the Company shall provide the Holder with written notice
of its election to pay interest hereunder either in cash or shares of Common
Stock (the Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised). Within 20 Trading
Days prior to an Interest Payment Date, the Company's election (whether specific
to an Interest Payment Date or continuous) shall be irrevocable as to such
Interest Payment Date. Subject to the aforementioned conditions, failure to
timely provide such written notice shall be deemed an election by the Company to
pay the interest on such Interest Payment Date in cash. Interest shall be
calculated on the basis of a 360-day year and shall accrue daily commencing on
the Original Issue Date until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Payment of interest in shares of Common Stock shall
otherwise occur pursuant to Section 4(b) and only for purposes of the payment of
interest in shares, the Interest Payment Date shall be deemed the Conversion
Date. Interest shall cease to accrue with respect to any principal amount
converted, provided that the Company in fact delivers the Underlying Shares
within the time period required by Section 4(b)(i). Interest hereunder will be
paid to the Person in whose name this Debenture is registered on the records of
the Company regarding registration and transfers of Debentures (the "Debenture
Register"). Except as otherwise provided herein, if at anytime the Company pays
interest partially in cash and partially in shares of Common Stock, then such
payment shall be distributed ratably among the Holders based upon the principal
amount of Debentures held by each Holder. All overdue accrued and unpaid
interest to be paid hereunder shall entail a late fee at the rate of 18% per
annum (or such lower maximum amount of interest permitted to be charged under
applicable law) ("Late Fee") which will accrue daily, from the date such
interest is due hereunder through and including the date of payment.
Notwithstanding anything to the contrary contained herein, if on any Interest
Payment Date the Company has elected to pay interest in Common Stock and is not
able to pay accrued interest in the form of Common Stock because it does not
then satisfy the conditions for payment in the form of Common Stock set forth
above, then, at the option of the Holder, the Company, in lieu of delivering
either shares of Common Stock pursuant to this

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Section 4 or paying the regularly scheduled cash interest payment, shall
deliver, within three Trading Days of each applicable Interest Payment Date, an
amount in cash equal to the product of the number of shares of Common Stock
otherwise deliverable to the Holder in connection with the payment of interest
due such Interest Payment Date and the highest VWAP during the period commencing
on the Interest Payment Date and ending on the Trading Day prior to the date
such payment is made. EXCEPT AS SET FORTH IN SECTION 5, THE COMPANY MAY NOT
PREPAY ANY PORTION OF THE PRINCIPAL AMOUNT OF THIS DEBENTURE WITHOUT THE PRIOR
WRITTEN CONSENT OF THE HOLDER.

         This Debenture is subject to the following additional provisions:

         Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange. THIS DEBENTURE IS ALSO SUBJECT TO
THE TERMS AND CONDITIONS OF A SUBORDINATION AGREEMENT (THE "LASALLE
SUBORDINATION AGREEMENT") THAT THE HOLDER HAS SIGNED WITH LASALLE BUSINESS
CREDIT, LLC, THE COMPANY'S COMMERCIAL LENDER, ON ABOUT THE DATE HEREOF AND ANY
FUTURE SUBORDINATION AGREEMENTS THAT IT IS REQUIRED TO SIGN DURING THE TIME
PERIOD THAT THE COMPANY HAS ANY OBLIGATIONS UNDER THE TRANSACTION DOCUMENTS
(COLLECTIVELY, ANY OR ALL SUCH AGREEMENTS SHALL BE REFERRED TO AS THE
"SUBORDINATION AGREEMENT"). ANY INCONSISTENCIES BETWEEN THIS DEBENTURE AND THE
SUBORDINATION AGREEMENT WILL BE RESOLVED IN FAVOR OF THE TERMS OF THE
SUBORDINATION AGREEMENT.

         Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations. Prior to due
presentment to the Company for transfer of this Debenture, the Company and any
agent of the Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

         Section 3. Events of Default.

                 (a) "Event of Default", wherever used herein, means any one of
         the following events (whatever the reason and whether it shall be
         voluntary or involuntary or effected by operation of law or pursuant to
         any judgment, decree or order of any court, or any order, rule or
         regulation of any administrative or governmental body):

                          (i) any default in the payment of the principal of,
                  interest (including Late Fees) on, or liquidated damages in
                  respect of, any Debentures, free of any claim of
                  subordination, as and when the same shall become due and
                  payable

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                  (whether on a Conversion Date or the Maturity Date or
                  by acceleration or otherwise) which default is not cured, if
                  possible to cure, within 5 days of written notice of such
                  default sent by the Holder;

                          (ii) the Company shall fail to observe or perform any
                  other covenant, agreement or warranty contained in, or
                  otherwise commit any breach of any of the Transaction
                  Documents (other than a breach by the Company of its
                  obligations to deliver shares of Common Stock to the Holder
                  upon conversion or interest payment which breach is addressed
                  in clause (x) below) which is not cured, if possible to cure,
                  within 5 days of written notice of such default sent by the
                  Holder;

                          (iii) the Company or any of its subsidiaries shall
                  commence, or there shall be commenced against the Company or
                  any such subsidiary a case under any applicable bankruptcy or
                  insolvency laws as now or hereafter in effect or any successor
                  thereto, or the Company commences any other proceeding under
                  any reorganization, arrangement, adjustment of debt, relief of
                  debtors, dissolution, insolvency or liquidation or similar law
                  of any jurisdiction whether now or hereafter in effect
                  relating to the Company or any subsidiary thereof or there is
                  commenced against the Company or any subsidiary thereof any
                  such bankruptcy, insolvency or other proceeding which remains
                  undismissed for a period of 60 days; or the Company or any
                  subsidiary thereof is adjudicated insolvent or bankrupt; or
                  any order of relief or other order approving any such case or
                  proceeding is entered; or the Company or any subsidiary
                  thereof suffers any appointment of any custodian or the like
                  for it or any substantial part of its property which continues
                  undischarged or unstayed for a period of 60 days; or the
                  Company or any subsidiary thereof makes a general assignment
                  for the benefit of creditors; or the Company shall fail to
                  pay, or shall state that it is unable to pay, or shall be
                  unable to pay, its debts generally as they become due; or the
                  Company or any subsidiary thereof shall call a meeting of its
                  creditors with a view to arranging a composition, adjustment
                  or restructuring of its debts; or the Company or any
                  subsidiary thereof shall by any act or failure to act
                  expressly indicate its consent to, approval of or acquiescence
                  in any of the foregoing; or any corporate or other action is
                  taken by the Company or any subsidiary thereof for the purpose
                  of effecting any of the foregoing;

                          (iv) the Company shall default in any of its
                  obligations under any other Debenture or any mortgage, credit
                  agreement or other facility, indenture agreement, factoring
                  agreement or other instrument under which there may be issued,
                  or by which there may be secured or evidenced any indebtedness
                  for borrowed money or money due under any long term leasing or
                  factoring arrangement of the Company in an amount exceeding
                  $500,000, whether such indebtedness now exists or shall
                  hereafter be created and such default shall result

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                  in such indebtedness becoming or being declared due and
                  payable prior to the date on which it would otherwise become
                  due and payable;

                          (v) the Common Stock shall not be eligible for
                  quotation on or quoted for trading on a Principal Market and
                  shall not again be eligible for and quoted or listed for
                  trading thereon within five Trading Days;

                          (vi) the Company shall agree to sell or dispose of all
                  or in excess of 51% of its assets in one or more transactions
                  (whether or not such sale would constitute a Change of Control
                  Transaction) or shall redeem or repurchase more than a de
                  minimis number of its outstanding shares of Common Stock or
                  other equity securities of the Company (other than redemptions
                  of Underlying Shares and repurchases of shares of Common Stock
                  or other equity securities of departing officers and directors
                  of the Company; provided no repurchase shall exceed $100,000
                  for any officer or director);

                          (vii) an Underlying Shares Registration Statement
                  shall not have been declared effective by the Commission on or
                  prior to the 180th calendar day after the Original Issue Date;

                          (viii) if, during the Effectiveness Period (as defined
                  in the Registration Rights Agreement), the effectiveness of
                  the Underlying Shares Registration Statement lapses for any
                  reason or the Holder shall not be permitted to resell
                  Registrable Securities (as defined in the Registration Rights
                  Agreement) under the Underlying Shares Registration Statement,
                  in either case, for more than 20 consecutive Trading Days or
                  30 non-consecutive Trading Days during any 12 month period;
                  provided, however, that in the event that the Company is
                  negotiating a merger, consolidation, acquisition or sale of
                  all or substantially all of its assets or a similar
                  transaction or other fundamental event and in the written
                  opinion of counsel to the Company, the Underlying Shares
                  Registration Statement, would be required to be amended to
                  include information concerning such transactions or the
                  parties thereto that is not available or may not be publicly
                  disclosed at the time, the Company shall be permitted an
                  additional 20 consecutive Trading Days during any 12 month
                  period relating to such an event;

                          (ix) an Event (as defined in the Registration Rights
                  Agreement) shall not have been cured to the satisfaction of
                  the Holder prior to the expiration of thirty days from the
                  Event Date (as defined in the Registration Rights Agreement)
                  relating thereto (other than an Event resulting from a failure
                  of an Underlying Shares Registration Statement to be declared
                  effective by the Commission on or prior to the Effectiveness
                  Date (as defined in the Registration Rights Agreement), which
                  shall be covered by Section 3(a)(vii));

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                          (x) the Company shall fail for any reason to deliver
                  certificates to a Holder prior to the seventh Trading Day
                  after a Conversion Date pursuant to and in accordance with
                  Section 4(b) or the Company shall provide notice to the
                  Holder, including by way of public announcement, at any time,
                  of its intention not to comply with requests for conversions
                  of any Debentures in accordance with the terms hereof;

                           (xi) the Company shall fail for any reason to deliver
                  the payment in cash pursuant to a Buy-In (as defined herein)
                  within five days after notice thereof is delivered hereunder;
                  or

                           (xii) any Person shall breach the agreements
                  delivered to the initial Holders pursuant to Section 2.2(a)(v)
                  of the Purchase Agreement and the Company does not obtain
                  Shareholder Approval.

         b) If any Event of Default occurs and is continuing, the full principal
amount of this Debenture, together with interest and other amounts owing in
respect thereof, to the date of acceleration shall become at the Holder's
election, immediately due and payable in cash. The aggregate amount payable upon
an Event of Default shall be equal to the Mandatory Prepayment Amount. Interest
shall accrue on the Mandatory Prepayment Amount hereunder from the fifth (5th)
day after such amount is due (being the date of an Event of Default) through the
date of prepayment in full thereof in an amount equal to the Late Fee, to accrue
daily from the date such payment is due hereunder through and including the date
of payment. All Debentures for which the full prepayment price hereunder shall
have been paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby
waives any presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder and the Holder shall have all
rights as a Debenture holder until such time, if any, as the full payment under
this Section shall have been received by it. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon. All the remedies set forth in this paragraph are subject to the terms
and conditions of the Subordination Agreement.

         Section 4. Conversion.

        (a)  (i) At any time after the Closing Date, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in whole or
in part at any time and from time to time (subject to the limitations on
conversion set forth in Section 4(a)(ii) hereof). The Holder shall effect
conversions by delivering to the Company the form of Notice of Conversion
attached hereto as Annex A (a

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         "Notice of Conversion"), specifying therein the principal amount of
         Debentures to be converted and the date on which such conversion is to
         be effected (a "Conversion Date"). If no Conversion Date is specified
         in a Notice of Conversion, the Conversion Date shall be the date that
         such Notice of Conversion is provided hereunder. To effect conversions
         hereunder, the Holder shall not be required to physically surrender
         Debentures to the Company unless the entire principal amount of this
         Debenture plus all accrued and unpaid interest thereon has been so
         converted. Conversions hereunder shall have the effect of lowering the
         outstanding principal amount of this Debenture in an amount equal to
         the applicable conversion. The Holder and the Company shall maintain
         records showing the principal amount converted and the date of such
         conversions. The Company shall deliver any objection to any Notice of
         Conversion within 1 Business Day of receipt of such notice. In the
         event of any dispute or discrepancy, the records of the Holder shall be
         controlling and determinative in the absence of manifest error. The
         Holder and any assignee, by acceptance of this Debenture, acknowledge
         and agree that, by reason of the provisions of this paragraph,
         following conversion of a portion of this Debenture, the unpaid and
         unconverted principal amount of this Debenture may be less than the
         amount stated on the face hereof.

                  (ii) Conversion Limitations.

                           (A) Notwithstanding anything herein to the contrary,
                  if the Company has not obtained Shareholder Approval (as
                  defined below), if required by the applicable rules and
                  regulations of the Principal Market (or any successor entity),
                  then the Company may not issue upon conversion of the
                  Debentures, in the aggregate, in excess of (1) 19.999% of the
                  number of shares of Common Stock outstanding on the Trading
                  Day immediately preceding the Original Issue Date, (2) less
                  any shares of Common Stock issued as payment of interest or
                  upon exercise of the Warrants issued Holders of the Debentures
                  on the Original Issue Date pursuant to the Purchase Agreement
                  (such number of shares, the "Issuable Maximum"). Each Holder
                  shall be entitled to a portion of the Issuable Maximum equal
                  to the quotient obtained by dividing (x) the aggregate
                  principal amount of the Debenture(s) issued and sold to such
                  Holder on the Original Issue Date by (y) the aggregate
                  principal amount of all Debentures issued and sold by the
                  Company on the Original Issue Date. If any Holder shall no
                  longer hold the Debenture(s), then such Holder's remaining
                  portion of the Issuable Maximum shall be allocated pro-rata
                  among the remaining Holders. If on any Conversion Date: (1)
                  the applicable Set Price then in effect is such that the
                  shares issuable under this Debenture on any Conversion Date
                  together with the aggregate number of shares of Common Stock
                  that would then be issuable upon conversion in full of all

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                  then outstanding Debentures would exceed the Issuable Maximum,
                  and (2) the Company's shareholders shall not have previously
                  approved the transactions contemplated by the Transaction
                  Documents, as may be required by the applicable rules and
                  regulations of the Principal Market (or any successor entity),
                  if any (the "Shareholder Approval"), then the Company shall
                  issue to the Holder requesting a conversion a number of shares
                  of Common Stock equal to such Holder's pro-rata portion (which
                  shall be calculated pursuant to the terms hereof) of the
                  Issuable Maximum and, with respect to the remainder of the
                  aggregate principal amount of the Debentures (including any
                  accrued interest) then held by such Holder for which a
                  conversion in accordance with the applicable conversion price
                  would result in an issuance of shares of Common Stock in
                  excess of such Holder's pro-rata portion (which shall be
                  calculated pursuant to the terms hereof) of the Issuable
                  Maximum (the "Excess Principal"), the Company shall be
                  prohibited from converting such Excess Principal, and shall
                  notify the Holder of the reason therefor. This Debenture shall
                  thereafter be unconvertible until and unless Shareholder
                  Approval is subsequently obtained or is otherwise not
                  required, but this Debenture shall otherwise remain in full
                  force and effect. The Company and the Holder understand and
                  agree that shares of Common Stock issued to and then held by
                  the Holder as a result of conversions of Debentures shall not
                  be entitled to cast votes on any resolution to obtain
                  Shareholder Approval pursuant hereto. Additionally, this
                  Debenture is subject to that certain letter agreement by and
                  among the initial Holders of the Debentures and the Company
                  relating to the restriction on the issuance of shares of
                  Common Stock until the Company obtains approval of the
                  transaction from the Principal Market.

                           (B) The Company shall not effect any conversion of
                  this Debenture, and the Holder shall not have the right to
                  convert any portion of this Debenture, pursuant to Section
                  4(a)(i), Section 5b) or otherwise, to the extent that after
                  giving effect to such conversion, the Holder (together with
                  the Holder's affiliates), as set forth on the applicable
                  Notice of Conversion, would beneficially own in excess of
                  4.99% of the number of shares of the Common Stock outstanding
                  immediately after giving effect to such conversion. For
                  purposes of the foregoing sentence, the number of shares of
                  Common Stock beneficially owned by the Holder and its
                  affiliates shall include the number of shares of Common Stock
                  issuable upon conversion of this Debenture with respect to
                  which the determination of such sentence is being made, but
                  shall exclude the number of shares of Common Stock which would
                  be issuable upon (A) conversion of the remaining, nonconverted
                  portion of this Debenture beneficially owned by the Holder or
                  any of its affiliates and (B) exercise or conversion of the
                  unexercised or nonconverted portion of any other securities of
                  the

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                  Company (including, without limitation, any other Debentures
                  or the Warrants) subject to a limitation on conversion or
                  exercise analogous to the limitation contained herein
                  beneficially owned by the Holder or any of its affiliates.
                  Except as set forth in the preceding sentence, for purposes of
                  this Section 4(a)(ii), beneficial ownership shall be
                  calculated in accordance with Section 13(d) of the Exchange
                  Act. To the extent that the limitation contained in this
                  section applies, the determination of whether this Debenture
                  is convertible (in relation to other securities owned by the
                  Holder) and of which a portion of this Debenture is
                  convertible shall be in the sole discretion of such Holder. To
                  ensure compliance with this restriction, the Holder will be
                  deemed to represent to the Company each time it delivers a
                  Notice of Conversion that such Notice of Conversion has not
                  violated the restrictions set forth in this paragraph and the
                  Company shall have no obligation to verify or confirm the
                  accuracy of such determination. For purposes of this Section
                  4(a)(ii), in determining the number of outstanding shares of
                  Common Stock, the Holder may rely on the number of outstanding
                  shares of Common Stock as reflected in (x) the Company's most
                  recent Form 10-Q or Form 10-K, as the case may be, (y) a more
                  recent public announcement by the Company or (z) any other
                  notice by the Company or the Company's Transfer Agent setting
                  forth the number of shares of Common Stock outstanding. Upon
                  the written or oral request of the Holder, the Company shall
                  within two Trading Days confirm orally and in writing to the
                  Holder the number of shares of Common Stock then outstanding.
                  In any case, the number of outstanding shares of Common Stock
                  shall be determined after giving effect to the conversion or
                  exercise of securities of the Company, including this
                  Debenture, by the Holder or its affiliates since the date as
                  of which such number of outstanding shares of Common Stock was
                  reported. The provisions of this Section 4(a)(ii) may be
                  waived by the Holder upon, at the election of the Holder, not
                  less than 61 days' prior notice to the Company, and the
                  provisions of this Section 4(a)i) shall continue to apply
                  until such 61st day (or such later date, as determined by the
                  Holder, as may be specified in such notice of waiver).

                  (ii) Underlying Shares Issuable Upon Conversion of Principal
         Amount. The number of shares of Common Stock issuable upon a conversion
         shall be determined by the quotient obtained by dividing (x) the
         outstanding principal amount of this Debenture to be converted by (y)
         the Set Price.

         (b) (i) Not later than three Trading Days after any Conversion Date,
         the Company will deliver to the Holder a certificate or certificates
         representing the Underlying Shares which shall be free of restrictive
         legends and trading restrictions (other than those required by the
         Purchase Agreement) representing

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         the number of shares of Common Stock being acquired upon the conversion
         of Debentures (including, if so timely elected by the Company, shares
         of Common Stock representing the payment of accrued interest) and (B) a
         bank check in the amount of accrued and unpaid interest (if the Company
         is required to pay accrued interest in cash). The Company shall, if
         available and if allowed under applicable securities laws, use its best
         efforts to deliver any certificate or certificates required to be
         delivered by the Company under this Section electronically through the
         Depository Trust Corporation or another established clearing
         corporation performing similar functions. If in the case of any Notice
         of Conversion such certificate or certificates are not delivered to or
         as directed by the applicable Holder by the fifth Trading Day after a
         Conversion Date, the Holder shall be entitled by written notice to the
         Company at any time on or before its receipt of such certificate or
         certificates thereafter, to rescind such conversion, in which event the
         Company shall immediately return the certificates representing the
         principal amount of Debentures tendered for conversion.

         (ii) Subject to the terms of the Subordination Agreement, if the
         Company fails for any reason to deliver to the Holder such certificate
         or certificates pursuant to Section 4(b)(i) by the third Trading Day
         after the Conversion Date, the Company shall pay to such Holder, in
         cash, as liquidated damages and not as a penalty, for each $5,000 of
         principal amount being converted, $50 per Trading Day (increasing to
         $100 per Trading Day after 3 Trading Days after such damages begin to
         accrue and increasing to $200 per Trading Day 6 Trading Days after such
         after such damages begin to accrue) for each Trading Day after such
         third Trading Day until such certificates are delivered. The Company's
         obligations to issue and deliver the Underlying Shares upon conversion
         of this Debenture in accordance with the terms hereof are absolute and
         unconditional, irrespective of any action or inaction by the Holder to
         enforce the same, any waiver or consent with respect to any provision
         hereof, the recovery of any judgment against any Person or any action
         to enforce the same, or any setoff, counterclaim, recoupment,
         limitation or termination, or any breach or alleged breach by the
         Holder or any other Person of any obligation to the Company or any
         violation or alleged violation of law by the Holder or any other
         person, and irrespective of any other circumstance which might
         otherwise limit such obligation of the Company to the Holder in
         connection with the issuance of such Underlying Shares; provided,
         however, such delivery shall not operate as a waiver by the Company of
         any such action the Company may have against the Holder. In the event a
         Holder of this Debenture shall elect to convert any or all of the
         outstanding principal amount hereof, the Company may not refuse
         conversion based on any claim that the Holder or any one associated or
         affiliated with the Holder of has been engaged in any violation of law,
         agreement or for any other reason, unless, an injunction from a court,
         on notice, restraining and or enjoining conversion of all or part of
         this Debenture shall have been sought and obtained and the Company
         posts a surety bond for the

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         benefit of the Holder in the amount of 150% of the principal amount of
         this Debenture outstanding, which is subject to the injunction, which
         bond shall remain in effect until the completion of
         arbitration/litigation of the dispute and the proceeds of which shall
         be payable to such Holder to the extent it obtains judgment. In the
         absence of an injunction precluding the same, the Company shall issue
         Conversion Shares or, if applicable, cash, upon a properly noticed
         conversion. Subject to the terms of the Subordination Agreement,
         nothing herein shall limit a Holder's right to pursue actual damages or
         declare an Event of Default pursuant to Section 3 herein for the
         Company's failure to deliver Conversion Shares within the period
         specified herein and such Holder shall have the right to pursue all
         remedies available to it at law or in equity including, without
         limitation, a decree of specific performance and/or injunctive relief.
         Subject to the terms of the Subordination Agreement, the exercise of
         any such rights shall not prohibit the Holders from seeking to enforce
         damages pursuant to any other Section hereof or under applicable law.

         (iii) In addition to any other rights available to the Holder, if the
         Company fails for any reason to deliver to the Holder such certificate
         or certificates pursuant to Section 4(b)(i) by the third Trading Day
         after the Conversion Date, and if after such third Trading Day the
         Holder is required by its brokerage firm to purchase (in an open market
         transaction or otherwise) Common Stock to deliver in satisfaction of a
         sale by such Holder of the Underlying Shares which the Holder
         anticipated receiving upon such conversion (a "Buy-In"), then the
         Company shall, subject to the terms in the Subordination Agreement, (A)
         pay in cash to the Holder (in addition to any remedies available to or
         elected by the Holder) the amount by which (x) the Holder's total
         purchase price (including brokerage commissions, if any) for the Common
         Stock so purchased exceeds (y) the product of (1) the aggregate number
         of shares of Common Stock that such Holder anticipated receiving from
         the conversion at issue multiplied by (2) the actual sale price of the
         Common Stock at the time of the sale (including brokerage commissions,
         if any) giving rise to such purchase obligation and (B) at the option
         of the Holder, either reissue Debentures in principal amount equal to
         the principal amount of the attempted conversion or deliver to the
         Holder the number of shares of Common Stock that would have been issued
         had the Company timely complied with its delivery requirements under
         Section 4(b)(i). For example, if the Holder purchases Common Stock
         having a total purchase price of $11,000 to cover a Buy-In with respect
         to an attempted conversion of Debentures with respect to which the
         actual sale price of the Underlying Shares at the time of the sale
         (including brokerage commissions, if any) giving rise to such purchase
         obligation was a total of $10,000 under clause (A) of the immediately
         preceding sentence, the Company shall be required to pay the Holder
         $1,000. The Holder shall provide the Company written notice indicating
         the amounts payable to the Holder in respect of the Buy-In.
         Notwithstanding anything contained herein to the

                                       11
<PAGE>

         contrary, if a Holder requires the Company to make payment in respect
         of a Buy-In for the failure to timely deliver certificates hereunder
         and the Company timely pays in full such payment, the Company shall not
         be required to pay such Holder liquidated damages under Section
         4(b)(ii) in respect of the certificates resulting in such Buy-In.

         (c) (i) The conversion price in effect on any Conversion Date shall be
         equal to $3.85 (subject to adjustment herein)(the "Set Price").

         (ii) If the Company, at any time while the Debentures are outstanding:
         (A) shall pay a stock dividend or otherwise make a distribution or
         distributions on shares of its Common Stock or any other equity or
         equity equivalent securities payable in shares of Common Stock (which,
         for avoidance of doubt, shall not include any shares of Common Stock
         issued by the Company pursuant to this Debenture, including as interest
         thereon), (B) subdivide outstanding shares of Common Stock into a
         larger number of shares, (C) combine (including by way of reverse stock
         split) outstanding shares of Common Stock into a smaller number of
         shares, or (D) issue by reclassification of shares of the Common Stock
         any shares of capital stock of the Company, then the Set Price shall be
         multiplied by a fraction of which the numerator shall be the number of
         shares of Common Stock (excluding treasury shares, if any) outstanding
         before such event and of which the denominator shall be the number of
         shares of Common Stock outstanding after such event. Any adjustment
         made pursuant to this Section shall become effective immediately after
         the record date for the determination of stockholders entitled to
         receive such dividend or distribution and shall become effective
         immediately after the effective date in the case of a subdivision,
         combination or re-classification.

         (iii) If the Company or any subsidiary thereof, as applicable, at any
         time while Debentures are outstanding, shall offer, sell, grant any
         option to purchase or offer, sell or grant any right to reprice its
         securities, or otherwise dispose of or issue (or announce any offer,
         sale, grant or any option to purchase or other disposition) any Capital
         Shares or Capital Shares Equivalent entitling any Person to acquire
         shares of Common Stock, at an effective price per share less than the
         then Set Price ("Dilutive Issuance"), as adjusted hereunder (if the
         holder of the Capital Shares or Capital Shares Equivalent so issued
         shall at any time, whether by operation of purchase price adjustments,
         reset provisions, floating conversion, exercise or exchange prices or
         otherwise, or due to warrants, options or rights per share which is
         issued in connection with such issuance, be entitled to receive shares
         of Common Stock at an effective price per share which is less than the
         Set Price, such issuance shall be deemed to have occurred for less than
         the Set Price), then, (A) if such Dilutive Issuance occurs on or prior
         to the first anniversary of the Original Issue Date, the Set Price
         shall be reduced by an amount equal to 75% of the difference between
         the Set Price and the effective conversion, exchange or purchase price
         for such Capital Shares or Capital Shares Equivalents (including any
         reset provisions thereof) at issue and (B) if such Dilutive Issuance
         occurs after the first anniversary of the Original Issue Date, the Set
         Price shall be reduced by an amount equal to 50% of the difference
         between the Set Price and the effective conversion, exchange or

                                       12
<PAGE>

         purchase price for such Capital Shares or Capital Shares Equivalents
         (including any reset provisions thereof) at issue. Such adjustment
         shall be made whenever such Capital Shares or Capital Shares
         Equivalents are issued. The Company shall notify the Holder in writing,
         no later than the business day following the issuance of any Capital
         Shares or Capital Shares Equivalent subject to this section, indicating
         therein the applicable issuance price, or of applicable reset price,
         exchange price, conversion price and other pricing terms.

         (iv) If the Company, at any time while Debentures are outstanding,
         shall distribute to all holders of Common Stock (and not to Holders)
         evidences of its indebtedness or assets or rights or warrants to
         subscribe for or purchase any security, then in each such case the Set
         Price shall be determined by multiplying such price in effect
         immediately prior to the record date fixed for determination of
         stockholders entitled to receive such distribution by a fraction of
         which the denominator shall be the VWAP determined as of the record
         date mentioned above, and of which the numerator shall be such VWAP on
         such record date less the then fair market value at such record date of
         the portion of such assets or evidence of indebtedness so distributed
         applicable to one outstanding share of the Common Stock as determined
         by the Board of Directors in good faith. In either case the adjustments
         shall be described in a statement provided to the Holders of the
         portion of assets or evidences of indebtedness so distributed or such
         subscription rights applicable to one share of Common Stock. Such
         adjustment shall be made whenever any such distribution is made and
         shall become effective immediately after the record date mentioned
         above.

         (v) All calculations under this Section 4 shall be made to the nearest
         cent or the nearest 1/100th of a share, as the case may be. For
         purposes of this Section 4, the number of shares of Common Stock
         outstanding as of a given date shall be the sum of the number of shares
         of Common Stock (excluding treasury shares, if any) outstanding.

         (vi) Whenever the Set Price is adjusted pursuant to any of Section
         4(c)(ii) - (v), the Company shall promptly mail to each Holder a notice
         setting forth the Set Price after such adjustment and setting forth a
         brief statement of the facts requiring such adjustment. If the Company
         issues a variable rate security, despite the prohibition thereon in the
         Purchase Agreement, the Company shall be deemed to have issued Capital
         Shares or Capital Shares Equivalents at the lowest possible conversion
         or exercise price at which such securities may be converted or

                                       13
<PAGE>

         exercised in the case of a Variable Rate Transaction (as defined in the
         Purchase Agreement), or the lowest possible adjustment price in the
         case of an MFN Transaction (as defined in the Purchase Agreement).

         (vii) If (A) the Company shall declare a dividend (or any other
         distribution) on the Common Stock; (B) the Company shall declare a
         special nonrecurring cash dividend on or a redemption of the Common
         Stock; (C) the Company shall authorize the granting to all holders of
         the Common Stock rights or warrants to subscribe for or purchase any
         shares of capital stock of any class or of any rights; (D) the approval
         of any stockholders of the Company shall be required in connection with
         any reclassification of the Common Stock, any consolidation or merger
         to which the Company is a party, any sale or transfer of all or
         substantially all of the assets of the Company, of any compulsory share
         exchange whereby the Common Stock is converted into other securities,
         cash or property; (E) the Company shall authorize the voluntary or
         involuntary dissolution, liquidation or winding up of the affairs of
         the Company; then, in each case, the Company shall cause to be filed at
         each office or agency maintained for the purpose of conversion of the
         Debentures, and shall cause to be mailed to the Holders at their last
         addresses as they shall appear upon the stock books of the Company, at
         least 20 calendar days prior to the applicable record or effective date
         hereinafter specified, a notice stating (x) the date on which a record
         is to be taken for the purpose of such dividend, distribution,
         redemption, rights or warrants, or if a record is not to be taken, the
         date as of which the holders of the Common Stock of record to be
         entitled to such dividend, distributions, redemption, rights or
         warrants are to be determined or (y) the date on which such
         reclassification, consolidation, merger, sale, transfer or share
         exchange is expected to become effective or close, and the date as of
         which it is expected that holders of the Common Stock of record shall
         be entitled to exchange their shares of the Common Stock for
         securities, cash or other property deliverable upon such
         reclassification, consolidation, merger, sale, transfer or share
         exchange; provided, that the failure to mail such notice or any defect
         therein or in the mailing thereof shall not affect the validity of the
         corporate action required to be specified in such notice. Holders are
         entitled to convert Debentures during the 20-day period commencing the
         date of such notice to the effective date of the event triggering such
         notice.

         viii) If, at any time while this Debenture is outstanding, (A) the
         Company effects any merger or consolidation of the Company with or into
         another Person, (B) the Company effects any sale of all or
         substantially all of its assets in one or a series of related
         transactions, (C) any tender offer or exchange offer (whether by the
         Company or another Person) is completed pursuant to which holders of
         Common Stock are permitted to tender or exchange their shares for other
         securities, cash or property, or (D) the Company effects any
         reclassification of the Common Stock or any compulsory share exchange
         pursuant to which the

                                       14
<PAGE>

         Common Stock is effectively converted into or exchanged for other
         securities, cash or property (in any such case, a "Fundamental
         Transaction"), then upon any subsequent conversion of this Debenture,
         the Holder shall have the right to receive, for each Underlying Share
         that would have been issuable upon such conversion absent such
         Fundamental Transaction, the same kind and amount of securities, cash
         or property as it would have been entitled to receive upon the
         occurrence of such Fundamental Transaction if it had been, immediately
         prior to such Fundamental Transaction, the holder of one share of
         Common Stock (the "Alternate Consideration"). For purposes of any such
         conversion, the determination of the Set Price shall be appropriately
         adjusted to apply to such Alternate Consideration based on the amount
         of Alternate Consideration issuable in respect of one share of Common
         Stock in such Fundamental Transaction, and the Company shall apportion
         the Set Price among the Alternate Consideration in a reasonable manner
         reflecting the relative value of any different components of the
         Alternate Consideration. If holders of Common Stock are given any
         choice as to the securities, cash or property to be received in a
         Fundamental Transaction, then the Holder shall be given the same choice
         as to the Alternate Consideration it receives upon any conversion of
         this Debenture following such Fundamental Transaction. To the extent
         necessary to effectuate the foregoing provisions, any successor to the
         Company or surviving entity in such Fundamental Transaction shall issue
         to the Holder a new debenture consistent with the foregoing provisions
         and evidencing the Holder's right to convert such debenture into
         Alternate Consideration. The terms of any agreement pursuant to which a
         Fundamental Transaction is effected shall include terms requiring any
         such successor or surviving entity to comply with the provisions of
         this paragraph (c) and insuring that this Debenture (or any such
         replacement security) will be similarly adjusted upon any subsequent
         transaction analogous to a Fundamental Transaction. If any Fundamental
         Transaction constitutes or results in a Change of Control Transaction,
         then at the request of the Holder delivered before the 90th day after
         such Fundamental Transaction, the Company (or any such successor or
         surviving entity) will purchase the Debenture from the Holder for a
         purchase price, payable in cash within five Trading Days after such
         request (or, if later, on the effective date of the Fundamental
         Transaction), equal to the 100% of the remaining unconverted principal
         amount of this Debenture on the date of such request, plus all accrued
         and unpaid interest thereon, plus all other accrued and unpaid amounts
         due hereunder. Notwithstanding anything in this Debenture to the
         Contrary, if any Change of Control occurs, including a Fundamental
         Transaction that constitutes or results in a Change of Control
         Transaction, then at the request of the Holder delivered before the
         90th day after such Change of Control event, the Company (or any such
         successor or surviving entity) will purchase the Debenture from the
         Holder for a purchase price, payable in cash within five Trading Days
         after such request (or, if later, on the effective date of the Change
         of Control), equal to the 100% of the remaining unconverted principal
         amount of this

                                       15
<PAGE>

         Debenture on the date of such request, plus all accrued and unpaid
         interest thereon, plus all other accrued and unpaid amounts due
         hereunder.

         (ix) Notwithstanding the foregoing, no adjustment will be made under
         this paragraph (c) in respect of (A) the granting or issuance of shares
         of capital stock or of options to employees, officers, directors and
         key consultants of the Company pursuant to any stock option plan
         agreement or other compensation agreement duly adopted or approved by a
         majority of the non-employee members of the Board of Directors of the
         Company or a majority of the members of a committee of non-employee
         directors established for such purpose, (B) upon the exercise of this
         Debenture or any other Debenture of this series or of any other series
         or security issued by the Company in connection with the offer and sale
         of this Company's securities pursuant to the Purchase Agreement, or (C)
         upon the exercise of or conversion of any Capital Shares Equivalents,
         rights, options or warrants issued and outstanding on the Original
         Issue Date, provided such securities have not been amended since the
         date of the Purchase Agreement except as a result of the Purchase
         Agreement, (D) issuance of securities in connection with acquisitions,
         strategic investments, or strategic partnering arrangements, the
         primary purpose of which is not to raise capital, or (E) the granting
         of stock, stock options and/or warrants to an investment group in
         connection with the advancement of $1 million to the Company, which
         transaction is described in Item 13 of the Company's Annual Report on
         Form 10-K for the fiscal year ended March 31, 2003.

         (d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement is then
effective under the Securities Act, registered for public sale in accordance
with such Underlying Shares Registration Statement.

         (e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the VWAP at such time. If the Company elects not,
or is unable, to make such a

                                       16
<PAGE>

cash payment, the Holder shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.

         (f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.

         (g) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Notice of
Conversion, shall be in writing and delivered personally, by facsimile, sent by
a nationally recognized overnight courier service, addressed to the Company, at
the address set forth above, facsimile number (____) ___-_______, ATTN:
_____________ or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holders delivered in accordance with
this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile telephone number or address of such
Holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:30 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) the second Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.

Section 5. Redemption.

         (a) Optional Redemption by the Company. If after the Effective Date
each of the Closing Prices for any 15 consecutive Trading Days (such period
commencing only after the Effective Price) exceeds the then Set Price by 200%,
the Company shall have the right to redeem no less than the entire principal
amount of this Debenture then held by the Holder, at a cash price equal to the
100% of the principal amount outstanding plus any

                                       17
<PAGE>

accrued but unpaid interest and fees owing thereon (the "Optional Redemption
Price"). The Company may only effect an Optional Redemption Notice if each of
the following shall be true: (i) the Company shall have duly honored all
conversions occurring by virtue of one or more Conversion Notices prior to the
Forced Conversion Date, (ii) there is an effective Underlying Shares
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the Underlying Shares issued to the
Holder and all of the Underlying Shares as are issuable to the Holder upon
conversion in full of this Debenture subject to the Forced Conversion Notice
(and the Company believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (iii) the Common Stock is listed for
trading on a Principal Market (and the Company believes, in good faith, that
trading of the Common Stock on a Principal Market will continue uninterrupted
for the foreseeable future), (iv) all liquidated damages and other amounts owing
in respect of the Debentures and Underlying Shares shall have been paid or will,
concurrently with the issuance of the Underlying Shares, be paid in cash; (v)
there is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all the Underlying Shares as are
issuable to the Holder upon conversion in full of the Debentures subject to the
Forced Conversion Notice; (vi) no Event of Default nor any event that with the
passage of time would constitute an Event of Default has occurred and is
continuing; (vii) the issuance of such shares upon conversion of the Debentures
in full and issued and issuable upon exercise of the Warrants in full would
violate the limitations set forth in Section 4(a)(ii)and (viii) no public
announcement of a pending or proposed Change of Control Transaction or
Fundamental Transaction has occurred that has not been consummated. If any of
the foregoing conditions shall cease to be in effect during the period between
the Notice Date and the date the Optional Redemption Price is paid in full, then
the Holders subject to such redemption may elect, by written notice to the
Company given at any time after any of the foregoing conditions shall cease to
be in effect, to invalidate ab initio such redemption, notwithstanding anything
herein contained to the contrary. In any case, the Holders may convert any
portion of the outstanding principal amount of the Debentures subject to an
Optional Redemption Notice prior to the date that the Optional Redemption Price
is due and paid in full.

         (b) Redemption Procedure. The Optional Redemption Price is due on the
20th Trading Day following the Notice Date. If any portion of the Optional
Redemption Price shall not be paid by the Company by the date such payment is
due, interest shall accrue thereon at the rate of 18% per annum (or the maximum
rate permitted by applicable law, whichever is less) until such redemption price
plus all such interest is paid in full. In addition, if any portion of the
Optional Redemption Price remains unpaid after such date, the Holders subject to
such redemption may elect, by written notice to the Company given at any time
thereafter, to invalidate ab initio such redemption, notwithstanding anything
herein contained to the contrary. If a Holder elects to invalidate such
redemption the Company shall promptly, and, in any event, not later than 3
Trading Days

                                       18
<PAGE>

from receipt of such Holder's notice of such election, return to such Holder all
of the Debentures for which the Optional Redemption Price shall not have been
paid in full.

         Section 6. Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:

                  "Business Day" means any day except Saturday, Sunday and any
         day which shall be a federal legal holiday in the United States or a
         day on which banking institutions in the State of New York are
         authorized or required by law or other government action to close.

                  "Change of Control Transaction" means the occurrence after the
         date hereof of any of (i) an acquisition after the date hereof by an
         individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
         promulgated under the Exchange Act) of effective control (whether
         through legal or beneficial ownership of capital stock of the Company,
         by contract or otherwise) of in excess of 33% of the voting securities
         of the Company, or (ii) a replacement at one time or within a three
         year period of more than one-half of the members of the Company's board
         of directors which is not approved by a majority of those individuals
         who are members of the board of directors on the date hereof (or by
         those individuals who are serving as members of the board of directors
         on any date whose nomination to the board of directors was approved by
         a majority of the members of the board of directors who are members on
         the date hereof), or (iii) the execution by the Company of an agreement
         to which the Company is a party or by which it is bound, providing for
         any of the events set forth above in (i) or (ii).

                  "Commission" means the Securities and Exchange Commission.

                  "Common Stock" means the common stock, $0.001 par value per
         share, of the Company and stock of any other class into which such
         shares may hereafter have been reclassified or changed.

                  "Conversion Date" shall have the meaning set forth in Section
         4(a)(i) hereof.

                  "Exchange Act" means the Securities Exchange Act of 1934, as
         amended.

                  "Interest Conversion Rate" means the lesser of (i) the Set
         Price and (ii) 90% of the lesser of (a) the average of the 20 VWAPs
         immediately prior to the applicable Interest Payment Date or (b) the
         average of the 20 VWAPs immediately prior to the date the applicable
         interest payment shares are issued and delivered if after the Interest
         Payment Date.

                                       19
<PAGE>

                  "Late Fees" shall have the meaning set forth in the second
         paragraph to this Debenture.

                  "Mandatory Prepayment Amount" for any Debentures shall equal
         the sum of (i) the greater of: (A) 130% of the principal amount of
         Debentures to be prepaid, plus all accrued and unpaid interest thereon
         and all other accrued and unpaid amounts due hereunder, or (B) the
         principal amount of Debentures to be prepaid, plus all other accrued
         and unpaid interest hereon and other amounts due hereunder, divided by
         the Set Price on (x) the date the Mandatory Prepayment Amount is
         demanded or otherwise due or (y) the date the Mandatory Prepayment
         Amount is paid in full, whichever is less, multiplied by the VWAP on
         (x) the date the Mandatory Prepayment Amount is demanded or otherwise
         due or (y) the date the Mandatory Prepayment Amount is paid in full,
         whichever is greater, and (ii) all other amounts, costs, expenses and
         liquidated damages due in respect of such Debentures.

                  "Notice Date" shall have the meaning set forth in Section
         5(a).

                  "Optional Redemption Notice" shall have the meaning set forth
         in Section 5(a).

                  "Optional Redemption Price" shall have the meaning set forth
         in Section 5(a).

                  "Original Issue Date" shall mean the date of the first
         issuance of the Debentures regardless of the number of transfers of any
         Debenture and regardless of the number of instruments which may be
         issued to evidence such Debenture.

                  "Person" means a corporation, an association, a partnership,
         organization, a business, an individual, a government or political
         subdivision thereof or a governmental agency.

                  "Purchase Agreement" means the Securities Purchase Agreement,
         dated as of September 20, 2003, to which the Company and the original
         Holder are parties, as amended, modified or supplemented from time to
         time in accordance with its terms.

                  "Registration Rights Agreement" means the Registration Rights
         Agreement, dated as of the date of the Purchase Agreement, to which the
         Company and the original Holder are parties, as amended, modified or
         supplemented from time to time in accordance with its terms.

                  "Securities Act" means the Securities Act of 1933, as amended,
         and the rules and regulations promulgated thereunder.

                  "Set Price" shall have the meaning set forth in Section
         4(c)(i).

                                       20
<PAGE>

                  "Trading Day" means (a) a day on which the shares of Common
         Stock are traded on a Principal Market on which the shares of Common
         Stock are then listed or quoted, or (b) if the shares of Common Stock
         are not quoted on a Principal Market, a day on which the shares of
         Common Stock are quoted in the over-the-counter market as reported by
         the National Quotation Bureau Incorporated (or any similar organization
         or agency succeeding its functions of reporting prices); provided, that
         in the event that the shares of Common Stock are not listed or quoted
         as set forth in (a), (b) and (c) hereof, then Trading Day shall mean a
         Business Day.

                  "Transaction Documents" shall have the meaning set forth in
         the Purchase Agreement.

                  "Underlying Shares" means the shares of Common Stock issuable
         upon conversion of Debentures or as payment of interest in accordance
         with the terms hereof.

                  "Underlying Shares Registration Statement" means a
         registration statement meeting the requirements set forth in the
         Registration Rights Agreement, covering among other things the resale
         of the Underlying Shares and naming the Holder as a "selling
         stockholder" thereunder.

                  "VWAP" means, for any date, the price determined by the first
         of the following clauses that applies: (a) if the Common Stock is then
         listed or quoted on a Trading Market, the daily volume weighted average
         price of the Common Stock for such date (or the nearest preceding date)
         on the Trading Market on which the Common Stock is then listed or
         quoted as reported by Bloomberg Financial L.P. (based on a trading day
         from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
         Common Stock is not then listed or quoted on a Trading Market and if
         prices for the Common Stock are then quoted on the OTC Bulletin Board,
         the volume weighted average price of the Common Stock for such date (or
         the nearest preceding date) on the OTC Bulletin Board; (c) if the
         Common Stock is not then listed or quoted on the OTC Bulletin Board and
         if prices for the Common Stock are then reported in the "Pink Sheets"
         published by the National Quotation Bureau Incorporated (or a similar
         organization or agency succeeding to its functions of reporting
         prices), the most recent bid price per share of the Common Stock so
         reported; or (d) in all other cases, the fair market value of a share
         of Common Stock as determined by an independent appraiser selected in
         good faith by the Purchasers and reasonably acceptable to the Company.

         Section 7. Except as expressly provided herein and in the Subordination
Agreement, no provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Debenture at the time, place,
and rate, and in the coin or currency, herein prescribed. This Debenture is a
direct debt obligation of the Company. This Debenture ranks pari passu with all
other Debentures now or hereafter issued under the terms set forth herein and is
subordination to

                                       21
<PAGE>

the Company's credit agreement with LaSalle Business Credit, Inc. which is
outstanding as of the date of this Debenture and any other senior secured credit
facilities that the Company may enter into after the date hereof with another
reputable commercial lender in place of such credit agreement. As long as this
Debenture is outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holder, (a) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holder; (b) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a de minimis number of shares of its Common Stock or
other equity securities other than as to the Underlying Shares to the extent
permitted or required under the Transaction Documents or as otherwise permitted
by the Transaction Documents; or (c) enter into any agreement with respect to
any of the foregoing.

         Section 8. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.

         Section 9. So long as any portion of this Debenture is outstanding, the
Company will not and will not permit any of its subsidiaries to, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom that is senior in any respect to the Company's obligations under the
Debentures without the prior consent of the Holder, which consent shall not be
unreasonably withheld.

         Section 10. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the "New
York Courts"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such
service shall constitute good and sufficient service

                                       22
<PAGE>

of process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Debenture or the transactions contemplated hereby. If either
party shall commence an action or proceeding to enforce any provisions of this
Debenture, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

         Section 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.

         Section 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on the Debentures as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.

         Section 13. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.

                              *********************

                                       23
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.

                                    THE SINGING MACHINE COMPANY, INC.

                                    By:_________________________________________
                                        Name:
                                        Title:

                                       24
<PAGE>

                                     ANNEX A

                              NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 8% Convertible
Debenture of The Singing Machine Company, Inc. (the "Company"), due on February
__, 2006, into shares of common stock, $____ par value per share (the "Common
Stock"), of the Company according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Company's Common Stock does
not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 4 of this Debenture.

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.

Conversion calculations:
                               Date to Effect Conversion:

                               Principal Amount of Debentures to be Converted:

                               Payment of Interest in Common Stock __ yes  __ no
                                        If yes,  $_____ of Interest  Accrued on
                                        Account of  Conversion at Issue.

                               Number of shares of Common Stock to be issued:

                               Signature:

                               Name:

                               Address:

                                       25
<PAGE>

                                   Schedule 1

                               CONVERSION SCHEDULE

8% Convertible Debentures due on February ___, 2006, in the aggregate principal
amount of $____________ issued by The Singing Machine Company, Inc. This
Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.

<TABLE>
<CAPTION>
                                     Dated:

=============================== ------------------------- ======================= ------------------------------

                                                           Aggregate Principal
                                                             Amount Remaining
      Date of Conversion                                      Subsequent to
(or for first entry, Original                                   Conversion
         Issue Date)              Amount of Conversion         (or original              Company Attest
                                                            Principal Amount)
=============================== ------------------------- ======================= ------------------------------

<S>                               <C>                      <C>                            <C>

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

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

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

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

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

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

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

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

=============================== ------------------------- ======================= ------------------------------
</TABLE>

                                       26EXHIBIT 10.4

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES

                          COMMON STOCK PURCHASE WARRANT

                To Purchase __________ Shares of Common Stock of

                        THE SINGING MACHINE COMPANY, INC.

         THIS COMMON STOCK PURCHASE WARRANT CERTIFIES that, for value received,
_____________ (the "Holder"), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time on
or after September __, 2003 (the "Initial Exercise Date") and on or prior to the
close of business on the third anniversary of the Initial Exercise Date (the
"Termination Date") but not thereafter, to subscribe for and purchase from The
Singing Machine Company, Inc., a corporation incorporated in Delaware (the
"Company"), up to ____________ shares (the "Warrant Shares") of Common Stock,
par value $____ per share, of the Company (the "Common Stock"). The purchase
price of one share of Common Stock (the "Exercise Price") under this Warrant
shall be $4.025, subject to adjustment hereunder. CAPITALIZED TERMS USED AND NOT
OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THAT CERTAIN
SECURITIES PURCHASE AGREEMENT (THE "PURCHASE AGREEMENT"), DATED SEPTEMBER 20,
2003, BETWEEN THE COMPANY AND THE PURCHASERS SIGNATORY THERETO.

<PAGE>

         1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company. This Warrant is also subject
to the terms and conditions of a subordination agreement (the "LaSalle
Subordination Agreement") that the Holder has signed with LaSalle Business
Credit, LLC, the Company's commercial lender, on about the date hereof and any
future subordination agreements that it is required to sign during the time
period that the Company has any obligations under the Transaction Documents
(collectively, any or all such agreements shall be referred to as the
"Subordination Agreement"). Any inconsistencies between this Warrant and the
Subordination Agreement will be resolved in favor of the terms of the
Subordination Agreement.

         2. Authorization of Warrant Shares. The Company represents and warrants
that all Warrant Shares which may be issued upon the exercise of the purchase
rights represented by this Warrant will, upon exercise of the purchase rights
represented by this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).

         3. Exercise of Warrant.

                  (a) Exercise of the purchase rights represented by this
         Warrant may be made at any time or times on or after the Initial
         Exercise Date and on or before the Termination Date by delivery to the
         Company of a duly executed facsimile copy of the Notice of Exercise
         Form annexed hereto (or such other office or agency of the Company as
         it may designate by notice in writing to the registered Holder at the
         address of such Holder appearing on the books of the Company);
         provided, however, within 5 Trading Days of the date said Notice of
         Exercise is delivered to the Company, the Holder shall have surrendered
         this Warrant to the Company and the Company shall have received payment
         of the aggregate Exercise Price of the shares thereby purchased by wire
         transfer or cashier's check drawn on a United States bank. Certificates
         for shares purchased hereunder shall be delivered to the Holder within
         the earlier of (i) 5 Trading Days after the date on which the Notice of
         Exercise shall have been delivered by facsimile copy or (ii) 3 Trading
         Days from the delivery to the Company of the Notice of Exercise Form by
         facsimile copy, surrender of this Warrant and payment of the aggregate
         Exercise Price as set forth above ("Warrant Share Delivery Date");
         provided, however, in the event the Warrant is not surrendered or the
         aggregate Exercise Price is not received by the Company within 5
         Trading Days after the date on which the Notice of Exercise shall be
         delivered by facsimile copy, the Warrant Share Delivery Date shall be
         extended to the extent such 5 Trading Day period is exceeded. This
         Warrant shall be deemed to have been exercised on the date the Notice
         of Exercise is delivered to the Company by facsimile copy. The Warrant
         Shares shall be deemed to have been issued, and Holder or any other
         person so designated to be named therein shall be deemed to have become
         a

                                       2
<PAGE>

         holder of record of such shares for all purposes, as of the date the
         Warrant has been exercised by payment to the Company of the Exercise
         Price and all taxes required to be paid by the Holder, if any, pursuant
         to Section 5 prior to the issuance of such shares, have been paid. If
         the Company fails to deliver to the Holder a certificate or
         certificates representing the Warrant Shares pursuant to this Section
         3(a) by the Warrant Share Delivery Date, then the Holder will have the
         right to rescind such exercise. In addition to any other rights
         available to the Holder, if the Company fails to deliver to the Holder
         a certificate or certificates representing the Warrant Shares pursuant
         to an exercise on or before the Warrant Share Delivery Date, and if
         after such date the Holder is required by its broker to purchase (in an
         open market transaction or otherwise) shares of Common Stock to deliver
         in satisfaction of a sale by the Holder of the Warrant Shares which the
         Holder anticipated receiving upon such exercise (a "Buy-In"), then the
         Company shall, subject to the terms of the Subordination Agreement, (1)
         pay in cash to the Holder the amount by which (x) the Holder's total
         purchase price (including brokerage commissions, if any) for the shares
         of Common Stock so purchased exceeds (y) the amount obtained by
         multiplying (A) the number of Warrant Shares that the Company was
         required to deliver to the Holder in connection with the exercise at
         issue times (B) the price at which the sell order giving rise to such
         purchase obligation was executed, and (2) at the option of the Holder,
         either reinstate the portion of the Warrant and equivalent number of
         Warrant Shares for which such exercise was not honored or deliver to
         the Holder the number of shares of Common Stock that would have been
         issued had the Company timely complied with its exercise and delivery
         obligations hereunder. For example, if the Holder purchases Common
         Stock having a total purchase price of $11,000 to cover a Buy-In with
         respect to an attempted exercise of shares of Common Stock with an
         aggregate sale price giving rise to such purchase obligation of
         $10,000, under clause (1) of the immediately preceding sentence the
         Company shall be required to pay the Holder $1,000. The Holder shall
         provide the Company written notice indicating the amounts payable to
         the Holder in respect of the Buy-In, together with applicable
         confirmations and other evidence reasonably requested by the Company.
         Subject to the terms of the Subordination Agreement, nothing herein
         shall limit a Holder's right to pursue any other remedies available to
         it hereunder, at law or in equity including, without limitation, a
         decree of specific performance and/or injunctive relief with respect to
         the Company's failure to timely deliver certificates representing
         shares of Common Stock upon exercise of the Warrant as required
         pursuant to the terms hereof.

                  (b) If this Warrant shall have been exercised in part, the
         Company shall, at the time of delivery of the certificate or
         certificates representing Warrant Shares, deliver to Holder a new
         Warrant evidencing the rights of Holder to purchase the unpurchased
         Warrant Shares called for by this Warrant, which new Warrant shall in
         all other respects be identical with this Warrant.

                  (c) The Company shall not effect any exercise of this Warrant,
         and the Holder shall not have the right to exercise any portion of this
         Warrant, pursuant to Section 3(a) or otherwise, to the extent that
         after giving effect to such issuance after exercise, the Holder
         (together with the Holder's affiliates), as set forth on the applicable
         Notice of Exercise, would beneficially own in excess of 4.99% of the
         number of shares of the Common Stock outstanding immediately after
         giving effect to such issuance. For

                                       3
<PAGE>

         purposes of the foregoing sentence, the number of shares of Common
         Stock beneficially owned by the Holder and its affiliates shall include
         the number of shares of Common Stock issuable upon exercise of this
         Warrant with respect to which the determination of such sentence is
         being made, but shall exclude the number of shares of Common Stock
         which would be issuable upon (A) exercise of the remaining,
         nonexercised portion of this Warrant beneficially owned by the Holder
         or any of its affiliates and (B) exercise or conversion of the
         unexercised or nonconverted portion of any other securities of the
         Company (including, without limitation, any other Debentures or
         Warrants) subject to a limitation on conversion or exercise analogous
         to the limitation contained herein beneficially owned by the Holder or
         any of its affiliates. Except as set forth in the preceding sentence,
         for purposes of this Section 3(c), beneficial ownership shall be
         calculated in accordance with Section 13(d) of the Exchange Act. To the
         extent that the limitation contained in this Section 3(c) applies, the
         determination of whether this Warrant is exercisable (in relation to
         other securities owned by the Holder) and of which a portion of this
         Warrant is exercisable shall be in the sole discretion of such Holder,
         and the submission of a Notice of Exercise shall be deemed to be such
         Holder's determination of whether this Warrant is exercisable (in
         relation to other securities owned by such Holder) and of which portion
         of this Warrant is exercisable, in each case subject to such aggregate
         percentage limitation, and the Company shall have no obligation to
         verify or confirm the accuracy of such determination. For purposes of
         this Section 3(c), in determining the number of outstanding shares of
         Common Stock, the Holder may rely on the number of outstanding shares
         of Common Stock as reflected in (x) the Company's most recent Form 10-Q
         or Form 10-K, as the case may be, (y) a more recent public announcement
         by the Company or (z) any other notice by the Company or the Company's
         Transfer Agent setting forth the number of shares of Common Stock
         outstanding. Upon the written or oral request of the Holder, the
         Company shall within two Trading Days confirm orally and in writing to
         the Holder the number of shares of Common Stock then outstanding. In
         any case, the number of outstanding shares of Common Stock shall be
         determined after giving effect to the conversion or exercise of
         securities of the Company, including this Warrant, by the Holder or its
         affiliates since the date as of which such number of outstanding shares
         of Common Stock was reported. The provisions of this Section 3(c) may
         be waived by the Holder upon, at the election of the Holder, not less
         than 61 days' prior notice to the Company, and the provisions of this
         Section 3(c) shall continue to apply until such 61st day (or such later
         date, as determined by the Holder, as may be specified in such notice
         of waiver). Additionally, this Warrant is subject to that certain
         letter agreement by and among the initial Holders of the Debentures and
         the Company relating to the restriction on the issuance of shares of
         Common Stock until the Company obtains approval of the transaction from
         the Principal Market.

                  (d) If at any time after one year from the date of issuance of
         this Warrant there is no effective Registration Statement registering
         the resale of the Warrant Shares by the Holder, then this Warrant may
         also be exercised at such time by means of a "cashless exercise" in
         which the Holder shall be entitled to receive a certificate for the
         number of Warrant Shares equal to the quotient obtained by dividing
         [(A-B) (X)] by (A), where:

                                       4
<PAGE>

                  (A) = the VWAP on the Trading Day preceding the date of
                        such election;

                  (B) = the Exercise Price of the Warrants, as adjusted;
                        and

                  (X) = the number of Warrant Shares issuable upon exercise
                        of this Warrant in accordance with the terms of this
                        Warrant.

         4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.

         5. Charges, Taxes and Expenses. Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.

         6. Closing of Books. The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

         7. Transfer, Division and Combination.

                  (a) Subject to compliance with any applicable securities laws
         and the conditions set forth in Sections 1 and 7(e) hereof and to the
         provisions of Section 4.1 of the Purchase Agreement, this Warrant and
         all rights hereunder are transferable, in whole or in part, upon
         surrender of this Warrant at the principal office of the Company,
         together with a written assignment of this Warrant substantially in the
         form attached hereto duly executed by the Holder or its agent or
         attorney and funds sufficient to pay any transfer taxes payable upon
         the making of such transfer. Upon such surrender and, if required, such
         payment, the Company shall execute and deliver a new Warrant or
         Warrants in the name of the assignee or assignees and in the
         denomination or denominations specified in such instrument of
         assignment, and shall issue to the assignor a new Warrant evidencing
         the portion of this Warrant not so assigned, and this Warrant shall
         promptly be cancelled. A Warrant, if properly assigned, may be
         exercised by a new holder for the purchase of Warrant Shares without
         having a new Warrant issued.

                  (b) This Warrant may be divided or combined with other
         Warrants upon presentation hereof at the aforesaid office of the
         Company, together with a written notice specifying the names and
         denominations in which new Warrants are to be issued, signed by the
         Holder or its agent or attorney. Subject to compliance with Section
         7(a), as to any

                                       5
<PAGE>

         transfer which may be involved in such division or combination, the
         Company shall execute and deliver a new Warrant or Warrants in exchange
         for the Warrant or Warrants to be divided or combined in accordance
         with such notice.

                  (c) The Company shall prepare, issue and deliver at its own
         expense (other than transfer taxes) the new Warrant or Warrants under
         this Section 7.

                  (d) The Company agrees to maintain, at its aforesaid office,
         books for the registration and the registration of transfer of the
         Warrants.

                  (e) If, at the time of the surrender of this Warrant in
         connection with any transfer of this Warrant, the transfer of this
         Warrant shall not be registered pursuant to an effective registration
         statement under the Securities Act and under applicable state
         securities or blue sky laws, the Company may require, as a condition of
         allowing such transfer (i) that the Holder or transferee of this
         Warrant, as the case may be, furnish to the Company a written opinion
         of counsel (which opinion shall be in form, substance and scope
         customary for opinions of counsel in comparable transactions) to the
         effect that such transfer may be made without registration under the
         Securities Act and under applicable state securities or blue sky laws,
         (ii) that the holder or transferee execute and deliver to the Company
         an investment letter in form and substance acceptable to the Company
         and (iii) that the transferee be an "accredited investor" as defined in
         Rule 501(a) promulgated under the Securities Act.

         8. No Rights as Shareholder until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.

         9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.

         10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.

         11. Adjustments of Exercise Price and Number of Warrant Shares.

                                       6
<PAGE>

                  (a) Stock Splits, etc. The number and kind of securities
         purchasable upon the exercise of this Warrant and the Exercise Price
         shall be subject to adjustment from time to time upon the happening of
         any of the following. In case the Company shall (i) pay a dividend in
         shares of Common Stock or make a distribution in shares of Common Stock
         to holders of its outstanding Common Stock, (ii) subdivide its
         outstanding shares of Common Stock into a greater number of shares,
         (iii) combine its outstanding shares of Common Stock into a smaller
         number of shares of Common Stock, or (iv) issue any shares of its
         capital stock in a reclassification of the Common Stock, then the
         number of Warrant Shares purchasable upon exercise of this Warrant
         immediately prior thereto shall be adjusted so that the Holder shall be
         entitled to receive the kind and number of Warrant Shares or other
         securities of the Company which it would have owned or have been
         entitled to receive had such Warrant been exercised in advance thereof.
         Upon each such adjustment of the kind and number of Warrant Shares or
         other securities of the Company which are purchasable hereunder, the
         Holder shall thereafter be entitled to purchase the number of Warrant
         Shares or other securities resulting from such adjustment at an
         Exercise Price per Warrant Share or other security obtained by
         multiplying the Exercise Price in effect immediately prior to such
         adjustment by the number of Warrant Shares purchasable pursuant hereto
         immediately prior to such adjustment and dividing by the number of
         Warrant Shares or other securities of the Company resulting from such
         adjustment. An adjustment made pursuant to this paragraph shall become
         effective immediately after the effective date of such event
         retroactive to the record date, if any, for such event.

                  (b) Anti-Dilution Provisions. During the Exercise Period, the
         Exercise Price shall be subject to adjustment from time to time as
         provided in this Section 11(b). In the event that any adjustment of the
         Exercise Price as required herein results in a fraction of a cent, such
         Exercise Price shall be rounded up or down to the nearest cent.

                           (i) Adjustment of Exercise Price. If and whenever the
                  Company issues or sells, or in accordance with Section
                  11(b)(ii) hereof is deemed to have issued or sold, any shares
                  of Common Stock by means of Capital Shares Equivalents (as
                  defined in the Purchase Agreement) for an effective
                  consideration per share of less than the then Exercise Price
                  or for no consideration (such lower price, the "Base Share
                  Price" and such issuances collectively, a "Dilutive
                  Issuance"), then, the Exercise Price shall be reduced (A) if
                  such Dilutive Issuance occurs on or prior to the first
                  anniversary of the Initial Exercise Date, by an amount equal
                  to 75% of the difference between the then Exercise Price and
                  the Base Share Price and (B) if such Dilutive Issuance occurs
                  after the first anniversary of the Initial Exercise Date, by
                  an amount equal to 50% of the difference between the then
                  Exercise Price and the Base Share Price. Such adjustment shall
                  be made whenever such shares of Common Stock or Capital Shares
                  Equivalent are issued.

                           (ii) Effect on Exercise Price of Certain Events. For
                  purposes of determining the adjusted Exercise Price under
                  Section 11(b) hereof, the following will be applicable:

                                    (A) Issuance of Rights or Options. If the
                           Company in any manner issues or grants any warrants,
                           rights or options, whether or not

                                       7
<PAGE>

                           immediately exercisable, to subscribe for or to
                           purchase Common Stock or Capital Shares Equivalent
                           (such warrants, rights and options to purchase Common
                           Stock or Capital Shares Equivalent are hereinafter
                           referred to as "Options") and the effective price per
                           share for which Common Stock is issuable upon the
                           exercise of such Options is less than the Exercise
                           Price ("Below Base Price Options"), then the maximum
                           total number of shares of Common Stock issuable upon
                           the exercise of all such Below Base Price Options
                           (assuming full exercise, conversion or exchange of
                           Capital Shares Equivalent, if applicable) will, as of
                           the date of the issuance or grant of such Below Base
                           Price Options, be deemed to be outstanding and to
                           have been issued and sold by the Company for such
                           price per share and the maximum consideration payable
                           to the Company upon such exercise (assuming full
                           exercise, conversion or exchange of Capital Shares
                           Equivalent, if applicable) will be deemed to have
                           been received by the Company. For purposes of the
                           preceding sentence, the "effective price per share
                           for which Common Stock is issuable upon the exercise
                           of such Below Base Price Options" is determined by
                           dividing (i) the total amount, if any, received or
                           receivable by the Company as consideration for the
                           issuance or granting of all such Below Base Price
                           Options, plus the minimum aggregate amount of
                           additional consideration, if any, payable to the
                           Company upon the exercise of all such Below Base
                           Price Options, plus, in the case of Capital Shares
                           Equivalent issuable upon the exercise of such Below
                           Base Price Options, the minimum aggregate amount of
                           additional consideration payable upon the exercise,
                           conversion or exchange thereof at the time such
                           Capital Shares Equivalent first become exercisable,
                           convertible or exchangeable, by (ii) the maximum
                           total number of shares of Common Stock issuable upon
                           the exercise of all such Below Base Price Options
                           (assuming full conversion of Capital Shares
                           Equivalent, if applicable). No further adjustment to
                           the Exercise Price will be made upon the actual
                           issuance of such Common Stock upon the exercise of
                           such Below Base Price Options or upon the exercise,
                           conversion or exchange of Capital Shares Equivalent
                           issuable upon exercise of such Below Base Price
                           Options.

                                    (B) Issuance of Capital Shares Equivalent.
                           If the Company in any manner issues or sells any
                           Capital Shares Equivalent, whether or not immediately
                           convertible (other than where the same are issuable
                           upon the exercise of Options) and the effective price
                           per share for which Common Stock is issuable upon
                           such exercise, conversion or exchange is less than
                           the Exercise Price, then the maximum total number of
                           shares of Common Stock issuable upon the exercise,
                           conversion or exchange of all such Capital Shares
                           Equivalent will, as of the date of the issuance of
                           such Capital Shares Equivalent, be deemed to be
                           outstanding and to have been issued and sold by the
                           Company for such price per share and the maximum
                           consideration payable to the Company upon such
                           exercise (assuming full exercise, conversion or
                           exchange of Capital Shares

                                       8
<PAGE>

                           Equivalent, if applicable) will be deemed to have
                           been received by the Company. For the purposes of the
                           preceding sentence, the "effective price per share
                           for which Common Stock is issuable upon such
                           exercise, conversion or exchange" is determined by
                           dividing (i) the total amount, if any, received or
                           receivable by the Company as consideration for the
                           issuance or sale of all such Capital Shares
                           Equivalent, plus the minimum aggregate amount of
                           additional consideration, if any, payable to the
                           Company upon the exercise, conversion or exchange
                           thereof at the time such Capital Shares Equivalent
                           first become exercisable, convertible or
                           exchangeable, by (ii) the maximum total number of
                           shares of Common Stock issuable upon the exercise,
                           conversion or exchange of all such Capital Shares
                           Equivalent. No further adjustment to the Exercise
                           Price will be made upon the actual issuance of such
                           Common Stock upon exercise, conversion or exchange of
                           such Capital Shares Equivalent.

                                    (C) Change in Option Price or Conversion
                           Rate. If there is a change at any time in (i) the
                           amount of additional consideration payable to the
                           Company upon the exercise of any Options; (ii) the
                           amount of additional consideration, if any, payable
                           to the Company upon the exercise, conversion or
                           exchange of any Capital Shares Equivalent; or (iii)
                           the rate at which any Capital Shares Equivalent are
                           convertible into or exchangeable for Common Stock (in
                           each such case, other than under or by reason of
                           provisions designed to protect against dilution), the
                           Exercise Price in effect at the time of such change
                           will be readjusted to the Exercise Price which would
                           have been in effect at such time had such Options or
                           Capital Shares Equivalent still outstanding provided
                           for such changed additional consideration or changed
                           conversion rate, as the case may be, at the time
                           initially granted, issued or sold.

                                    (D) Calculation of Consideration Received.
                           If any Common Stock, Options or Capital Shares
                           Equivalent are issued, granted or sold for cash, the
                           consideration received therefor for purposes of this
                           Warrant will be the amount received by the Company
                           therefor, before deduction of reasonable commissions,
                           underwriting discounts or allowances or other
                           reasonable expenses paid or incurred by the Company
                           in connection with such issuance, grant or sale. In
                           case any Common Stock, Options or Capital Shares
                           Equivalent are issued or sold for a consideration
                           part or all of which shall be other than cash, the
                           amount of the consideration other than cash received
                           by the Company will be the fair market value of such
                           consideration, except where such consideration
                           consists of securities, in which case the amount of
                           consideration received by the Company will be the
                           fair market value (closing bid price, if traded on
                           any market) thereof as of the date of receipt. In
                           case any Common Stock, Options or Capital Shares
                           Equivalent are issued in connection with any merger
                           or consolidation in which the Company is the
                           surviving corporation, the amount of consideration
                           therefor will be deemed to be the

                                       9
<PAGE>

                           fair market value of such portion of the net assets
                           and business of the non-surviving corporation as is
                           attributable to such Common Stock, Options or Capital
                           Shares Equivalent, as the case may be. The fair
                           market value of any consideration other than cash or
                           securities will be determined in good faith by an
                           investment banker or other appropriate expert of
                           national reputation selected by the Company and
                           reasonably acceptable to the holder hereof, with the
                           costs of such appraisal to be borne by the Company.

                                    (E) Exceptions to Adjustment of Exercise
                           Price. Notwithstanding the foregoing, no adjustment
                           will be made under this Section 11(b) in respect of
                           (1) the granting of options to employees, officers,
                           directors and key consultants of the Company pursuant
                           to any stock option plan or other plan duly adopted
                           by a majority of the non-employee members of the
                           Board of Directors of the Company or a majority of
                           the members of a committee of non-employee directors
                           established for such purpose, or (2) upon the
                           exercise of the Debentures or any Debentures of this
                           series or of any other series or security issued by
                           the Company in connection with the offer and sale of
                           this Company's securities pursuant to the Purchase
                           Agreement, or (3) upon the exercise of or conversion
                           of any Capital Shares Equivalent or Options issued
                           and outstanding on the Original Issue Date, provided
                           that the securities have not been amended since the
                           date of the Purchase Agreement except as a result of
                           the Purchase Agreement, or (4) acquisitions or
                           strategic investments, the primary purpose of which
                           is not to raise capital, or (5) the granting of
                           stock, stock options and/or warrants to an investment
                           group in connection with the advancement of $1
                           million to the Company, which transaction is
                           described in Item 13 of the Company's Annual Report
                           on Form 10-K for the fiscal year ended March 31,
                           2003.

                           (iii) Minimum Adjustment of Exercise Price. No
                  adjustment of the Exercise Price shall be made in an amount of
                  less than 1% of the Exercise Price in effect at the time such
                  adjustment is otherwise required to be made, but any such
                  lesser adjustment shall be carried forward and shall be made
                  at the time and together with the next subsequent adjustment
                  which, together with any adjustments so carried forward, shall
                  amount to not less than 1% of such Exercise Price.

         12. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever

                                       10
<PAGE>

(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, at
the option of the Holder, (a) upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a Holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event or (b) cash
equal to the value of this Warrant as determined in accordance with the
Black-Scholes option pricing formula. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.

         13. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.

         14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.

         15. Notice of Corporate Action. If at any time:

                  (a) the Company shall take a record of the holders of its
         Common Stock for the purpose of entitling them to receive a dividend or
         other distribution, or any right to subscribe for or purchase any
         evidences of its indebtedness, any shares of stock of any class or any
         other securities or property, or to receive any other right, or

                                       11
<PAGE>

                  (b) there shall be any capital reorganization of the Company,
         any reclassification or recapitalization of the capital stock of the
         Company or any consolidation or merger of the Company with, or any
         sale, transfer or other disposition of all or substantially all the
         property, assets or business of the Company to, another corporation or,

                  (c) there shall be a voluntary or involuntary dissolution,
         liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).

         16. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.

         Except and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise

                                       12
<PAGE>

immediately prior to such increase in par value, (b) take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares upon the exercise of this
Warrant, and (c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

                  Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.

         17. Miscellaneous.

                  (a) Jurisdiction. This Warrant shall constitute a contract
         under the laws of New York, without regard to its conflict of law,
         principles or rules.

                  (b) Restrictions. The Holder acknowledges that the Warrant
         Shares acquired upon the exercise of this Warrant, if not registered,
         will have restrictions upon resale imposed by state and federal
         securities laws.

                  (c) Nonwaiver and Expenses. No course of dealing or any delay
         or failure to exercise any right hereunder on the part of Holder shall
         operate as a waiver of such right or otherwise prejudice Holder's
         rights, powers or remedies, notwithstanding all rights hereunder
         terminate on the Termination Date. If the Company willfully and
         knowingly fails to comply with any provision of this Warrant, which
         results in any material damages to the Holder, the Company shall pay to
         Holder such amounts as shall be sufficient to cover any costs and
         expenses including, but not limited to, reasonable attorneys' fees,
         including those of appellate proceedings, incurred by Holder in
         collecting any amounts due pursuant hereto or in otherwise enforcing
         any of its rights, powers or remedies hereunder.

                  (d) Notices. Any notice, request or other document required or
         permitted to be given or delivered to the Holder by the Company shall
         be delivered in accordance with the notice provisions of the Purchase
         Agreement.

                  (e) Limitation of Liability. No provision hereof, in the
         absence of any affirmative action by Holder to exercise this Warrant or
         purchase Warrant Shares, and no enumeration herein of the rights or
         privileges of Holder, shall give rise to any liability of Holder for
         the purchase price of any Common Stock or as a stockholder of the
         Company, whether such liability is asserted by the Company or by
         creditors of the Company.

                  (f) Remedies. Holder, in addition to being entitled to
         exercise all rights granted by law, including recovery of damages, will
         be entitled to specific performance of its rights under this Warrant.
         The Holder's ability to exercise any and all remedies contained herein
         is subject to the terms of the Subordination Agreement. The Company
         agrees that monetary damages would not be adequate compensation for any
         loss incurred

                                       13
<PAGE>

         by reason of a breach by it of the provisions of this Warrant and
         hereby agrees to waive the defense in any action for specific
         performance that a remedy at law would be adequate.

                  (g) Successors and Assigns. Subject to applicable securities
         laws, this Warrant and the rights and obligations evidenced hereby
         shall inure to the benefit of and be binding upon the successors of the
         Company and the successors and permitted assigns of Holder. The
         provisions of this Warrant are intended to be for the benefit of all
         Holders from time to time of this Warrant and shall be enforceable by
         any such Holder or holder of Warrant Shares.

                  (h) Amendment. This Warrant may be modified or amended or the
         provisions hereof waived with the written consent of the Company and
         the Holder.

                  (i) Severability. Wherever possible, each provision of this
         Warrant shall be interpreted in such manner as to be effective and
         valid under applicable law, but if any provision of this Warrant shall
         be prohibited by or invalid under applicable law, such provision shall
         be ineffective to the extent of such prohibition or invalidity, without
         invalidating the remainder of such provisions or the remaining
         provisions of this Warrant.

                  (j) Headings. The headings used in this Warrant are for the
         convenience of reference only and shall not, for any purpose, be deemed
         a part of this Warrant.

                              ********************

                                       14
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.

Dated:  September __, 2003
                                        THE SINGING MACHINE COMPANY, INC.

                                        By:_____________________________________
                                            Name:
                                            Title:

                                       15
<PAGE>

                               NOTICE OF EXERCISE

To:      THE SINGING MACHINE COMPANY, INC.

         (1) The undersigned hereby elects to purchase ________ Warrant Shares
of The Singing Machine Company, Inc. pursuant to the terms of the attached
Warrant (only if exercised in full), and tenders herewith payment of the
exercise price in full, together with all applicable transfer taxes, if any.

         (2) Payment shall take the form of (check applicable box):

                  [ ] in lawful money of the United States; or

                  [ ] the cancellation of such number of Warrant Shares as is
                  necessary, in accordance with the formula set forth in
                  subsection 3(d), to exercise this Warrant with respect to the
                  maximum number of Warrant Shares purchasable pursuant to the
                  cashless exercise procedure set forth in subsection 3(d).

         (3) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:

                  ________________________________________

The Warrant Shares shall be delivered to the following:

                  ________________________________________

                  ________________________________________

                  ________________________________________

         (4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.

                                 [PURCHASER]

                                 By: ______________________________
                                     Name:
                                     Title:

                                 Dated:  ________________________

                                       16
<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

         FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

                                        Dated:  ______________, _______

                           Holder's Signature:  ___________________

                           Holder's Address:    ___________________

                                                ___________________

Signature Guaranteed:  ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

                                       17

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