Document:

THE SINGING MACHINE COMPANY, INC.
                              AMENDED AND RESTATED
                        1994 MANAGEMENT STOCK OPTION PLAN

                               Section 1. Purpose.
                               -------------------

         This Amended and Restated 1994 Stock Option Plan is intended to provide
incentives: (a) to the officers and other employees of the Singing Machine
Company, Inc. or any of its present or future subsidiaries by providing such
employees with opportunities to purchase stock in The Singing Machine Company,
Inc., pursuant to options granted hereunder that qualify as "Incentive Stock
Options" under Section 422(b) of the Internal Revenue Code of 1986, as amended;
and (b), to directors, officers, employees, advisors and consultants of The
Singing Machine Company, Inc. or any of its present or future subsidiaries by
providing such persons with opportunities to purchase stock in The Singing
Machine Company, Inc., pursuant to options granted hereunder which do not
qualify as "incentive stock options."

                             Section 2. Definitions.
                             -----------------------

         (a) "Agreement" shall have the meaning ascribed to the term as set
forth in Section 6 hereof.

         (b) "Board of Directors" means the Board of Directors of the Company or
any Subsidiary.

         (c) "Common Stock" means the common stock, $.01 par value per share, of
the Company.

         (d) "Company" means, The Singing Machine Company, Inc.. a Delaware
corporation.

         (e) "Employee" means every individual performing services for the
Company or any Subsidiary if the relationship between him and the person for
whom he performs such services is the legal relationship of employer and
employee as determined in accordance with Section 3401(c) of Internal Revenue
Code and Treasury Regulations promulgated thereunder. A member of the Board of
Directors in his sole capacity as such is not an Employee.

         (f) "Incentive Stock option" means a right grand pursuant to this Plan
to purchase Common Stock that satisfies the requirements of Section 422 of the
Internal Revenue Code.

         (g) "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.

         (h) "Non-Employee Director" means every member of the Board of
Directors who is not also an Employee of the company or any Subsidiary.

                                                         1

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         (i) "Nonqualified Stock Option" means a right granted pursuant to this
Plan to purchase Common Stock that does not satisfy the requirements of Section
422 of the internal Revenue Code.

         (j) "Option" means a right granted pursuant to this Plan to purchase
Common stock which may be either an incentive stock option or a Nonqualified
Stock option as determined by the Board of Directors.

         (k) "Optionee" means an individual who has received an option under the
Plan.

         (1) "Plan" means this stock option plan authorizing the granting of
stock Options.

         (m) "Plan Administrators" shall have the meaning ascribed to the term
as set forth in Section 5 hereof.

         (n) "Reserved Shares" shall have the meaning ascribed to the term as
set forth in Section 3 hereof.

         (o) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the company if, at the time the
Option is granted, each of the corporations other Chan the last corporation in
the unbroken chain owns SO% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

                     Section 3. Shares Subject to the Plan.
                     --------------------------------------

         Subject to adjustments pursuant to section 8 of the Plan, no more than
One Million Three Hundred Thousand shares (1,300,000) in the aggregate of the
Company's Common Stock (the "Reserved Shares") may be issued pursuant of the
Plan to eligible participants. The number of the Reserved Shares shall be
reduced by the number of options granted under the Plan. The Reserved Shares may
be made available from authorized but unissued Common Stock of the Company, from
Common Stock of the Company held as treasury stock, from any shares which may
become available due to the expiration, cancellation or other termination of any
Option previously granted by the Company, or from any combination of the
foregoing.

                             Section 4. Eligibility
                             ----------------------

         The individuals eligible to receive Options under this Plan shall be
such valued Employees, Non-Employee Directors, advisors or consultants of the
Company or any, Subsidiary, as the Board of Directors may from time to time
determine and select. Non-Employee Directors, advisors and consultants shall
only be eligible to receive Nonqualified Stock Options. Employees shall be
eligible to receive both incentive Stock Options and Nonqualified Stock options.
An Optionee may hold more than one Option. No Employee of the Company or any
Subsidiary is eligible to receive any Incentive Stock Options if such employee,
at the time the option is granted, owns, beneficially or of record, in excess of
lot of the outstanding voting stock of the Company or a Subsidiary; provided,
however, that such employee will be eligible to receive an Incentive Stock
Option if at the time such

                                        2

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Option is granted the Option price is at least 110% or the fair market value
(determined with regard to Section 422 (c) (7) of the Internal Revenue Code) of
the, stock subject to the option and such option by its terms is not exercisable
after the expiration of five (5) years from the date such Option is granted.
Pursuant to Section 422(d) of the Internal Revenue Code, no Option granted
pursuant to this Plan shall be ,treated as an Incentive stock option to the
extent that the aggregate fair market value (determined at the time the Option
was granted) or common stock with, respect to which Options (that otherwise
qualify as Incentive Stock Options) are exercisable for the first time by an
Employee during any calendar year (under all plans of the Company and its
Subsidiaries) exceeds $100,000.

                     Section 5. Administration of the Plan.
                     --------------------------------------

         (a) The Plan shall be administered by the Board of Directors, or by a
committee appointed by the Board of Directors.

         (b) The Plan Administrators shall have the power, subject to, and
within the limits of the express provisions of the Plan:

         (i)      To determine from time to time which eligible persons shall be
                  granted options under the Plan, and the time when any Option
                  shall be granted to them;

         (ii)     To determine the number of Options to be granted to any
                  person;

         (iii)    To grant Incentive Stock options, Nonqualified Stock options,
                  or both, under the Plan to such persons;

         (iv)     To determine the duration and purposes of leaves of absence
                  which may be granted to Optionees without constituting a
                  termination of their employment for purposes of the Plan;

         (v)      To prescribe terms and provisions of each Option granted under
                  the Plain (which need not be identical)

         (vi)     To determine the maximum period during which options may be
                  exercised;

         (vii)    To construe and interpret the Plan and options granted under
                  it, and to establish, amend, and revoke rules and regulations
                  for its administration; and

         (viii)   Generally, to exercise such, powers and to perform such acts
                  as are deemed necessary or expedient to promote the best
                  interests of the Company with respect to the Plan.

         (c) The Plan Administrators, in the exercise of these powers, may
correct any defect or supply any omission, or reconcile any inconsistency in the
Plan, or in any option, in the manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective. All determinations

                                        3

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of the Plan Administrators shall be made by majority vote. Subject to any
applicable provisions of the Company or Bylaws, all decisions made by the Plan
Administrators pursuant, to the provisions of the Plan and related orders or
resolutions of the Plan Administrators shall be final, conclusive and binding on
all persons, including the company, stockholders of the Company, Employees and
Optionees.

         (d) The Plan Administrators may designate the Secretary of the company,
or other, Employees of the Company or competent professional advisors, to
assist, in the administration of this Plan and may grant authority to such,
persons to execute agreements or other documents on behalf of the Plan
Administrators.

         (e) The Plan Administrators may employ such legal counsel, consultants
and agents as they may deem desirable for the administration of this Plan and
may rely upon any opinion received from any such counsel or consultant and any
computation received from any such consultant or agent. No present or former
Plan Administrator shall be liable for any action or determination made in good
faith with respect to this Plan, or any Option granted hereunder. To the maximum
extent permitted by applicable law and the Company's Certificate of
Incorporation and Bylaws, each present or former Plan Administrator shall be
indemnified and held harmless by the Company against any cost or expenses
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Company) arising out of any act or omission to
act in connection with this Plan unless arising out of such persons own fraud or
bad faith. Such indemnification shall be in addition to any rights at
indemnification the person may have as a director, officer or employee or, under
the Certificate of Incorporation of the Company, the Bylaws of the Company or
otherwise. Expenses incurred by the Plan administrators in the engagement of
such counsel, consultant or agent shall be paid by the Company.

                     Section 6. Option Terms and Conditions.
                     ---------------------------------------

         The Options granted under the Plan shall be evidenced by written Option
Agreements (the "Agreements") consistent with the terms of the Plan which shall
be executed by the Company and the Optionee. The Agreements, in such form as the
Plan Administrators shall from time to time approve shall, incorporate the
following terms and conditions:

         (a) Time of Exercise. Options shall be exercisable in accordance with
the terms of the Agreements as approved by the Plan Administrators, from time to
time. Incentive Stock Options may be exercised only if, at all times during the
period that begins on the date of the granting of the Incentive Stock Option and
that ends on the day three(3) months before the date of such exercise, the
Optionee was an Employee of the Company or any Subsidiary; provided, however,
that if the Optionee is "disabled" within the meaning of Section 22 (c) of the
Internal Revenue code, then the end of the preceding post-employment exercise
period shall be extended to one (1) year.

         (b) Purchase Price. Except as otherwise provided in section 4 hereof,
the purchase price per share of Common Stock deliverable upon the exercise of an
Incentive Stock Option shall not be less than the fair market value of the
Common Stock on the date the option is granted. The purchase

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<PAGE>

price per share of common Stock deliverable upon the exercise of a Nonqualified
Stock Option shall be determined by the Plan Administrators in their sole
discretion.

         (c) Method of Exercise. In order to exercise an option in whole or in
part, the Optionee shall give written notice to the Company at its principal
place of business of such exercise, stating the number of shares with respect to
which the Option is being exercised. Such notice shall be accompanied by full
payment of the purchase price thereof either (i) in cash, or (ii) at the
discretion of the Plan Administrators, in whole shares of common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Option, or (iii) at the discretion of the Plan Administrators, by
delivery of the Optionee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the Internal Revenue Code, or (iv) any
combination of (i), (ii) and (iii) above. If the Plan Administrators exercise
their discretion to permit payment of the exercise price of any Option by means
of the methods set forth in clauses (ii), (iii) or (iv) , of the preceding
sentence, such discretion shall be exercised in writing at the time of the grant
of the option in question. The exercise date of the Option shall be the date the
Company receives such notice with any necessary accompaniments in satisfactory
order.

         (d) Transferability. An Option shall not be transferable by the
Optionee other than at death and an Option granted to such Optionee is
exercisable, during his lifetime, only by such Optionee.

         The Agreements may also contain such other terms, provisions, and
conditions consistent with the Plan and applicable provisions of the Internal
Revenue Code as the Plan Administrators may determine are necessary or proper.

                 Section 7. Rights of Stockholders and Optionee.
                ------------------------------------------------

         An Optionee shall not deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such option, unless
and until: (a) the Option shall have been exercised pursuant a the terms
thereof; (b) the Company shall have issued and delivered the shares to the
Optionee; and (c) the Optionee's name shall have been entered as a stockholder
of record on the books of the Company. Thereupon, the Optionee shall have full
voting and other ownership rights with respect to such shares.

              Section 8. Adjustments in the Event of Changes in the
              -----------------------------------------------------
               Capital Structure, Reorganization Anti-Dilution or
               --------------------------------------------------
                               Accounting Changes.
                               -------------------

         (a) Changes in Capital Structure. In the event of a change in the
corporate structure or shares of the Company, the Plan Administrators (subject
to any required action by the stockholders) shall make such equitable
adjustments designed to protect against dilution as they may deem appropriate in
the number and share authorized by the Plan and, with respect to outstanding
Options in the number and kind of shares covered thereby and in the exercise
price of such Options on the

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dates granted. For the purpose of this Section, a change in the corporate
structure or shares of the Company shall include, but is not limited to, changes
resulting from a recapitalization, stock split, consolidation, rights offering,
stock dividend, reorganization, or liquidation.

         (b) Reorganization-Continuation of the Plan. Upon the effective date of
the dissolution or liquidation of the Company, or a reorganization, merger or
consolidation of the Company with one or more corporations in which the company
is not the surviving corporation, or of a transfer of substantially all of the
Company's stockholders, the Plan and any Option previously granted under the
Plan shall terminate unless provision be made in writing in connection with such
transaction for the continuation of the Plan and for the assumption of the
Options previously granted, or for the substitution of new options covering the
shares of a successor employer corporation, or a parent or subsidiary thereof,
with appropriate adjustments (in accordance with the applicable provisions of
the Internal Revenue code) as to the number and kind of shares and price per
share, in which event the Plan and the previously granted or new options
substituted therefor shall continue in the manner and under the terms as
provided.

         (c) Reorganization-Termination of the Plan. In the event of a
dissolution, liquidation, reorganization, merger, consolidation, transfer of
assets or transfer of shares, as provided in Section 9 (b) above, and if
provision is not made in such transaction for the continuance of the Plan and
for the assumption of Options previously granted or the substitution of new
Options covering the shares of a successor employer corporation or a parent or
subsidiary thereof, then an Optionee under the Plan shall be entitled to written
notice prior to the effective date of any such transactions stating that rights
under this option must be exercised within thirty (30) days of the date of such
notice or they will be terminated.

                        Section 9. General Restrictions.
                        --------------------------------

         Each Option shall be subject to a requirement that, if at any time the
Plan Administrator shall determine, in their discretion, that the listing or
qualification of the shares or other securities subject to such Option upon any
securities exchange, or under any state or federal law or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with the granting thereof or the issue or
purchase of shares or payments of any amount thereunder, such Option may not be
exercised in whole or in part and no amounts may be received thereunder unless
such listing, qualification, consent or approval shall have been effected or
obtained free of any conditions unacceptable to the Plan Administrators.

                             Section 10. Employment.
                             -----------------------

         Nothing in this Plan shall be deemed to grant any right of continued
employment to a participating employee or to limit or waive any rights of the
Company or its Subsidiary to terminate such employment at any time, with or
without cause.

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                             Section 11. Amendment.
                             ----------------------

         The Board of Directors of the Company shall have the power to amend or
revise the terms of this Plan or any part thereof without further action of the
stockholders; provided, however, that no such amendment shall impair any Option
or deprive any Optionee of shares that may have been granted to him under the
Plan without his consent; and provided, further, that no such amendment shall,
without stockholder approval:

         (a) increase the aggregate number of the Reserved Shares for the
purpose of the Plan;

         (b) change the class of individuals eligible to receive options under
the Plan;

         (c) extend the maximum period during which any option may be granted or
exercised;

         (d) reduce the Option price per share under any Option below fair
market value; or

         (e) extend the term of the Plan.

               Section 12. Effective Date and Termination of Plan.
               ---------------------------------------------------

         (a) The effective date of the Plan shall be the Effective Date of the
Merger of the Singing Machine Company, Inc., a California corporation, with and
into The Singing Machine Company, Inc., a Delaware corporation; provided,
however, in the event that the Plan is not approved by the voting stockholders
of the Company on or before July 31, 1994, the Plan and all Options granted and
to be granted hereunder shall be null and void and the Company shall have no
obligation of any nature whatsoever to any employee or other person arising out
of the Plan or any options granted or to be granted hereunder.

         (b) The Board of Directors of the Company may terminate the Plan at any
time with respect to any shares that are not subject to Options. Unless
terminated earlier by the Board of Directors, the Plan shall terminate on ten
(10) years from adoption of this Plan and no options shall be granted under this
Plan after it has been terminated. Termination of this Plan shall not affect the
right and obligation of any Optionee with respect to Options granted prior to
termination.

                         Section 13. Withholding Taxes.
                         ------------------------------

         Whenever under the Plan shares are to be issued in satisfaction of
Options granted hereunder, the Company shall have the right to require the
recipient to make arrangements to remit to the Company an amount sufficient to
satisfy federal, state and local withholding tax requirements, if any, prior to
or following the delivery of any certificate or certificates for such shares.

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                            Section 14. Qualification
                            -------------------------

         This Plan is adopted pursuant to, and is intended to comply with, the
applicable provisions of the Internal Revenue Code and the regulations
thereunder. Incentive Stock Options granted pursuant to this Plan are intended
to be "incentive stock options" as that term is defined in Section 422 of the
Internal Revenue Code and the regulations thereunder. In the event this Plan or
any Incentive Stock Option granted pursuant to this Plan is in any way
inconsistent with the applicable legal requirements of the Internal Revenue Code
or any regulation thereunder, this Plan and any Incentive Stock Option granted
pursuant to this Plan shall be deemed automatically amended as of the date
hereof to conform to such legal requirements, if such conformity can be achieved
by amendment.

           Section 15. Notice to Company of Disqualifying Disposition.
           -----------------------------------------------------------

         Each Employee who receives an Incentive Stock Option must agree to
notify the Company in writing immediately after the Employee makes a
disqualifying disposition of any Common Stock acquired pursuant to the exercise
of an Incentive Stock Option. For purposes of this Plan, a "disqualifying
disposition" is any disposition (including any sale) of such Common Stock before
the later of (i) two years after the date the Employee was granted the Incentive
Stock Option, or (ii) one year after the date the Employee Acquired Common Stock
by exercising the Incentive Stock Option.

                                        8THE SINGING MACHINE COMPANY, INC.
                               FACTORING AGREEMENT

Main Factors, Inc.
P.O. Box 50608
Dallas, TX 75250

Gentlemen:

The following is the agreement between us, effective the date of your
acceptance, by which you shall act as our sole factor. This agreement supercedes
that agreement dated December 1, 1999 between The Singing Machine Company, Inc.
and Main Factors, Inc.

1. We agree to sell to you as absolute owner and you agree to purchase from us
all accounts, notes, chattel paper, instruments, bills, acceptances or other
forms of obligation (hereinafter collectively referred to as "receivables")
arising out of the sale of merchandise and/or rendition of services (hereinafter
collectively referred to as "sales"). All of our sales shall be made in our
name, but the purchase price shall be paid only and directly to you and all of
our factored invoices to our customers shall clearly state on their face in form
and manner satisfactory to you that the receivables represented by such invoices
have been assigned and are payable only to you. Our sales of receivables to you
include all of our right, title, and interest in and to the merchandise
represented thereby, including such merchandise as may be returned by customers,
and all of our rights of stoppage in transit, replevin, and reclamation and as
unpaid seller and/or lienor. As our receivables, are created, we shall execute
and deliver to you such further and confirmatory instruments of sales, on an
account by account basis, transfer and assignment thereof in such form and
manner as you may from time to time require together with a copy of each
invoice, all shipping or delivery receipts and such other proof of sale and
delivery or performance as you may from time to time require; and you shall not
be required to make advances upon or to remit to us any sums credited for the
purchase price of receivables until we provide you therewith as to such
receivables. We shall deliver to you copies of all credit memos issued by us. We
shall execute and deliver to you and/or file at such times and places as you may
designate such further instruments as you may from time to time require for the
protection of your rights hereunder. We shall notify you promptly of all
returned merchandise and shall set aside and mark and hold the same for your
account as owner.

2. The amount, delivery and terms of each sale shall be submitted to your credit
department for written approval before we accept or fill any of our customer's
orders and you shall have the right to withdraw such approval at any time prior
to delivery. Sales approved in writing and accepted by you (hereinafter referred
to as "approved receivables"), when purchase shall be without recourse to us
except as hereinafter provided; sales made by us without such written approval
(hereinafter referred to as "non-approved receivables"), when purchased by you,
shall be with full recourse to us. Receivables for freight or samples shall
always be deemed to be non approved receivables notwithstanding any written
approval from you. In the event you decline to give your written approval on any
order received by us from a customer and, in advising us of such decline, you

<PAGE>

furnish us with information as to the credit standing of the customer, such
information shall be deemed to have been requested of you by us and your advice
containing such information is recognized as a privileged communication. We
agree that the information furnished to us shall not be given to our customer or
to our salesman; if necessary, we shall merely advise our customer or our
salesman that credit has been declined on the account and that any questions
arising should be directed to you.

3. The purchase price of all receivables shall be the net amount thereof (net
amount of receivables wherever used herein being the gross amount less all
discounts the net amount due on the shortest terms). Your charge for ledgering
receivables, checking the credit of our customers, bookkeeping, agings,
statements, supervising collection of receivables, assuming the credit risk on
approved receivables, and other services provided us hereunder shall be nine and
one-half-tenths of one percent (.95 %) of the net amount of receivables
purchased, on all sales using our regular terms. Our regular terms of sale are
net 20, net 30, net 45 and net 60. We understand that you will not purchase
invoices with terms greater than net 60. We agree to factor $13,000,000 in the
year 2000 or to pay the factoring charge of nine and one-half-tenths of one
percent (.95%) for any amount between the actual amount factored and the agreed
minimum of $13,000,000. It is anticipated that this agreement will continue
beyond December 31, 2000. Prior to December 31, 2000, both parties agree to
discuss the appropriate minimum amount of factored sales for future periods. Any
change in the minimum amount. of sales will be documented as . an amendment to
this factoring agreement. Should we fail to document any change in the agreed
minimum, the $13,000,000 will be the minimum for the year ending December 31,
2001 and any subsequent year. Should we elect to terminate this agreement as
provided for in this agreement prior to December 31, 2000 or any future one year
period, the minimum will be pro-rated to the period prior to the actual
termination date as to any minimum factoring charge. We understand that the
charge amount will be considered as an advance for purposes of computing the
interest charge. We shall have no right to vary the terms of sale set forth in
the invoice relating to any receivable, after such receivable has been purchased
by you, without your consent. If we require any such variation in terms, it is
recognized that you will incur the same bookkeeping expense as if you had
purchased a new and separate receivable, and you shall therefore be entitled to
receive, as a condition precedent to approving such change, a sum equal to an
additional charge calculated on the new amount computed in the same manner as if
the receivable had been newly purchased by you on the date we requested a
variation in the terms of sale.

The additional charge may be referred to in accounting records as a dating
charge, and may in your sole discretion, if in your opinion the circumstances
justify a reduction, be less than the full charge determined as if the
receivable had been newly purchased. The charges on all receivables purchased by
you during each month as well as all other additional charges hereunder shall be
debited to our account as of the fifteenth day of that calendar month. You shall
credit our account with the net amount of each receivable purchased by you three
(3) days after your receipt of payment thereof, or on the fourth month following
the month during which such receivable becomes due, whichever first occurs, and
upon such date you shall remit the same to us, less all sums previously
advanced, remitted, paid or otherwise charged or debited to or for our account.
All terms of sale which are less than thirty (30) days shall be deemed to be
thirty (30) day terms for the purpose of computing the due date. You shall, at
any time after assignment of receivables to you, at our request, advance to

<PAGE>

us up to eighty-five percent (85%) of the purchase price thereof and charge our
account therewith, less your charge. We understand that you have the desecration
to change the advance percentage. You have further advised us and we agree that
should the total shareholders' equity fall below $3,500,000 in any calendar
quarter, the advance will be changed to up to seventy-five percent (75%). We
agree to pay any related wire charges if funds are wired at our request. You
shall not be required to make any advances on or remit the purchase price of non
approved receivables until actual receipt by you of payment of such receivables
from our customers, and the making of all advances and remittances by you shall
be subject to your right to maintain a reasonable reserve if you deem your
security to require it which reserve may be revised, upward or downward, at any
time, in your sole and absolute discretion. We understand that you may, from
time to time, request written verification from our customers and/or the
delivery company that the goods sold by us have been delivered and/or services
have been completed and accepted by our customer. We understand that you must be
satisfied with such verification before you will make any advances. We
understand that you Will not advance on sales to new customers until you have
received written acknowledgment from them that their receivables have been
assigned and are payable to you.

4. All remittances received by us with respect to receivables purchased by you
shall be held in trust by us as your property, separate and apart from our own
properties and funds, and we will immediately deliver to you the identical
checks, monies or other forms of payment received and you shall have the right
to endorse our name on any and all checks or other forms of remittance received,
where such endorsement is required to effect collection, and we shall confirm
your title thereto by executing such instrument, as you may from time to time
require. In order to collect any receivable assigned to you, you have the right
to bring suit in your name or ours. In addition, we hereby constitute and.
appoint you or such person as you may name, including substitution, as our
attorney-in-fact to exercise, and at our cost and expense, to execute all
necessary documents in our name and do all other things necessary to carry out
this agreement. We hereby ratify and approve all acts of the attorney and agree
that neither you nor the attorney will be liable for any acts of commission or
omission nor for any error of judgment or mistake of fact or law. This power
being coupled with an interest is irrevocable so long as any receivable assigned
and sold to you remains unpaid or we are indebted to you in any manner.

5. We make the following representations, warranties and agreements, in order to
induce you to enter into this agreement, which shall be deemed to be
incorporated by reference in each confirmatory schedule of receivables or other
form of assignment delivered to you from time to time by us, and shall be deemed
repeated and confirmed with respect to each receivable as it is created or
otherwise acquired by you and shall be deemed continuing:

         (a)      each and every factored receivable

                  (i) will constitute a valid and legally enforceable
indebtedness resulting from an actual sale and delivery to and acceptance by the
customer of the goods sold or from the rendition of services in the ordinary
course of our business, in full compliance and conformity with the specification
of the customer, the amount represented as owing by the customer is the correct
amount actually owing by such customer and the payment thereof is not contingent
or conditioned on the fulfillment of any contract, condition or warranty, past
or future, expressed or implied,

<PAGE>

                  (ii) will be subject to no dispute or claim by the customer as
to price, terms, quality, quantity, delay in shipment, offsets, counterclaims,
contra accounts or any other defense of any other kind and character,

                  (iii) will be subject to no discounts, deduction, allowances,
offsets, counterclaims, or other contra items or to no special terms of payment
which are not shown on the face of the invoice thereof,

                  (iv)  will not represent a delivery of merchandise upon
"consignment", "guaranteed sale", "sale or return", "payment on reorder" or
similar terms, and

                  (v)   will not represent a "pack, bill and hold" transaction;

         (b) we will offer to you selected receivables created in the regular
course of business;

         (c) all receivables and all goods giving rise thereto are, and for the
duration of our financing arrangements with you, will remain free of any liens,
charges, security interests, encumbrances and adverse claims, except for your
benefit, the original invoice with respect to each factored receivable bears
notice of its sale to you as required hereunder and we now have and will have
absolute and good title to said receivables and the right to sell the same to
you, and has no knowledge of any fact which would impair the validity thereof,

         (d) we are duly organized, validly existing and in good standing under
the laws of the State of Delaware, are qualified to do business in every
jurisdiction in which such qualification is necessary, and have the power and
authority to own our properties and to carry on our business as now being
conducted;

         (e) wt., will not pledge, sell, assign, transfer, encumber or create a
security interest in any of our present or future accounts and other collateral
in which we have granted a security interest to you hereunder except for your
benefit;

         (f) our address as set forth below is our mailing address, our place of
business, our chief executive office and sole office at which our records
concerning the receivables are located and we shall not effect any change in
such address without first giving you ten (10) days prior written notice,
thereof; 6601 Lyons Road, Building A-7, Coconut Creek, FL 33073.

         (g) the trade name or trade styles, if any, which are set forth below
are the only trade names or styles under which we transact business and the
receivables as may be sold to you hereunder on invoices of said trade names or
styles are wholly owned by us and all of the undertakings and liabilities held
in connection therewith under the terms of said trade names or styles shall be
identical and of the same force and effect as though those invoices bore our
name: None

         (h) we shall neither pledge nor grant a security interest or the
proceeds thereof in any of our inventory to another party unless prior written
permission for such pledge is given by you.

<PAGE>

6. We shall immediately advise you of all disputes and claims and attempt to
adjust the same promptly at our expense. We agree that you may, with respect to
any receivable, deposit any and all remittances as received in payment of
receivables irrespective of any deductions shown in notations appearing on said
remittances and charge back to our account any deficiencies therein other than
deficiencies in the payment of approved receivables not subject to charge back
as hereinafter provided. You shall have the right at all times to charge to our
account all non approved receivables that have not been paid within fifty-eight
(58) days from due date for any reason. On approved receivables, you assume the
credit risk of the customer and have no recourse against us for non payment
thereof unless a claim or dispute is asserted as to any such receivable, or in
the event we breach any warranty relating to such a receivable, in which event,
you may charge such receivable to our account. The term "claim or dispute" shall
mean any claim or dispute, or assertion thereof, by a customer as to its
obligations to pay a receivable in full other than its financial inability to
pay, including, but not limited to, claims or disputes as to prices, terms,
quantity, quality, breach of contract or warranty, defense, setoff, deduction or
contra charge. In addition to your right of charge back and not in lieu thereof,
you shall have the right at all times of settling or of litigating any
receivables subject to a claim or dispute directly with our customer or other
claimant and/or to take possession of and to sell or cause to be sold without
notice to us any rejected or returned merchandise at such prices, to such
purchasers and upon such terms as you in your sole discretion may deem
advisable, and to charge the deficiencies, costs and expenses, including legal
expenses, to us or if you have charged back the receivables involved therein, to
credit us with the actual amount of cash received by you thereon less your costs
and expenses including legal expenses. The charge back of any receivables shall
not be deemed as a reassignment thereof, and title thereto and to the
merchandise represented thereby shall remain in you until you have been fully
reimbursed therefor.

7. You shall render an accounting to us at about the fifteenth day of each
calendar month in the form of month end statements including a summary sheet (a
gross summary of all activity), a "Monthly Reserve Sheet" (reflecting daily
activity and all credits and debits relating to receivables purchased by you)
and a "Net Cash Employed Charge Calculation" report (reflecting the sums
credited by us, the sums debited to us and the resulting balance) for the
preceding calendar month. All advances shall bear interest which shall be
charged and reflected in the "Net Cash Employed. Charge Calculation" report as
of the end of each calendar month. A debit balance shown below on a "Net Cash
Employed Charge Calculation", report shall be payable by us on your demand.
Interest, wherever provided for in this agreement shall, except as otherwise
provided hereinafter, be at an annual rate equal to the lesser of (i) the
"Maximum Rate" or (ii) the "Formula Rate", as those terms are defined
hereinafter. If at any time hereafter the Formula Rate exceeds the Maximum Rate
the rate of interest shall be limited to the Maximum Rate but any subsequent
reduction in the Formula Rate shall not reduce the rate of interest below the
Maximum Rate until the total amount of interest accrued equals the amount of
interest which would have accrued if the Formula Rate had at all times been in
effect. Interest shall be calculated at a daily rate equal to 1/360th of the
annual rate stated, subject however to the limitation that the effective
interest rate may never exceed the Maximum Rate. Each account rendered shall be
deemed acceptable to and binding upon us unless we give you written notice of
any exception thereto within thirty (30) days after your rendition thereof.

<PAGE>

The "Maximum Rate" shall mean at the particular time in question the highest
lawful rate of interest which, under the laws of the United States of America
applicable to contracts made or performed in the State of Texas, including,
without limitation, 12 U.S.C. 86(a), as amended to the date hereof and as the
same may be amended at any time and from time to time hereafter and an I y other
statute of the United States of America now or at an), time hereafter
prescribing maximum rates of interest on loans and extensions of credit, and the
laws of the State of Texas, including without limitation, article 1.04 Title 79,
Revised Civil Statute of Texas, 1925, as amended to the date hereof by H.B. 1228
and as the same may be amended at any time and from time to time hereafter
("Article 1.04") and any other statute of the State of Texas now or, at any time
hereafter prescribing maximum rates of interest on loans and extensions of
credit (all the foregoing hereinafter referred to as the "Applicable Law"), you
are then permitted to charge us. If the highest lawful rate of interest which,
under Applicable Law, you are permitted to charge us shall change after the date
hereof, the Maximum Rate shall be automatically increased, as the case may be,
from time to time as of the effective time of each change in the Maximum Rate
without notice to us. For purposes of determining the Maximum Rate under the
Applicable Law of the State of Texas, the applicable rate ceiling shall be the
indicated rate ceiling described in and computed in accordance with the
provisions of Section (a)(1) of Article 1.04, provided, that at any time such
indicated rate ceiling shall be less than eighteen percent (18%) per annum. or
more than twenty four percent (24%) per annum, the provisions of Sections (b)(1)
and (2) of Article 1.04 shall control for purposes of such determination, as
applicable.

The "Formula Rate" shall mean a rate of interest one and three quarters percent
(1.75%) above the Prime Rate charged by Bank One, Texas, N.A., or its
successors, as announced or published by the bank, or its successors, from time
to time. If the Prime Rate of said bank, or its successors, shall change after
the date hereof, the Formula Rate shall be automatically increased or decreased,
as the case may be, from time to time on the effective date of each change in
the Prime Rate of said bank, or its successors, without prior notice to us.

8. We hereby grant to you a general and continuing lien and security interest in
all of our accounts, instruments, documents, chattel paper, contract rights and
general intangibles, all of our present and future credit balances and reserves,
funds, monies and other properties coming into your hands, all monies payable by
us to you hereunder or otherwise, and all proceeds (including insurance
proceeds) and products of the foregoing as security for the payment and
satisfaction of any and all or our present and future liabilities, indebtedness
and obligations to you, whether absolute or contingent, liquidated or
unliquidated, arising under this agreement or otherwise, including any amounts
owing by us to you for merchandise purchased from any other concern factored or
financed by you or otherwise. Recourse to any of the foregoing collateral shall
not at any time be required and we hereby authorize you to charge our account
for the amounts of any or all of the liabilities, indebtedness and obligation,
which are secured thereby. You may treat all indebtedness owed by us to you as
an entire single indebtedness for which we shall remain liable for full payment
without demand and you may, at your option, apply any funds, receivables,
credits or property of ours coming into your possession to any particular
portion of the indebtedness. We agree to pay all expenses (including reasonable
attorney fees) incurred by you in collecting any indebtedness owed by us to you
or in enforcing the terms of this agreement. We shall execute and deliver to you
and/or file at such places and at such times as you may designate such further
instruments as you may from

<PAGE>

time to time require for the protection of your rights hereunder. We agree to
pay all expenses related to all tax and lien; searches and filings you may
perform related to our account.

9. We shall keep at our cost and expense proper books of account showing all
transactions relating to sales, and you may, at all reasonable times, inspect,
verify and check all of our books, accounts, records, orders and correspondence
and papers which you deem relevant to the receivables in which you have an
interest hereunder, and inspect and audit our books, records, accounts, files or
inventory and make: extracts thereof. We will provide you promptly with such
signed financial statements and related information in such form, from time to
time, as requested by you. We will provide with at least thirty (30) days prior
written notice of any material change in our ownership, control or management.

10. This agreement shall become, effective upon your acceptance. hereof, shall
be deemed dated as of the date set forth hereinafter and shall continue in full
force and effect from month to month thereafter until terminated as to future
transactions by either party giving to the other not less than thirty (30) days
advance written notice by mail. Of course, termination will not effect any of
our obligations hereunder to you of any kind prior to the effective date of
termination, and pending final accounting you may withhold any balance in our
account unless you are supplied with an indemnity satisfactory to you. In the
event of such termination, all of our obligations to you shall become due and
payable on the effective date of such termination, irrespective of any maturity
dates established prior thereto. You may, at your election, immediately
terminate this agreement as to future transactions, without notice, if we shall
fail to perform any of our obligations hereunder or shall breach any warranty
contained herein, or if we shall become insolvent or suspend business or if a
petition under any chapter of the Federal Bankruptcy Act or any other insolvency
or debtor statute or receivership proceedings shall be filed by or against us,
or if any guaranty of our obligations hereunder shall be terminated by the
guarantor, or if you determine, in your sole discretion, that there has been a
material change in our ownership, control or management, or if you should
otherwise deem yourself insecure. We agree to reimburse you upon demand for all
attorney fees, court costs and other expenses incurred by you in enforcing any
of your rights against us under this agreement.

All notices provided herein shall be given at the addresses set forth:

Main Factors, Inc.                            The Singing Machine Company, Inc.
P.O. Box 50608                                6601 Lyons Road, Building A-7
Dallas, TX 75250                              Coconut Creek, FL 33073

11. This agreement, when accepted by you, constitutes a security agreement under
the provisions of the Uniform Commercial Code then in effect in the State of
Texas and all of our obligations are performable and/or payable in the City of
Dallas, Dallas County, Texas, and we waive the right to be sued elsewhere on any
cause of action asserted by or against us. Your books and records showing the
account between us shall be admissible in evidence in any action or proceeding,
shall be binding upon us for the purpose establishing the items therein set
forth and also shall constitute prima facie proof thereof. This agreement may
only be changed, modified, supplemented or amended by written document signed by
you. This agreement shall be construed according to the laws of the State of
Texas. Should any paragraph, provision or clause of this agreement be found or
held contrary to, or

<PAGE>

unenforceable at law or in equity, such finding shall not effect the others,
which shall, notwithstanding, continue in all force and effect, it being the
express intention of the parties hereto that the invalidity of any one or more
paragraphs, provisions or clauses shall in no way affect the others. This
agreement represents the full agreement between us and shall be binding upon
both of us, our successors and assigns. No delay or failure on your part in
exercising of your rights, privileges or options hereunder shall operate as a
waiver of such rights, privileges or options and no waiver whatsoever shall be
valid unless it is in writing and signed by you and then only to the extent set
forth therein.

THE SINGING MACHINE COMPANY, INC.
<TABLE>
<CAPTION>
<S>                                                           <C>

By:       /s/ Edward Steele                                   By:       /s/ John Klecha
   ----------------------------------------------------------    --------------------------------------------------------
         Edward Steele, President                                      John Klecha, Secretary

Main Factors, Inc.

Accepted in Dallas, Texas this 7th day of April, 2000

By:   /s/ Fain Michie
   -------------------------------------------------------------
         Fain Michie, President
</TABLE>

<PAGE>

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