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<SEC-DOCUMENT>0001116502-01-500675.txt : 20010627
<SEC-HEADER>0001116502-01-500675.hdr.sgml : 20010627
ACCESSION NUMBER:		0001116502-01-500675
CONFORMED SUBMISSION TYPE:	10QSB/A
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20001231
FILED AS OF DATE:		20010626

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SINGING MACHINE CO INC
		CENTRAL INDEX KEY:			0000923601
		STANDARD INDUSTRIAL CLASSIFICATION:	PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS [3652]
		IRS NUMBER:				953795478
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0331

	FILING VALUES:
		FORM TYPE:		10QSB/A
		SEC ACT:		
		SEC FILE NUMBER:	000-24968
		FILM NUMBER:		1667833

	BUSINESS ADDRESS:	
		STREET 1:		6601 LYONS ROAD
		STREET 2:		BLDG A-7
		CITY:			COCONUT CREEK
		STATE:			FL
		ZIP:			33073
		BUSINESS PHONE:		9545961000

	MAIL ADDRESS:	
		STREET 1:		6601 LYONS ROAD BLDG
		CITY:			COCONUT CREEK
		STATE:			FL
		ZIP:			33073
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB/A
<SEQUENCE>1
<FILENAME>singingmachine10qsba.txt
<DESCRIPTION>AMENDMENT TO QUARTERLY REPORT FORM 10-QSB/A
<TEXT>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                  FORM 10-QSB/A
                                 Amendment No. 1

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                For the quarterly period ended December 31, 2000
                                -----------------


                                    0 - 24968
                             Commission File Number


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



                               Delaware 95-3795478
                               -------- ----------
                (State of Incorporation ) (IRS Employer I.D. No.)


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


                                 (954) 596-1000
                                 --------------
                (Issuer's telephone number, including area code)


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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a
court. Yes  x  No
           ---    ---

               APPLICABLE ONLY TO CORPORATE ISSUERS

     There were 4,359,120 shares of Common Stock, $.01 par value, issued and
outstanding at December 31, 2000.


<PAGE>


                THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY

                                      INDEX

Explanatory Note

PART I.    FINANCIAL INFORMATION

     Item 1.   Financial Statements

               Consolidated Balance Sheets - December 31, 2000
               (Unaudited) and March 31, 2000.

               Consolidated Statement of Operations - Three months
               and nine months ended December 31, 2000 and 1999
               (Unaudited).

               Consolidated Statement of Cash Flows - Three months
               and nine months ended December 31, 2000 and 1999
               (Unaudited).

               Notes to Consolidated Financial Statements.

     Item 2.   Management's Discussion and Analysis of Financial
               Condition and Results of Operations.

PART II.       OTHER INFORMATION

     Item 1.   Legal Proceedings

     Item 2.   Changes in Securities

     Item 3.   Defaults Upon Senior Securities

     Item 4.   Submission of Matters to a Vote of Security Holders

     Item 5.   Other Information

     Item 6.   Exhibits and Reports on Form 8-K

SIGNATURES






                                       -2-

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item I.     Financial Statements

                THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>
                                                                   December 31,             March 31,
                                                                       2000                  2000
                                                                   ------------          ------------
                                                                    (unaudited)
<S>                                                                <C>                   <C>
CURRENT ASSETS:
  Cash                                                             $    411,184          $    378,848
  Accounts Receivable                                                 4,965,001               728,038
  Due from Factor                                                     2,630,918               115,201
  Due from Officer(s)                                                   110,000               110,000
  Due from related party                                                     --               394,706
  Inventory - net                                                     2,563,634             1,487,206
  Interest Receivable                                                     4,950                 7,425
  Prepaid Expenses and
    Other Current Assets                                                546,070               204,311
  Deferred Tax Asset                                                    363,194               363,194
                                                                   ------------          ------------
         TOTAL CURRENT ASSETS                                        11,594,951             3,788,929

PROPERTY AND EQUIPMENT, NET                                             291,218                99,814

OTHER ASSETS:
  Reorganization Intangible - net                                       389,434               458,158
                                                                   ------------          ------------
         TOTAL ASSETS                                              $ 12,275,603          $  4,346,901
                                                                   ============          ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts Payable                                                    1,517,104               354,193
  Accrued Expenses                                                    1,739,366                73,675
  Income taxes payable                                                  769,583                11,994
  Notes Payable                                                               0                     0
  Due to related party                                                  204,683                   753
                                                                   ------------          ------------
         TOTAL CURRENT LIABILITIES                                    4,230,736               440,615
                                                                   ------------          ------------
SHAREHOLDERS' EQUITY:
Preferred Stock, $1.00 par value;
 1,000,000 shares authorized,
 issued and outstanding                                                      --             1,000,000
Common Stock, $.01 par value;
 18,900,000 shares authorized;
 4,362,920 and 2,960,120, shares
 issued and outstanding,
 respectively                                                            43,629                29,600
Common stock to be issued
 (50,000 and 67,500 shares,
  respectively)                                                             500                   675
Additional Paid In Capital                                            3,285,840             1,719,049
Deferred Guarantee Fees                                                (228,629)             (400,101)
Retained Earnings                                                     4,943,528             1,557,063
                                                                   ------------          ------------
         TOTAL SHAREHOLDERS' EQUITY                                   8,044,868             3,906,286
                                                                   ------------          ------------
TOTAL LIABILITIES
 AND SHAREHOLDERS' EQUITY                                          $ 12,275,603          $  4,346,901
                                                                   ============          ============
</TABLE>
                 See accompanying notes to financial statements

                                       -3-
<PAGE>

                THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                          Three Months Ended                       Nine Months Ended
                                                    December 31,      December 31,           December 31,      December 31,
                                                        2000              1999                   2000             1999
                                                    ------------      ------------           ------------      ------------
<S>                                                 <C>               <C>                   <C>                <C>
NET SALES                                           $ 13,863,790      $ 8,640,813           $ 30,768,186       $ 16,967,618

COST OF SALES                                          9,173,854         6,393,568             21,254,423        12,494,742
                                                    ------------      ------------           ------------      ------------

GROSS PROFIT                                           4,689,936         2,247,245              9,513,763         4,472,876

SELLING, GENERAL AND
 ADMINISTRATIVE EXPENSES                               2,259,606           938,747              4,806,054         1,921,996
                                                    ------------      ------------           ------------      ------------

INCOME FROM OPERATIONS                                 2,430,330         1,308,498              4,707,709         2,550,880

OTHER INCOME (EXPENSES):
  Other income                                            10,268             5,480                 14,214            16,142
  Interest expense                                      (201,294)          (40,430)              (404,486)          (48,681)
  Interest income                                          6,594                 0                 41,809                 0
  Factoring fees                                        (144,245)         (150,416)              (212,743)         (347,689)
                                                    ------------      ------------           ------------      ------------

                  NET OTHER EXPENSES                    (328,677)         (185,366)              (561,206)         (380,228)

INCOME BEFORE INCOME TAX
  EXPENSE                                              2,101,653         1,123,132              4,146,503         2,170,652

INCOME TAX EXPENSE                                       371,522                 0                760,038                 0

NET INCOME                                          $  1,730,131      $  1,123,132           $  3,386,465      $  2,170,652
                                                    ============      ============           ============      ============

NET INCOME PER COMMON SHARE
  Basic                                             $       0.40      $       0.39           $       0.81      $       0.75
                                                    ============      ============           ============      ============
  Diluted                                           $       0.34      $       0.23           $       0.69      $       0.53
                                                    ============      ============           ============      ============

WEIGHTED AVERAGE COMMON AND
 COMMON EQUIVALENT SHARES OUTSTANDING
  Basic                                                4,360,772         2,898,500              4,190,480         2,898,500
  Diluted                                              5,124,436         4,812,900              4,906,869         4,110,317

</TABLE>
                 See accompanying notes to financial statements

                                       -4-

<PAGE>

                THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                          Three Months Ended                       Nine Months Ended
                                                    December 31,      December 31,           December 31,      December 31,
                                                        2000              1999                   2000              1999
                                                    ------------      ------------           ------------      ------------
<S>                                                 <C>               <C>                   <C>                <C>
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES                              $ 5,985,004       $ (295,523)           $ 1,623,779        $(1,294,369)
                                                    -----------       ----------            -----------        -----------

CASH FLOWS FROM INVESTING
 ACTIVITIES:
  Purchase of property and
    equipment                                           (45,613)          34,759               (255,007)           (96,796)
  Due from factor                                    (2,260,398)          (7,554)            (2,515,717)           (32,214)
  Due from related parties                               (3,143)         394,706                 (5,559)
                                                    -----------      -----------            -----------        -----------
         Net cash provided by (used in)
          investing activities                       (2,306,011)          24,062             (2,376,018)          (149,241)
                                                    -----------      -----------            -----------        -----------

CASH FLOW FROM FINANCING
 ACTIVITIES:
  Proceeds from issuance of common
   stock & exercise of warrants
   and options                                          188,000               --              1,580,645                 --
  Proceeds from issuance of preferred
   stock                                                     --               --             (1,000,000)         1,375,000
  Net proceeds from related party                    (3,352,085)              --                203,930                 --
  Net proceeds from notes payable                      (600,000)         831,873                     --            852,011
                                                    -----------      -----------            -----------        -----------
         Net cash provided by
          financing activities                       (3,764,085)         831,873                784,575          2,227,011
                                                    -----------      -----------            -----------        -----------

Increase in cash and cash
 equivalents                                            (85,092)         560,412                 32,336            783,401

Cash and cash equivalents
  - beginning of period                                 496,276          272,277                378,848             49,288
                                                    -----------      -----------            -----------        -----------

CASH AND CASH EQUIVALENTS
  - END OF PERIOD                                   $   411,184      $   832,689            $   411,184        $   832,689
                                                    ===========      ===========            ===========        ===========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       -5-

<PAGE>

                THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2000
                                   (Unaudited)


NOTE 1 -  CONSOLIDATED FINANCIAL STATEMENTS
          ---------------------------------

          The accompanying consolidated financial statements of the Company have
          been prepared in accordance with the instructions to Form 10-QSB and,
          therefore, omit or condense certain footnotes and other information
          normally included in financial statements prepared in accordance with
          generally accepted accounting principles. It is suggested that these
          consolidated condensed financial statements should be read in
          conjunction with the Company's financial statements and notes thereto
          included in the Company's audited financial statements on Form 10-KSB
          for the fiscal year ended March 31, 2000.

          The accounting policies followed for interim financial reporting are
          the same as those disclosed in Note 1 of the Notes to Financial
          Statements included in the Company's audited financial statements for
          the fiscal year ended March 31, 2000, which are included in Form 10-
          KSB.

          In the opinion of management, all adjustments which are of a normal
          recurring nature and considered necessary to present fairly the
          financial positions, results of operations, and cash flows for all
          periods presented have been made.

          The results of operations for the nine month period ended December 31,
          2000 are not necessarily indicative of the results that may be
          expected for the entire fiscal year ending March 31, 2001.

          The accompanying consolidated condensed financial statements include
          the accounts of the Company and its wholly-owned subsidiary. All
          significant inter-company balances and transactions have been
          eliminated. Assets and liabilities of the foreign subsidiary are
          translated at the rate of exchange in effect at the balance sheet
          date; income and expenses are translated at the average rates of
          exchange prevailing during the year. The related translation
          adjustment is not material.

NOTE 2 -  MAJOR CUSTOMERS
          ---------------

          As a percentage of total revenues, the Company's net sales in the
          aggregate to its five (5) largest customers during the quarters ended
          December 31, 2000 and 1999 were approximately 81% and 73%,
          respectively. For the nine months ending December 31, 2000, two (2)
          major retailers accounted for 36% and 19% each of total

                                       -6-

<PAGE>

                THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2000
                                   (Unaudited)


NOTE 2 -  MAJOR CUSTOMERS (Cont'd)
          ---------------

          revenues. Because of the seasonality of the Company's sales, these
          results may be distorted due to the historically high percentage of
          overall sales during the Company's second and third fiscal quarters of
          each year.

NOTE 3 -  LOANS PAYABLE
          -------------

          During May 2000, the Company entered into two working capital loan
          agreements of $100,000 and $500,000, respectively. The loans extend
          over a maximum period of eight months, bear interest at 15% per annum,
          and are secured by corporate guarantees. In addition, the lenders were
          granted 5,000 and 25,000 stock options, respectively, to purchase
          shares of the Company's common stock at an exercise price of $3.25.
          The 30,000 stock options were accounted for as expense based on the
          estimated value of the options at the grant dates which aggregate
          aproximately $38,000. As of December 31, these loans have been paid in
          full.

NOTE 4 -  EXERCISE OF STOCK OPTIONS AND WARRANTS AND MODIFICATION
          -------------------------------------------------------

          Stock options and warrants were exercised during the third quarter of
          fiscal year 2001. 104,000 shares of common stock were issued with
          proceeds to the Company of $188,000.

          On October 26,2000, the Company extended the expiration of the
          Company's Public Warrants to November 10, 2001. All other terms and
          conditions of the Public Warrants shall remain the same (exercise
          price, manner of exercise, etc.)

NOTE 5 -  ISSUANCE OF STOCK OPTIONS TO EMPLOYEES
          --------------------------------------

          At the end of September 2000, the Company issued 675,500 options to
          employees of the Company. The exercise price of these options is $3.06
          per option. This price is equal to the fair market value of the
          Company's common stock on the grant date. These options were accounted
          for in accordance with APB No. 25.


NOTE 6 -  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

          The Company has an agreement with FLX (a China manufacturer of
          consumer electronics products) to produce electronic recording
          equipment based on the Company's specifications. Paul Wu, a former
          director of the

                                       -7-

<PAGE>

          Company, is Chairman of the Board and a principal stockholder of FLX.
          During the fiscal years ended March 31, 2000 and 1999, the Company
          purchased approximately $10.3 million and $1.7 million respectively,
          in equipment from FLX. The amount due to FLX at December 31, 2000 of
          $204,683 is included in the related party payable. The Company
          believes that all of the foregoing transactions with FLX have been on
          terms no less favorable to the Company than could have been obtained
          from unaffiliated third parties in arms-length transactions under
          similar circumstances.

NOTE 7 -  INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARY
          ----------------------------------------------------------

          In November 2000, the Company closed an acquisition of 60% of the
          ordinary voting shares of a Hong Kong toy company for a total purchase
          price of $170,000. The Company believed that the vendors has extended
          the effective date to June 2001, but a dispute arose and the Company
          committed to dispose of the entire investment. Accordingly, pursuant
          to Statement of Financial Accounting Standards No. 94 "Consolidation
          of All Majority-Owned Subsidiaries," the Company is treating the
          control of the subsidiary as temporary and has recorded the entire
          investment of $170,000 and advances of approximately $59,000 at cost
          included in prepaid expenses and other assets. The Company intends to
          enter into a contract to sell its 60% interest to Robert Whitkin at
          the original cost.


NOTE 8 -  SEGMENTS
          --------

          The Company operates in one business segment. Sales during the three
          months and nine months ended December 31, 2000, were generated in the
          following geographic regions.

                                              Three Months      Nine Months
                                                 Ended            Ended
                                              -----------      -----------
                          United States       $13,691,080      $30,330,473
                          Europe/Asia             172,710          437,713
                                               ----------       ----------
                          Total Sales         $13,863,790      $30,768,186
                                              ===========      ===========


                                       -8-

<PAGE>


                                EXPLANATORY NOTE


         We are filing this amendment to our quarterly report on Form 10-QSB for
the nine months and three months ended December 31, 2000. Although there is no
effect on net earnings, we are restating our sales and cost of goods sold. The
correction results in an improved gross profit percentage on product sales while
net earnings per share remains unchanged.

         Our total revenues were $30,768,186 for the nine months ended December
31, 2000 and $13,863,790 for the three months ended December 31, 2000. This
reflects the application of SFAS No. 48, which requires that the gross effect of
the accrual for product returns be posted to sales and cost of sales, rather
than the net effect, which was previously recorded only to sales. The difference
between the two methods became material at December 31, 2000 due to a
non-recurring problem for which we recorded a larger than usual product return
accrual. We are also reporting that out acquisition of sixty percent (60%) of
the outstanding common stock of Toy Concepts International, Inc. closed on
November 10, 2000. This acquisition was not material and we plan of disposing of
our investment immediately.

         We hereby amended and restate our Quarterly Report on Form 10- QSB for
the nine months and three months ended December 31, 2000 in its entirety as set
forth in this Amendment No. 1.

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10- QSB, including
without limitation, statements containing the words "believes," "anticipates,"
"estimates," "expects," and words of similar import, constitute "forward-looking
statements." You should not place undue reliance on these forward-looking
statements. Our actual results could differ materially from those anticipated in
these forward-looking statements for many reasons, including the risks faced by
us described below and elsewhere in this Quarterly Report, and in other
documents we file with the Securities and Exchange Commission

Readers are cautioned not to place undue reliance on these forward- looking
statements, which reflect management's opinions only as of the date hereof. We
undertake no obligation to revise or publicly release the results of any
revision to these forward-looking statements.

GENERAL

The Singing Machine Company, Inc. and its wholly owned subsidiary,

                                       -9-

<PAGE>

International (SMC) HK, Ltd.("the "Company," "we" or "us") engages in the
production and distribution of karaoke audio software and electronic recording
equipment. Our electronic karaoke machines and audio software products are
marketed under The Singing Machine(TM) trademark.

Our products are sold throughout the United States, primarily through department
stores, lifestyle merchants, mass merchandisers, direct mail catalogs and
showrooms, music and record stores, national chains, specialty stores and
warehouse clubs.

Our karaoke machines and karaoke software are currently sold in such retail
outlets as Best Buy, Toys R Us, Wal-mart, Target, J.C. Penney and Fingerhut.

We had net income before estimated income tax of $4,146,503 for the nine month
period ended December 31, 2000. Our working capital as of December 31, 2000, was
approximately $7,402,616.

RESULTS OF OPERATIONS

REVENUES

Our revenues increased 62% to $13,863,790 for the three month period ended
December 31, 2000 compared with revenues of $8,640,813 for the three-month
period ended December 31, 1999. Our revenues increased by 81.3% to $30,786,186
for the nine month period ended December 31, 2000, compared with revenues of
$16,967,618 during the same period in 1999. The increase in total revenues can
be attributed to the addition of a major customer. It can also be attributed to
the growing popularity of karaoke as wholesome family entertainment.

GROSS PROFIT

Our gross profit from equipment and music sales increased by 108.6% to
$4,689,936, for the three month period ended December 31, 2000 compared with
gross profit of $2,247,245,for the three month period ended December 31, 1999.
Our gross profit from equipment and music sales increased by 112% to $9,513,764,
for the nine month period ended December 31, 2000, compared with gross profit of
$4,472,876, for the same period in 1999.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Our SG&A expenses were $2,259,606, or 10.7% of total revenues, and $938,747, or
10.9% of total revenues for the three month periods ended December 31, 2000 and
1999. Our SG&A expenses were $4,806,055, or 12.4% of total revenues, and
$1,921,996, or 11.3% of total revenues, for the nine month periods ended
December 31, 2000 and 1999. The period-to-period increase in SG&A expenses is
due to (1) an increase in salary related expenses due to an increase in
corporate office staff, (2) a non-cash expense due to the continued amortization
of stock based guarantee fee, and (3)increases in sales based expenses such as
commissions and royalties.

                                      -10-

<PAGE>

DEPRECIATION AND AMORTIZATION EXPENSES

Our depreciation and amortization expenses were $33,983, or .16% of total
revenues and $29,747, or .34% of total revenues, for the three month periods
ended December 31, 2000 and 1999. This increase in depreciation and amortization
expenses can be attributed to the addition of new tooling for the production of
machines. Depreciation and amortization expenses were $93,194, or .23% of total
revenues and $82,820, or .48% of total revenues, for the nine month periods
ended December 31, 2000 and 1999.

OTHER EXPENSES

Net interest expense was $201,294, or .96% of total revenues, and $40,430, or
 .46% of total revenues, for the three months ended December 31, 2000 and 1999.
Net interest expense was $404,486, or 1.04% of total revenues, and $48,681, or
 .48% of total revenues, for the nine months ended December 31, 2000 and 1999.
The increase in net interest expense can be attributed to our increased use of
our credit line facilities to fund the inventory necessary to meet demand for
our products.

Loss on sales of accounts receivable was $144,245, or .69% of total revenues,
and $150,689, or 1.7% of total revenues, during the three month periods ended
December 31, 2000 and 1999. Loss on sales of accounts receivable was $212,744,
or .5% of total revenues, and $347,689, or 2.0% of total revenues, during the
nine month periods ended December 31, 2000 and 1999. This decrease is due to
decreased charges on factored invoices. These decreased charges are the result
of a larger total amount of invoices being factored, which in turn decreased
both the interest percentage and gives us better terms of factor.

INCOME BEFORE INCOME TAX EXPENSE

As a result of the foregoing, our net income before income tax expenses
increased by 87.1% to $2,101,653, for the three month period ended December 31,
2000, compared with $1,123,132, for the three month period ended December 31,
1999. Our net income before income tax expense increased by 91.1% to $4,146,503,
for the nine month period ended December 31, 2000 compared with $2,170,652, for
the same period in 1999.

INCOME TAX EXPENSE

As of the nine months ending December 31,2000, the Company has incurred an
estimated income tax of $760,038. For the three months ended December 31, 2000
the amount of estimated income tax was $371,522. During previous periods, we did
not have to pay income taxes, because we used our tax-loss carry-forwards. As of
September 30, 2000,we had used up our tax-loss carry-forwards and will have to
pay income taxes. We expect our income tax rate to be approximately 22% in
future quarters, reflecting the combined tax rates on our operations in the U.S.
and Hong Kong.


                                      -11-

<PAGE>

NET INCOME

As a result of the foregoing, our net income increased 54.0% to $1,730,131, for
the three month period ended December 31, 2000, compared with net income of
$1,123,132 for the three month period ended December 31, 1999. Our net income
increased by 56.0% to $3,386,465, for the nine month period ended December 31,
2000, compared with net income of $2,170,652 for the same period in 1999.

SEASONALITY AND QUARTERLY RESULTS

Historically, our operations have been seasonal, with the highest net sales
occurring in the second and third quarters (reflecting increased orders for
equipment and music merchandise during the Christmas selling months) and to a
lesser extent the first and fourth quarters of the fiscal year.

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

FINANCIAL CONDITION AND LIQUIDITY

At December 31, 2000, we had current assets of $11,594,951 and total assets of
$12,275,603 compared to current assets of $3,788,929 and total assets of
$4,346,901 at March 31, 2000. This increase in current assets and total assets
is primarily due to the increase in accounts receivable and inventory.

Current liabilities increased to $4,192,335 as of December 31, 2000, compared to
$440,615 at March 31, 2000. This increase in current liabilities is because of
increased accounts payable, increased accrued expenses, an income tax payable
and the increased use of our credit lines to fund future sales. We increased the
use of credit lines primarily to purchase more inventory. Accounts payable
increased to $1,517,104 as of December 31, 2000 from $354,193 as of March 31,
2000, primarily as a consequence of our increased expenditures to finance our
sales efforts.

Our shareholder equity increased from $3,906,286 as of March 31, 2000, to
$8,083,268 as of December 31, 2000. Our increase in shareholder equity has
occurred because of the increase in our current assets, and our retained
earnings in the amount of $3,386,465.

Cash flows generated from operating activities were $1,623,779 during the nine
month period ended December 31, 2000. Cash used in investing activities during
the nine month period ended December 31, 2000 was $(2,376,018). Cash flows from
financing activities were $784,575 during the nine month period ended December
31, 2000. This consisted of proceeds in the amount of $1,580,645 from the
exercise of warrants and options, and proceeds from certain loans.

                                      -12-

<PAGE>

CAPITAL RESOURCES

The Company has obtained significant financing for continuing operations and
growth. Two (2) specific lines of credit have been opened through the Company's
Hong Kong subsidiary, and two (2) financing agreements through its U.S.
operations.

Belgian Bank

Effective February 14, 2000, the Company, through its Hong Kong subsidiary,
International SMC(HK) Ltd., obtained a credit facility of $500,000 (US) from
Belgian Bank, Hong Kong, a subsidiary of Generale Bank, Belgium. This facility
is a revolving line based upon drawing down a maximum of 15% of the value of
export letters of credit held by Belgian Bank. There is no maturity date except
that Belgian Bank reserves the right to revise the terms and conditions at the
Bank's discretion. The cost of this credit facility is the U.S. Dollar prime
rate plus 1.25%. Repayment of principal plus interest shall be made upon
negotiation of the export letters of credit, but not later than ninety (90) days
after the advance.

Hong Kong Bank

Effective July 7, 1999, the Company, through its Hong Kong subsidiary,
International SMC(HK) Ltd., obtained a credit facility of $200,000 (US) from
Hong Kong Bank. This facility is a revolving line based upon drawing down a
maximum of 15% of the value of export letters of credit held by Hong Kong Bank.
There is no maturity date except that Hong Kong Bank reserves the right to
revise the terms and conditions at the Bank's discretion. The cost of this
credit facility is the U.S. dollar prime rate plus 2.5%. Repayment of principal
plus interest shall be made upon negotiation of the export letters of credit,
but not later that ninety (90) days after the advance.

Main Factors, Inc.

The Company is a party to a factoring agreement, as amended April 7, 2000 with
Main Factors, Inc. ("Main Factors") pursuant to which Main Factors has agreed to
purchase certain of the Company's accounts receivable. Under the agreement, Main
Factors will purchase certain selected accounts receivable from the Company and
advance between 75% and 85% of the face value of those receivables to the
Company. The accounts receivable are purchased by Main Factors without recourse
and Main Factors performs an intensive credit review prior to the purchase of
the receivables.

The Company is charged a variable percentage from 1.5% to 1% based upon the
total amount of factored receivables within a calendar year. Main Factors has
placed no maximum limit on the amount of the Company's receivables it will
purchase. The factoring agreement is personally guaranteed by John Klecha, the
Company's

                                      -13-

<PAGE>

Chief Operating Officer and Chief Financial Officer.

EPK Financial Corporation

The Company has also entered into an agreement with EPK Financial Corporation
("EPK") whereby EPK will open letters of credit with the Company's factories to
import inventory for distribution to the Company's customers. This allows the
Company to purchase domestic hardware inventory for distribution to customers in
less than container load quantities, thus providing the Company's customers with
flexibility, and further, saving the customer the expense of opening a letter of
credit in favor of the Company. The selling price to these customers is
considerably higher because the Company pays financing costs to EPK and incurs
costs of ocean freight, duty, and handling charges. Upon shipment of product
from these financed transactions, the receivables are factored by Main Factors,
thereby buying the shipments and related interest from EPK.

The Company pays EPK a negotiated flat fee per transaction, and the maximum
purchase price per transaction is $1,000,000. There have been no maximum total
shipments established under this agreement. Main Factors has entered into this
agreement as a third party agreeing to purchase all receivables invoiced
pursuant to the EPK agreement. The transactions financed by EPK are supported by
personal guarantees of Edward Steele, the Company's Chairman and Chief Executive
Officer and John Klecha, the Company's Chief Operating Officer, and Chief
Financial Officer. The agreement is in effect until July 1, 2001, unless
terminated by either party upon a thirty (30) day written notice.

Loans Payable

During May 2000, the Company entered into two working capital loan agreements of
$100,000 and $500,000, respectively. The loans extend over a maximum period of
eight months, bear interest at 15% per annum, and are secured by corporate
guarantees. In addition, the lenders were granted 5,000 and 25,000 stock
options, respectively, to purchase shares of the Company's common stock at an
exercise price of $3.25.

We believe that our current cash and equivalents, lines of credit, and cash
generated from operations will satisfy our expected working capital and capital
expenditure requirements at least through the next 12 months.

The Company has no present commitment that is likely to result in its liquidity
increasing or decreasing in any material way. In addition, the Company knows of
no trend, additional demand, event or uncertainty that will result in, or that
is reasonably likely to result in, the Company's liquidity increasing or
decreasing in any material way.

The Company has no material commitments for capital expenditures.
The Company knows of no material trends, favorable or unfavorable,

                                      -14-

<PAGE>

in the Company's capital resources. The Company has no additional outstanding
credit lines or credit commitments in place and has no additional current need
for financial credit.

RISK FACTORS

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

We have significant future capital needs which are subject to the
uncertainty of additional financing

We may need to raise significant additional funds to fund our rapid sales growth
and/or implement other business strategies. If adequate funds are not available
on acceptable terms, or at all, we may be unable to sustain our rapid growth,
which would have a material adverse effect on our business, results of
operations, and financial condition.

Your investment may be diluted

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

Our ability to manage growth could hurt our business

To manage our growth, we must implement systems, and train and manage our
employees. We may not be able to implement these action items in a timely
manner, or at all. Our inability to manage growth effectively could have a
material adverse effect on our business operating results, and financial
conditions. There can be no assurance that we will achieve our planned expansion
goals, manage our growth effectively, or operate profitably.

Our inability to compete and maintain our niche in the
entertainment industry could hurt our business

The business in which we are engaged is highly competitive. In addition, we must
compete with all the other existing forms of entertainment including, but not
limited to, motion pictures, video arcade games, home video games, theme parks,
nightclubs, television and prerecorded tapes, CD's and video cassettes.
Competition in the Company's markets is based primarily on price, product
performance, reputation, delivery times, and customer support. We believe that
new product introductions and enhancements of existing products are material
factors for our continuing growth and profitability. Many of our competitors are
substantially larger and have significantly greater financial, marketing and
operating resources than we have. No assurance can

                                      -15-

<PAGE>

be given that we will continue to be successful in introducing new products or
further enhancing existing products.

We rely on sales to key customers which subjects us to risk

As a percentage of total revenues, the Company's net sales in the aggregate to
its five largest customers during the fiscal years ended March 31, 1999 and
2000, were approximately 91% and 70% respectively. For the nine months ended
December 31, 2000, two major retailers accounted for 36% and 19% each of total
revenues. During fiscal year 2001, the Company has made significant progress in
broadening its base of customers. Although we have long- established
relationships with many of our customers, we do not have long-term contractual
arrangements with any of them. A decrease in business from any of our major
customers could have a material adverse effect on our results of operations and
financial condition.


We have significant reliance on large retailers which are subject
to changes in the economy

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

We are subject to the risks of doing business abroad

We are dependent upon foreign companies for manufacture of all of our electronic
products. Our arrangements with manufacturers are subject to the risks of doing
business abroad, such as import duties, trade restrictions, work stoppages,
foreign currency fluctuations, political instability, and other factors which
could have an adverse impact on the business of the Company. We believe that the
loss of any one or more of our suppliers would not have a long-term material
adverse effect on us, because other manufacturers with whom we do business would
be able to increase production to fulfill our requirements. However, the loss of
certain of our suppliers, could, in the short-term, adversely affect our
business until alternative supply arrangements were secured. During fiscal 2000
and 1999, suppliers in the People's Republic of China accounted for 88% and 93%,
respectively of the Company's total product purchases, including virtually all
of the Company's hardware purchases. If Most Favored Nation ("MFN") status for
China is restricted or revoked in the future, the costs

                                      -16-

<PAGE>

of goods purchased from Chinese vendors is likely to increase. Management
continues to closely monitor the situation and has determined that the
production capabilities in countries outside China which have MFN status and,
therefore, have favorable duty rates, would meet production needs. Such a change
in suppliers may have a short-term adverse effect on operations and, possibly,
earnings.

We are subject to seasonality which is affected by various economic conditions
and changes resulting in fluctuations in quarterly results

We have experienced, and will experience in the future, significant fluctuations
in sales and operating results from quarter to quarter. This is due largely to
the fact that a significant portion of our business is derived from a limited
number of relatively large customer orders, the timing of which cannot be
predicted. Furthermore, as is typical in the karaoke industry, the quarters
ended September 30 and December 31 includes increased revenues from sales made
during the holiday season. Additional factors that can cause our sales and
operating results to vary significantly from period to period include, among
others, the mix of products, fluctuating market demand, price competition, new
product introductions by competitors, fluctuations in foreign currency exchange
rates, disruptions in delivery of components, political instability, general
economic conditions, and the other considerations described in this section.
Accordingly, period-to- period comparisons may not necessarily be meaningful and
should not be relied on as indicative of future performance. Historically, the
third quarter of our fiscal year, the three months ended December 31, have been
the most profitable quarter, and the fourth quarter of our fiscal year, the
three months ended March 31, have been the least profitable quarter.

Our proprietary technology may not be sufficiently protected

Our success depends on our proprietary technology. We rely on a combination of
contractual rights, patents, trade secrets, know- how, trademarks,
non-disclosure agreements and technical measures to establish and protect our
rights. We cannot assure you that we can protect our rights to prevent third
parties from using or copying our technology.

We may be subject to claims from third parties for unauthorized
use of their proprietary technology

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

                                      -17-


<PAGE>

Consumer discretionary spending may affect karaoke purchases and
is affected by various economic conditions and changes

Purchases of karaoke audio software and electronic discretionary recording
equipment are considered discretionary for consumers. Our success will therefore
be influenced by a number of economic factors affecting discretionary and
consumer spending, such as employment levels, business, interest rates, and
taxation rates, all of which are not under our control. Adverse economic changes
affecting these factors may restrict consumer spending and thereby adversely
affect our growth and profitability.

We depend on third party suppliers, and if we cannot obtain supplies as needed,
our operations will be severely damaged

We rely on third party suppliers to produce the parts and materials we use to
manufacture our products. If our suppliers are unable to provide us with the
parts and supplies, we will be unable to produce our products. We cannot
guarantee that we will be able to purchase the parts we need at reasonable
prices or in a timely fashion. If we are unable to purchase the supplies and
parts we need to manufacture our products, we will experience severe production
problems, which may possibly result in the termination of our operations.

We may not be able to attract and retain key personnel

The development of our business has been largely able to attract dependent on
the efforts of Edward Steele and John Klecha. Although we have entered into
employment contracts with Messrs. Steele and Klecha, the loss of the services of
either of these individuals could have a material adverse affect on the Company.
We believe that our future success also will depend significantly upon our
ability to attract, motivate, and retain additional highly skilled managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that we will be successful in attracting, assimilating, and retaining
the personnel we require to grow and operate profitability.

There is only a limited market for our stock and we cannot assure a more
significant market will ever develop

Our common stock is traded on the OTC Bulletin Board under the symbol "SING". As
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, our Common Stock. On January 24,
2001, we applied to have our securities listed on the American Stock Exchange.
While we believe that we meet all the requirements to be listed on the American
Stock Exchange, there are no assurances that our common stock will be listed on
the American Stock Exchange.


                                      -18-

<PAGE>


 PART II  -  OTHER  INFORMATION


Item 1.   LEGAL PROCEEDINGS


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

Item 2.   CHANGES IN SECURITIES

         (a) On October 26, 2000, the Board of Directors of the Company
unanimously consented to extend the expiration date of the Company's Public
Warrants to November 10, 2001. All other terms and conditions of the Public
Warrants shall remain the same (exercise price, manner of exercise, etc.).

         (b) Not Applicable.

         (c) During the three month period ended December 31, 2000, four warrant
holders exercised their warrants to acquire an aggregate of 104,000 shares of
our common stock. The names of the warrant holders, the dates of exercise the
number of shares purchased, the exercise price and the proceeds recieved by the
Company are listed below.

                     Date of         No. of       Exercise
Name                 Exercise        Shares       Price         Proceeds
- ----                 --------        ------       -----         --------
Bank Sal.
Oppenheim            10/27/00        40,000       $2.00         $80,000

Union Atlantic       11/01/00        20,000       $1.00         $20,000

Sil Venturi          12/01/00         4,000       $2.00         $ 8,000

Aton Trust           12/01/00        40,000       $2.00         $80,000

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

         (d) Not applicable.

Item 3.   DEFAULTS UPON SENIOR SECURITIES

         Not applicable

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

         Not applicable.



                                      -19-

<PAGE>

Item 5.   OTHER INFORMATION

         The Company purchased 600,000 shares or 60% of the issued and
outstanding shares of Toy Concepts International Limited, a Hong Kong company
from Lui Ka Shing David and Lui Yu Pik Kitty, effective as of November 10, 2000.
The acquisition was not material and did not require that the Company file a
Form 8-K. The Company believed that the closing date had been extended until
June 30, 2001. However, a dispute over the effective date of the closing. In
order to avoid litigation, the Company decided to accept the November 10 closing
date. The Company intends to sell its shares of Toy Concepts to Lawrence
Whitkin.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K


(c)      Reports on Form 8-K

         On November 30, 2000, the Company filed a Form 8-K reporting
information under Item 4 - Change in Registrant's Certifying Accountant.




                                      -20-



<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                              THE SINGING MACHINE COMPANY, INC.




Dated: June 26, 2001                                 By: /s/ John F. Klecha
                                                         -----------------------
                                                         John F. Klecha
                                                         Chief Financial Officer














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