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<SEC-DOCUMENT>0001116502-02-000887.txt : 20020701
<SEC-HEADER>0001116502-02-000887.hdr.sgml : 20020701
<ACCEPTANCE-DATETIME>20020701163847
ACCESSION NUMBER:		0001116502-02-000887
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		11
CONFORMED PERIOD OF REPORT:	20020331
FILED AS OF DATE:		20020701

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:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-24968
		FILM NUMBER:		02693933

	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>10KSB
<SEQUENCE>1
<FILENAME>singingmachine-10k.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

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

                    For the fiscal year ended March 31, 2002

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

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

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

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

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

           Securities registered pursuant to Section 12(b) of the Act:
       Title of each class    Name of each Exchange on which Registered
           Common Stock                American Stock Exchange
           Securities registered pursuant to Section 12(g) of the Act:
                                  Common Stock

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

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

The aggregate market value of the Registrant's voting stock held by
non-affiliates, based upon the closing price for the common stock of $14.40 per
share as reported on the American Stock Exchange on June 18, 2002 was
approximately $61,467,509 (based on 8,097,143 shares outstanding).

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

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

There were 8,097,143 shares of common stock, issued and outstanding at June 17,
2002.

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE
         The information required by Part III of this Report is incorporated
herein by reference from the registrant's definitive proxy statement relating to
the annual meeting of stockholders to be held in 2002, which definitive proxy
statement shall be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year to which this Report relates.
                                      None
Transitional Small Business Disclosure Format (check one):  Yes[  ]  No[X]

<PAGE>


                THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY


                      INDEX TO ANNUAL REPORT ON FORM 10-KSB

                    For the Fiscal Year ended March 31, 2002

<TABLE>
<CAPTION>

                                                                                                      Page
                                                PART I
<S>            <C>                                                                                     <C>
Item 1.        Business                                                                                 2
Item 2.        Properties                                                                               6
Item 3.        Legal Proceedings                                                                        6
Item 4.        Submission of Matters to a Vote of Security Holders                                      6

                                                PART II
Item 5.        Market for Registrant's Common Equity and Related Stockholder Matters                    7
Item 6.        Management's Discussion and Analysis of Financial Condition and Results of               9
               Operations
Item 7.        Consolidated Financial Statements and Supplementary Data                                20
Item 8.        Changes in and Disagreements with Accountants on Accounting and Financial               20
               Disclosure

                                                PART III
Item 9.       Directors, Executive Officers, Promoters and Control Persons; Compliance with            20
              Section 16(a) of the Exchange Act
Item 10.      Executive Compensation                                                                   20
Item 11.      Security Ownership of Certain Beneficial Owners and Management                           20
Item 12.      Certain Relationships and Related Transactions                                           23
Item 13.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K                         24
SIGNATURES                                                                                             25
</TABLE>

                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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

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

                                       1

<PAGE>

                                     PART I

FORWARD STOCK SPLIT

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

ITEM 1.  BUSINESS

OVERVIEW

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

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

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

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

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

PRODUCT LINES

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

                                       2

<PAGE>

MARKETING, SALES AND DISTRIBUTION

MARKETING

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

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

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

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

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

SALES

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

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

DISTRIBUTION

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

         Domestic Sales. Our strategy of selling products from a domestic
warehouse enables us to provide timely delivery and serve as a "domestic
supplier of imported goods." We purchase electronic recording products overseas

                                       3

<PAGE>

from certain factories in China for our own account and warehouse the products
in leased facilities in Florida and California. We are responsible for costs of
shipping, insurance, customs clearance, duties, storage and distribution related
to such products and, therefore, warehouse sales command higher sales prices
than direct sales. We generally sell from our own inventory in less than
container-sized lots. In the fiscal year ended March 31, 2002, approximately 55%
of our sales were domestic sales.

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

MANUFACTURING AND PRODUCTION

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

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

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

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

LICENSE AGREEMENTS WITH MTV AND NICKELODEON

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

                                       4
<PAGE>

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

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

COMPETITION

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

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

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

TRADEMARKS

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

COPYRIGHTS AND LICENSES

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

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

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

                                       5
<PAGE>

lyrics, which are distributed with our audio cassettes, which licenses also
typically provide for quarterly payments of royalties at the statutory rate.

GOVERNMENT REGULATION

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

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

EMPLOYEES

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

ITEM 2.  PROPERTIES

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

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

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

ITEM 3.  LEGAL PROCEEDINGS

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

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

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

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

                                       6
<PAGE>


                                     PART II

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

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

       Fiscal Period                                        High           Low
       2002:
       -----
       First Quarter (April 1 - June 30, 2001)            $ 4.45        $ 2.90
       Second Quarter (July 1 - September 30, 2001)         5.02          3.70
       Third Quarter (October 1 - December 31, 2001)       16.19          4.30
       Fourth Quarter (January 1 - March 31, 2002)         17.80         12.53

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

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

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

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

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

         The Company has never declared or paid cash dividends on its common
stock and the Company's Board of Directors intends to continue its policy for
the foreseeable future. Furthermore, the Company's credit facility with LaSalle
Business Credit, Inc. restricts the Company from paying any dividends to its
shareholders, unless it obtains prior written consent from LaSalle. Future
dividend policy will depend upon the Company's earnings, financial

                                       7
<PAGE>

condition, contractual restrictions and other factors considered relevant by the
Company's Board of Directors and will be subject to limitations imposed under
Delaware law.

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

Sale of Unregistered Securities

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

                  Date of       No. of     Exercise
   Name           Exercise      Shares      Price      Proceeds

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

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

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

                  Date of       No. of     Exercise
   Name           Exercise      Shares      Price      Proceeds

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

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

                                       8
<PAGE>

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

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


RESULTS OF OPERATIONS

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

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

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

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

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

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

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

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

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

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


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

NET SALES

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

GROSS PROFIT

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

OPERATING EXPENSES

         Operating expenses increased to $12,144,623, or 19.7% of sales, for the
year ended March 31, 2002 from $6,806,097, or 19.8% of sales, for the year ended
March 31, 2001. This increase in operating expenses was primarily attributed to
the increase in expenses associated with: (1) the opening of the Company's Hong
Kong

                                       9
<PAGE>

office, (2) the Company's first advertising campaign and (3) certain expenses
which are considered variable as they relate directly to the level of sales.

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

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

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

DEPRECIATION AND AMORTIZATION

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

OTHER EXPENSES

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

 INCOME BEFORE INCOME TAX EXPENSE

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

INCOME TAX EXPENSE

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

                                       10
<PAGE>

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

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

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

NET INCOME

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

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

NET SALES

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

GROSS PROFIT

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

OPERATING EXPENSES

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

DEPRECIATION AND AMORTIZATION

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

                                       11
<PAGE>

OTHER EXPENSES

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

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

INCOME TAX EXPENSE

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

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

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

NET INCOME

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

         Cash flows provided by operating activities were $2,954,687 during the
fiscal year ended March 31, 2002. Cash flows were used in operating activities
primarily due to increases in accounts receivable in the amount of

                                       12
<PAGE>

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

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

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

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

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

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

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

         As of March 31, 2002, we do not have any material commitments for
capital expenditures, other than (i) our obligation to make certain guaranteed
minimum royalty payments in the amount of $450,000 under our licensing agreement
with Nickelodeon, (ii) our lease for our warehouse space in California and (iii)
our purchases of inventory from certain factories in China. We also have
contractual obligations under our real estates leases in Florida, Hong Kong and
California. Except for the foregoing, we do not have any present commitment that
is likely to result in our liquidity increasing or decreasing in any material
way. In addition, except for the Company's need

                                       13
<PAGE>

for additional capital to finance inventory purchases, the Company knows of no
trend, additional demand, event or uncertainty that will result in, or that is
reasonably likely to result in, the Company's liquidity increasing or decreasing
in any material way.

Exchange Rates

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

SEASONAL AND QUARTERLY RESULTS

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

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

INFLATION

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

CRITICAL ACCOUNTING POLICIES

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

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

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

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

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

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

                                       14
<PAGE>

RISK FACTORS

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

Factors That May Affect Future Results and Market Price of Stock

We rely on sales to a limited number of key customers which account for a large
portion of our net sales

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

Our licensing agreement with MTV is important to our business

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

Inventory Management and Consignment Arrangement with Best Buy, our largest
customer

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

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

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

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

                                       15
<PAGE>

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

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

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

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

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

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

Our business operations could be significantly disrupted if the California
longshoremen go on strike

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

We may not be able to sustain or manage our rapid growth

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

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

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

                                       16
<PAGE>

The market price of our common stock may be volatile

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

         -quarterly variations in our operating results;

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

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

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

         - regulations affecting our manufacturing operations in China;

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

         - sales of our common stock into the public market.

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

Our manufacturing operations are located in the People's Republic of China,
subjecting us to risks common in international operations

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

We may have significant returns, markdowns and purchase order cancellations

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

We depend on third party suppliers for parts for our karaoke machines and
related products, and if we cannot obtain supplies as needed, our operations
will be severely damaged

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

                                       17
<PAGE>

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

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

We may be infringing upon the copyrights of third parties

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


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

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

Our net income may be reduced if our Hong Kong Subsidiary does not receive an
exemption for offshore income tax

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

Our business operations could be significantly disrupted if we lose members of
our management team

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

Our obligation to make severance payments could prevent or delay takeovers.

         Our employment agreements with Eddie Steele, John Klecha, April Green
and Jack Dromgold require us, under certain conditions, to make substantial
severance payments to them if they resign after a change of control. These
provisions could delay or impede a merger, tender, offer or other transaction
resulting in a change in control

                                       18
<PAGE>

of the Company, even if such a transaction would have significant benefits to
our shareholder. As a result, these provisions could limit the price that
certain investors might be willing to pay in the future for shares of our common
stock.

We may be subject to claims from third parties for unauthorized use of their
proprietary technology, copyrights or trade secrets

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

Your investment may be diluted

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

Risks Associated with our Capital Structure

Future sales of our common stock held by current stockholders may depress our
stock price

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


Adverse Effect on Stock Price from Future Issuances of Additional Shares

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

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

Provisions in our charter documents and Delaware law may make it difficult for a
third party to acquire our company and could depress the price of our common
stock.

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

         We are also subject to certain provisions of Delaware law that could
delay, deter or prevent us from entering into an acquisition, including the
Delaware General Corporation Law, which prohibits a Delaware corporation from
engaging in a business combination with an interested stockholder unless
specific conditions are

                                       19
<PAGE>

met. The existence of these provisions could limit the price that investors are
willing to pay in the future for shares of our common stock and may deprive you
of an opportunity to sell your shares at a premium over prevailing prices.


ITEM 7.  FINANCIAL STATEMENTS

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


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

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

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

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

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

         The information required by this Item 9 is incorporated herein by
reference to the Company's definitive Proxy Statement which will be filed with
the Securities and Exchange Commission within 120 days after the Company's
fiscal year end.

ITEM 10. EXECUTIVE COMPENSATION

         The information required by this Item 10 is incorporated herein by
reference to the Company's definitive Proxy Statement which will be filed with
the Securities and Exchange Commission within 120 days after the Company's
fiscal year end.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this Item 11 is incorporated herein by
reference to the Company's definitive Proxy Statement which will be filed with
the Securities and Exchange Commission within 120 days after the Company's
fiscal year end.

                                       20
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item 12 is incorporated herein by
reference to the Company's definitive Proxy Statement which will be filed with
the Securities and Exchange Commission within 120 days after the Company's
fiscal year end.

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

(A)      Exhibits

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

                                       21
<PAGE>

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

                                       22
<PAGE>

SIGNATURES

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

                                   THE SINGING MACHINE COMPANY, INC.


Dated: June 28, 2002               By: /s/ John Klecha
                                       ---------------
                                       John Klecha, President,
                                       Chief Operating Officer,
                                       Secretary, Treasurer and Director
                                       (Principal Executive Officer)

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

<TABLE>
<CAPTION>
Signature                                  Capacity                                   Date
- ---------                                  --------                                   ----

<S>                                        <C>                                        <C>
/s/ Edward Steele                          Chief Executive Officer                    June 28, 2002
- ---------------------------                And Director
Edward Steele                              (Principal Executive Officer)

/s/ John F. Klecha                         President, Chief Operating                 June 28, 2002
- ---------------------------                Officer, Secretary, Treasurer
John F. Klecha                             and Director
                                           (Principal Executive Officer)

/s/ April Green                            Chief Financial Officer                    June 28, 2002
- ---------------                            (Principal Financial and
April Green                                Accounting Officer)

/s/ Josef A. Bauer                         Director                                   June 28, 2002
- ---------------------------
Josef A. Bauer

/s/ Howard W. Moore                        Director                                   June 28, 2002
- ---------------------------
Howard W. Moore

/s/ Robert J. Weinberg                     Director                                   June 28, 2002
- ---------------------------
Robert J. Weinberg
</TABLE>


                                       23
<PAGE>


                        The Singing Machine Company, Inc.
                                 and Subsidiary

                        Consolidated Financial Statements

                                 March 31, 2002




<PAGE>




                        The Singing Machine Company, Inc.
                                 and Subsidiary


                                    Contents
                                    --------


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

Consolidated Balance Sheet                                           F-2

Consolidated Statements of Income                                    F-3

Consolidated Statements of Changes in Stockholders' Equity           F-4

Consolidated Statements of Cash Flows                                F-5

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


<PAGE>

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


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

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

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

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



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



                                      F-1
<PAGE>


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

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

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

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

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

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


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

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

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

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

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

           See accompanying notes to consolidated financial statements


                                      F-2
<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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

           See accompanying notes to consolidated financial statements


                                      F-3
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Exercise of employee stock options                   622              --             --             645

Cancellation of shares                               750              --             --              --

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

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

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

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

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

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

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

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

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

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


                                      F-4
<PAGE>

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

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

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

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

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

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

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

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


                                      F-5
<PAGE>

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

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

         (A) Nature of Operations

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

         (B) Principles of Consolidation

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

         (C) Foreign Currency Translation

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

         (D) Use of Estimates

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

         (E) Cash and Cash Equivalents

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

         (F) Concentration of Credit Risk

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



                                      F-6
<PAGE>

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

         (G) Inventories

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

         (H) Property and Equipment

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

         (I) Long-Lived Assets

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

         (J) Stock-Based Compensation

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

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

         (K) Revenue Recognition

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


                                      F-7
<PAGE>

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

         (L) Advertising

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

         (M) Income Taxes

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

         (N) Earnings Per Share

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

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

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

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

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


                                      F-8
<PAGE>

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

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

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

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

         (P) Fair Value of Financial Instruments

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

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

         (Q) Recent Accounting Pronouncements

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

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


                                      F-9
<PAGE>

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

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

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

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

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


                                      F-10
<PAGE>

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

         (R) Reclassifications

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

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

Accounts receivable at March 31, 2002 was as follows:

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

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

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

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

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

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

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

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


                                      F-11
<PAGE>

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

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

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

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

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

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

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

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

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

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

         (A) Credit Facility

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


                                      F-12
<PAGE>

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

         (B)      Loan and Security Agreement

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

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

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

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

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

         (A) Leases

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

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


                                      F-13
<PAGE>

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

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

         (B) Employment Agreements

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

         (C) Merchandise License Agreements

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

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

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

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


                                      F-14
<PAGE>

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

         (D) Significant Estimates

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

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

         (E) Legal Matters

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

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

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

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

         (A) Amendment to Authorized Shares

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

         (B) Stock Split

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

         (C) Preferred Stock and Warrants

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


                                      F-15
<PAGE>

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

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

         (D) Common Stock Warrants Expiration

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

         (E) Common Stock Issuances

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

         (F) Guarantee Fees

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

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

         (G) Stock Options

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

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


                                      F-16
<PAGE>

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

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

                                                                         2002
                                                                      ----------

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

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

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

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

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

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

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



                                      F-17
<PAGE>

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

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

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

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

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

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

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

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

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

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



                                      F-18
<PAGE>

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

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

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

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

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

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

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

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


                                      F-19
<PAGE>

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


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

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

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

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

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

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

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

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


                                      F-20
<PAGE>

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

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

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

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

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

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

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

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

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

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


                                      F-21
<PAGE>

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

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

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

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

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

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

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

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

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

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

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


                                      F-22



<PAGE>
                                INDEX TO EXHIBITS

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

10.4     Lease Agreement dated March 12, 2002 by and between The Singing Machine
         Company, Inc., Lyons Corporate Park, LLLC, for office space in Coconut
         Creek, Florida

10.5     Sublease dated May 28, 2002, by and between The Singing Machine
         Company, Inc. and Busung America Corp. for warehouse space in Carson
         City California

10.6     Lease Documents for Ocean Centre dated April and June 2002 by and
         between Harbour City Management Limited and International SMC (HK) Ltd.
         for office space in Hong Kong

10.7     Industrial Lease dated March 1, 2002 by and between AMP Properties,
         L.P. and The Singing Machine Company

10.11    First Amendment to Loan and Security Agreement dated October 1, 2001
         between LaSalle Business Credit, Inc. and The Singing Machine Company,
         Inc.

10.12    Second Amendment to Loan and Security Agreement dated November 20, 2001
         between LaSalle Business Credit, Inc. and The Singing Machine Company,
         Inc.

10.13    Third Amendment to Loan and Security Agreement dated November 28, 2001
         between LaSalle Business Credit, Inc. and The Singing Machine Company,
         Inc

10.14    Fourth Amendment to Loan and Security Agreement dated February 28, 2002
         between LaSalle Business Credit, Inc. and The Singing Machine Company,
         Inc.

21.1     List of Subsidiaries

23.1     Consent of Salberg & Company, P.A.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>3
<FILENAME>lyons-lease.txt
<DESCRIPTION>LYONS LEASE - MARCH 12, 2002
<TEXT>
                                                                    Exhibit 10.4


                                 LEASE AGREEMENT

LANDLORD: LYONS CORPORATE PARK, LLLP (A FLORIDA LIMITED LIABILITY LIMITED
PARTNERSHIP).

TENANT: The Singing Machine Co., Inc.


BLDG.          A
     ------------------------

SUITE          5
     ------------------------

DATE   March 12, 2002
    -------------------


<PAGE>

<TABLE>
<CAPTION>


                                                       INDEX
<S>          <C>         <C>     <C>                                                                      <C>
                                                                                                          Page
ARTICLE I             GRANT AND TERM
             Section     1.01    Leased Premises                                                            1
             Section     1.02    Length of Term                                                             1
             Section     1.03    Construction of Lease Premises                                             1
             Section     1.04    Possession After Completion of Construction                                1
             Section     1.05    Determination of Availability of Demised Premises                          1

ARTICLE II            RENT
             Section     2.01    Payment                                                                    1
             Section     2.02    Minimum Rent                                                               2
             Section     2.03    Adjustment of Fixed Minimum Rent                                           2
             Section     2.04    Real Estate Taxes                                                          2
             Section     2.05    Additional Rent                                                            2
             Section     2.06    Past Due Rent                                                              3

ARTICLE III           OPERATION AND MAINTENANCE OF COMMON AREAS
             Section     3.01    Designation of Common Areas                                                3
             Section     3.02    Construction of Common Areas                                               3
             Section     3.03    Tenant's Pro Rata Share of Expenses                                        3

ARTICLE IV            USE OF PREMISES
             Section     4.01    Use of Premises                                                            3
             Section     4.02    Care of Premises                                                           3

ARTICLE V             UTILITY SERVICES
             Section     5.01    Landlord's Obligation to Make Utility Services Available and Option
                                 To Supply Such Services                                                    4
             Section     5.02    Tenant's Obligation for Payment                                            4

ARTICLE VI            MAINTENANCE OF LEASE PREMISES
             Section     6.01    Landlord's and Tenant's Obligations for Maintenance                        4
             Section  6.02       Abuse of Plumbing, Walls, Etc.                                             4

ARTICLE VII           SIGNS
             Section     7.01                                                                               4

ARTICLE VIII          ALTERATIONS
             Section     8.01                                                                               5

ARTICLE IX            INSURANCE AND INDEMNITY
             Section     9.01    Covenant to Hold Harmless                                                  5
             Section     9.02    Fire Insurance Premium                                                     5
             Section     9.03    Tenant's Obligation to Carry Public Liability Insurance                    5
             Section     9.04    Insurance Costs                                                            5

ARTICLE X             ASSIGNMENT AND SUBLETTING
             Section     10.01                                                                              6

ARTICLE XI            ACCESS TO PREMISES
             Section     11.01   Right of Entry by Landlord                                                 6
             Section     11.02   Landlord's Right to Exhibit Premises                                       6

ARTICLE XII           EMINENT DOMAIN
             Section     12.01   Total Condemnation                                                         6
             Section     12.02   Partial Condemnation                                                       6
             Section     12.03   Landlord's and Tenant's Damages                                            6

ARTICLE XIII          DESTRUCTION OR DAMAGE TO DEMISED PREMISES
             Section     13.01   Reconstruction of Damaged Premises                                         6
             Section     13.02                                                                              6
             Section     13.03                                                                              7
             Section     13.04                                                                              7
             Section     13.05                                                                              7
             Section     13.06   Subrogation                                                                7

ARTICLE XIV           BANKRUPTCY OR INSOLVENCY
             Section     14.01   Landlord's Option to Terminate Upon Insolvency of Tenant or
                                 Guarantor Under State Insolvency Law or Upon Insolvency of
                                 Tenant or Guarantor Under Federal Bankruptcy Act                           7

ARTICLE XV            DEFAULT OF TENANT
             Section     15.01   Right to Re-Enter                                                          7
             Section     15.02   Legal Expenses                                                             8
             Section     15.03   Waiver of Jury Trial and Counterclaims                                     8
             Section     15.04   Curing of Tenant's Default                                                 8

ARTICLE XVI           TENANT'S PROPERTY
             Section     16.01   Taxes on Leasehold                                                         8
             Section     16.02   Notice by Tenant                                                           8

ARTICLE XVII          QUIET ENJOYMENT
             Section     17.01   Landlord's Covenant                                                        8

ARTICLE XVIII         HOLDING OVER, SUCCESSORS
             Section     18.01   Holding Over                                                               8
             Section     18.02   Successors                                                                 8

                                                     -i-
<PAGE>

ARTICLE XIX           CERTAIN RIGHTS OF LESSOR WITH RESPECT TO LAND
             Section     19.01   Easements and Utilities                                                    8

ARTICLE XX            MISCELLANEOUS
             Section     20.01   Waiver                                                                     9
             Section     20.02   Subordination                                                              9
             Section     20.03   Notices                                                                    9
             Section     20.04   Construction                                                               9
             Section     20.05   Non-Liability                                                              9
             Section     20.06   Net Lease                                                                  9
             Section     20.07   Financing and Tenant's Acknowledgment of Acceptance of Premises            9
             Section     20.08   Accord and Satisfaction                                                    10
             Section     20.09   Captions and Section Numbers                                               10
             Section     20.10   Partial Invalidity                                                         10
             Section     20.11   No Option                                                                  10
             Section     20.12   Recording                                                                  10
             Section     20.13   Sale or Transfer of the Demised Premises                                   10
             Section     20.14   Liens                                                                      10
             Section     20.15   Attornment                                                                 10
             Section     20.16   Set-Off Statement                                                          10
             Section     20.17   Entire Agreement                                                           10
             Section     20.18   Brokerage                                                                  11
             Section     20.19   No Oral Changes                                                            11
             Section     20.20   No Representations by Landlord                                             11
             Section     20.21   Corporate or Partnership Tenant                                            11
             Section     20.22   Damage From Roof Leaks                                                     11
             Section     20.23   Security Deposit                                                           11
             Section     20.24   Administrative Charge                                                      11
             Section     20.25   Laws of the State of Florida                                               11
             Section     20.26   Counterparts                                                               11
             Section     20.27   Right to Plat                                                              12
             Section     20.28   Radon Gas                                                                  12
             Section     20.29   Tenant's Time to Sue                                                       12
             Section     20.30   Rider                                                                      12

SIGNATURES                                                                                                  12

JURAT                                                                                                       13

RIDER                                                                                                       14

EXHIBIT "A" - LEGAL DESCRIPTION

EXHIBIT "B" - SITE PLAN

EXHIBIT "C" - TENANT'S CONFIRMATION LETTER

EXHIBIT "D" - DESCRIPTION OF LANDLORD'S WORK

EXHIBIT "E" - SIGN CRITERIA

GUARANTY

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                                     - ii -

<PAGE>



         THIS LEASE made and entered into this 12th day of March, 2002 by and
between LYONS CORPORATE PARK, LLLP (A FLORIDA LIMITED LIABILITY LIMITED
PARTNERSHIP) whose address is 6601 N. Lyons Road, Coconut Creek, Florida 33073,
Party of the First Part (hereinafter sometimes designated as "Landlord") and The
Signing Machine Co., Inc. (A Florida Corporation) whose address is 6601 Lyons
Road, Suite A-7, Coconut Creek, FL 33073 Party of the Second Part, (sometimes
hereinafter designated as "Tenant").

                                   WITNESSETH:

ARTICLE I         GRANT AND TERM

Section 1.01      Leased Premises

         In consideration of the mutual premises, covenants and agreements
herein contained, the adequacy of which consideration is by both parties
confessed and acknowledged, and in further consideration of the rents, covenants
and agreements hereinafter reserved and contained on the part of the Tenant to
be observed and performed, the Landlord leases to the Tenant, and the Tenant
rents from the Landlord, those certain premises now or hereafter to be erected
on the property hereafter described, located in Broward County, Florida,
described as containing 32 feet of frontage (measured from outside of exterior
wall or center of common partition, as the case may be) and have an overall
depth of 100 feet (measured from outside of exterior wall to outside of exterior
wall) for a total of 3,200 square feet of ground floor area, which would include
a portion of the truck well area, designated "Leased or Demised Premises", and
the same being located within the Industrial Park property known and described
as:

         EXHIBIT "A" attached hereto and made a part hereof, and as more
         particularly shown on Exhibit "B", together with the right to use the
         areas outlined around said Leased or Demised Premises.

         Landlord and Tenant agree that Exhibit "B" shows only the approximate
shape and dimensions of the proposed buildings in the Industrial Park, and
further agree that Tenant's consent shall not be required for any additions,
reductions or modifications thereto.

Section 1.02      Length of Term

         To have and to hold, together with appurtenances, for a term of Two
years and three months, upon the terms and conditions as herein set forth.

Section 1.03      Construction of Leased Premises

                                PARAGRAPH DELETED

Section 1.04      Possession After Completion of Construction

         Solely for the purpose of computing the term of this Lease, the
commencement date shall be deemed to be the first day of the month next
following the date when the premises are ready for occupancy. It is agreed that
by occupying said premises as a Tenant, Tenant formally accepts the same and
acknowledges that the Demised Premises are in the condition called for
hereunder. The rentals herein reserved shall commence on the date when the
premises are ready for occupancy.

         Tenant, prior to delivery of possession, shall be permitted to install
fixtures and other equipment so long as such activities do not interfere with
construction work, and it is agreed by Tenant that Landlord shall have no
responsibility or liability whatsoever for any loss of, or damage to, any
fixtures or other equipment so installed or left on the premises.

Section 1.05      Determination of Availability of Demised Premises

                                PARAGRAPH DELETED

         Landlord and Tenant agree that except for the items listed in Exhibit
"D", #18, Tenant accepts the premises in an ARTICLE II RENT "AS IS, WHERE IS"
condition and that the possession and commencement date of the Lease will be
June 1, 2002.

Section 2.01      Payment

         All rent and other charges payable to the Landlord under any provision
of this Lease shall be paid to the Landlord, or as the Landlord may otherwise
designate, in lawful money of the United States at the address of the Landlord
or at such other place as the Landlord in writing may designate, without any
set-off or deduction whatsoever, and without any prior demand therefor. In
addition to the payment of the Rent and other charges, the Tenant shall also pay
to the Landlord at the time of payment of such Rent and other charges, all
sales, use or occupancy taxes payable by virtue of any of such payments. Rent
for the first period during the term hereof which is for less than one (1) month
shall be a prorated portion of the monthly installment.


                                       1
<PAGE>


Section 2.02      Minimum Rent

         The fixed minimum annual rent during the term of this Lease shall be
payable by the Tenant in equal monthly installments on or before the first day
of each month in advance without any prior demand therefor and without any
deduction and set-off whatsoever, and shall be as follows:

1.       The minimum rent for the first twelve months shall be One thousand nine
         hundred eighty six and 67/100 ($1,986.67) Dollars per month for a total
         of Twenty three thousand eight hundred forty and 04/100 ($23,840.04)
         Dollars for the twelve month period.

2.       The minimum rent for the next twelve months shall be determined by
         Section 2.03 of the Lease Agreement using the prior period as the base
         period.

3.       The minimum rent for the next three months shall be determined by
         Section 2.03 of the Lease Agreement using the period as the base
         period.

Section 2.03      Adjustment of Fixed Minimum Rent

         The annual Fixed Minimum Rent shall be subject to periodical adjustment
(but never below the amount specified in the previous lease year) on the first
day of each Lease Period and on each anniversary thereafter. Landlord shall
notify Tenant of the adjustment upon Landlord's calculation of same but the
failure to do so within any specific time shall not be a waiver or release of
Landlord's right to collect/charge the increased minimum rent. The term "index"
means the South Consumer Price Index, All Items, For All Urban Consumers
(1982-84-100) published by the Bureau of Labor Statistics or other governmental
agency then publishing the Index (or if such index is no longer published, the
Index of Consumer Prices in Miami most closely comparable to the Index). The
term "Base Number" means the index number immediately preceding the month in
which falls the first day of the prior lease period, for which the rent is being
calculated. The term "Current Number" means the index number immediately
preceding the month in which falls the date of commencement of the particular
Lease Period. If the latest Current Number exceeds the Base Number, then the
Fixed Minimum Rent for the next Lease Period shall be increased to an amount
which is the product obtained by multiplying the Fixed Minimum Rent set forth in
Section 2.02 of this lease by a fraction, the numerator of which fraction is
such latest Current Number and the denominator of which fraction is the Base
Number. Such increased Fixed Minimum Rent shall be effective throughout the
Lease Period next following such latest Current Number. The basic or minimum
rental for each year of the extended time shall not be less than the amount of
rent being paid during the prior lease year. As used herein, the term "Lease
Period" means the First Lease Period which is 12 months and each consecutive
period, except that if the commencement date of the Lease Term is a day other
than the first day of a calendar month, then the first lease Period shall
include the number of days beginning with such commencement date and ending on
the last day of such month. This Section 2.03 shall apply to the Item #2 & #3 of
section 2.02. The minimum annual increase shall not be less than 4 percent.

Section 2.04      Real Estate Taxes

         For the purposes of this Section, the term "taxes" shall include all
real estate taxes, assessment (general and special) and other governmental
impositions and charges of every kind and nature whatsoever, extraordinary as
well as ordinary, foreseen and unforeseen, and each and every installment
thereof which shall or may during the lease term be levied, assessed, imposed,
become due and payable, or liens upon, or arise in connection with the use,
occupancy or possession of, or grow due or payable out of, or for, the building
or any part thereof, or the land (the "Parcel") upon which the building is
situated or any other improvements thereon. Tenant agrees to pay to Landlord
Tenant's share of taxes, as herein provided. Tenant's proportionate share of
taxes assessed with respect to all buildings in the industrial Park shall be
determined by multiplying the amount of such taxes by a fraction, the
denominator of which shall be the rentable square foot area of all buildings
constructed in the Industrial Park upon which any such taxes are assessed and
the numerator of which shall be the total number of square feet of ground floor
area contained in the demised premises as set forth in Section 1.01 hereof.
Taxes shall be prorated as of the commencement date of the Lease upon the due
date basis of the appropriate taxing authorities.

         In addition to the foregoing, should the State of Florida or any
political subdivision thereof or any governmental authority having jurisdiction
thereover, impose a tax and/or assessment (other than a franchise tax) upon or
against the rentals payable hereunder by Tenant or Landlord, either by way of
substitution for the taxes and assessments levied or assessed against such land
and such buildings, or in addition hereto, such tax and/or assessments shall be
paid by Tenant.

         Landlord will estimate the obligations anticipated to be required to be
paid by Tenant to Landlord as provided in this Section 2.04 and Tenant shall pay
1/12 thereof in equal monthly installments together with the payment of minimum
annual rent. In the event that the aggregate of Tenant's installments during the
year shall be less than the amount of the obligations due from Tenant, such
deficiency shall be paid to Landlord within fifteen (15) days after demand
therefor. If there shall have been an overpayment by Tenant, Tenant shall be
given a credit towards the next due payment of its share of taxes.

         Notwithstanding any thing in this Section 2.04 to the contrary, all
costs and expenses incurred by Landlord during negotiations for or contests of
the amount of the taxes shall be included with the term "Taxes". In the event a
refund is obtained, Landlord shall credit a portion thereto the next installment
of rent due from Tenant in proportion to the share of such taxes originally paid
by Tenant from which the refund was derived.

         In addition to the foregoing, Tenant at all times shall be responsible
for and shall pay, before delinquency, all taxes levied, assessed or unpaid on
any leasehold interest, any right of occupancy, any investment of Tenant in the
Demised Premises, or any personal property of any kind owned, installed or used
by Tenant, including Tenant's leasehold improvements or on Tenant's right to
occupy the Demised Premises.

Section 2.05      Additional Rent

         The Tenant shall pay as additional rent any money and charges required
to be paid pursuant to the terms of this Lease Agreement, whether or not the
same may be designated "additional rent". If such amounts or charges are not
paid at the time provided in the Lease, they shall nevertheless, if not paid
when due, be collectible as rent thereafter falling due hereunder, but nothing
herein contained shall be deemed to suspend or delay the payment of any amount
of money or charge at the time the same becomes due and payable hereunder, or
limit any other remedy of the Landlord.


                                       2
<PAGE>

Section 2.06      Past Due Rent

         If Tenant shall fail to pay any rent or additional rent when the same
shall be due and payable, such unpaid amounts shall bear interest from the date
thereof to the date of payment at the rate of eighteen percent (18%) per annum.

ARTICLE III       OPERATION AND MAINTENANCE OF COMMON AREAS

Section 3.01      Designation of Common Areas

         For the purpose of this Article and wherever else used in this Lease,
the common area shall be defined as to include, by way of illustration and not
limitation, all parking areas, access roads and facilities which may be
furnished by Landlord in or near the Industrial Park, including the truckway, or
ways, driveways, pedestrian sidewalks, landscaped and planting areas, retaining
walls, fences, storm sewer systems, lighting facilities, and all other areas and
improvements which may be provided by the Landlord for the general use in common
of the other Tenants, their officers, agents, employees and customers.

Section 3.02      Construction of Common Areas

         Landlord agrees, at Landlord's sole cost and expense, to hardsurface,
properly drain, adequately light and landscape a parking area, or parking areas,
together with the necessary access roads within the limits of the Industrial
Park. Landlord hereby grants to Tenant and Tenant's employees, agents,
customers, and invitees the right, during the term hereof, to use, in common
with others entitled to the use thereof, the parking area or areas and access
roads within the limits of the Industrial Park. Landlord further agrees to
operate, manage and maintain, during the term of this Lease, all parking areas,
roads, sidewalks, landscaping, drainage and lighting facilities within the
Industrial Park property. The manner in which such areas and facilities shall be
maintained and the expenditures thereof shall be at the sole discretion of the
Landlord, and the use of such areas and facilities shall be subject to such
reasonable regulations as Landlord shall make from time to time.

Section 3.03      Tenant's Pro Rata Share of Expenses

         Tenant agrees to pay, in addition to the rental set forth in Article II
of this Lease, a proportionate share of the costs, expenses, and other charges
incurred in connection with the operation, maintenance and repair of the Common
Areas of the Industrial Park and shall include, but not be limited to, the costs
and expenses of the following: maintenance of the common areas including
policing and security protection: repair and replacement of paving, line
painting, sidewalks, planter boxes and entrance canopies, curbs, walkways,
landscaping, sprinkler systems, sanitary and storm drainage systems, including
retention ponds, water systems, dumpster enclosures and lighting systems
(including bulbs and poles); painting of the building; maintenance and repair of
the roof, to the sum of which shall be added an amount equal to ten (10%)
percent thereof in payment of all of Landlord's administrative costs. The
proportionate share to be paid by Tenant shall be computed on the basis that the
total floor area of the herein Demised Premises bears to the total floor area of
the Industrial Park as determined at the beginning of each calendar quarter.

         Landlord will estimate the obligations anticipated to be required to be
paid by Tenant to Landlord as provided in this Section 3.03, and Tenant shall
pay 1/12 thereof in equal monthly installments, together with the payment of
minimum annual rent. If requested by Tenant, Landlord shall submit a statement
showing in reasonable detail for the period in question, all disbursements made
in connection with the operation and maintenance herein described. In the event
that the aggregate of Tenant's installments during the calendar year shall be
less than the amount of the obligations due from Tenant, such deficiency shall
be paid to Landlord within fifteen (15) days after demand therefor. If there
shall have been an overpayment by Tenant, Tenant shall be given credit toward
the next due payment of its share of expenses.

ARTICLE IV        USE OF PREMISES

Section 4.01      Use of Premises

         It is understood and agreed between the parties hereto that said
premises during the continuance of the Lease may be used and occupied only for

         office and warehouse for the manufacturing and distribution of singing
machines,

and for no other purpose or purposes without the written consent of Landlord.
The Tenant will be allowed parking pursuant to the site plan.

         Tenant shall promptly comply with all laws, ordinances and lawful
orders and regulations affecting the premises hereby leased, and the
cleanliness, safety, occupation and use of same.

Section 4.02      Care of Premises.

         A. Tenant shall not perform any acts or carry on any practices which
may injure the building or be a nuisance or menace to other tenants in the
Industrial Park and shall keep the premises under its control, including
sidewalks, and landscaped areas adjacent to the premises clean and free from
rubbish and dirt at all times, and shall store all trash and garbage within the
leased premises and arrange for the regular pickup of such trash and garbage at
Tenant's expense. Tenant shall not burn any trash or garbage of any kind in or
about the building. Tenant shall install beige or gray levelors in the Demised
Premises.

         B. Tenant shall not keep or display any merchandise or signs on or
otherwise obstruct the sidewalks or areaways adjacent to the premises without
the written consent of the Landlord. Tenant shall not use or permit the use of
any portion of said premises as sleeping apartments, lodging rooms, or for any
unlawful purpose or purposes. Tenant shall maintain the windows in a net and
clean condition. Tenant shall not make any structural changes in the Demised
Premises without the written consent of Landlord. No animals shall be kept in
the leased premises. Tenant shall conduct business within the leased premises
and the Tenant cannot store any items outside the leased premises. Tenant can
only use the Truckwells for Tractor-Trailers, as the Truckwells may retain some
water during a storm.

         C.       Environmental Responsibilities

         (1) Tenant and Landlord shall each comply with all applicable
environmental laws concerning the proper storage, handling and disposal of any
hazardous substances in on or about the Premises. Tenant shall not use, store,
generate, treat, or dispose of any hazardous substance on the Premises, or
cause, suffer or permit the same to be done by any person without the prior
written consent of the Landlord, which consent may be granted or withheld in


                                       3
<PAGE>

Landlord's sole discretion. For purposes of this Lease, the term "hazardous
substance" means any substance, the manufacture, use, treatment, storage,
transportation, or disposal of which is regulated by any law having as its
object the protection of public health, natural resources, or the environment,
including, by way of illustration only and not as a limitation, the following:
the Resources Conservation and Recovery Act; the Comprehensive Environmental
Response, Compensation, and Liability Act; the Toxic Substances Control Act; the
Federal Water Pollution Control Act; the Clean Air Act; as each such acts shall
be amended from time to time.

         (2) Tenant shall promptly supply to Landlord a copy of the reports of
any environmental audit or investigation at any time undertaken on the Premises
or adjacent property, all notices, demands, inquiries, or claims received from
any person or entity as a result of hazardous substances alleged to be on or
emanating from the Premises or adjacent property, and any notices, reports, or
applications for licenses, permits, or approvals submitted by or on behalf of
Tenant to any environmental regulatory agency affecting the Premises or adjacent
property.

         (3) Landlord reserves the right (but shall not have the obligation) to
enter upon and inspect the Premises at any time, and from time to time, during
Tenant's business hours and, on reasonable notice, at other times. Such
inspection may include, without limitations, the taking and analysis of soil
borings, samples of ground water or surface water, installation of observation
wells, and investigation of the surface or subsurface of the Premises by
geophysical means ("Tests"). Tenant shall promptly furnish to Landlord any
information requested by or on behalf of Landlord concerning Tenant's operations
on the Premises and or adjacent property, whether or not such information of the
proprietary nature. Landlord's inspection and testing rights are for Landlord's
own protection only and Landlord has not, and shall not be deemed to have
assumed any responsibility to Tenant or any other party for compliance with
environmental laws, as a result of the exercise, or non-exercise of such rights.

         (4) In the event that any hazardous substance is discovered to have
been released upon or from the Premises during the term of this Lease, whether
such discovery is made during the term of this Lease or at any time thereafter,
Tenant shall, at its sole cost and expense, take all steps necessary to remove
and properly dispose of such hazardous substance and cleanup or repair any
contamination or damage resulting therefrom, in full compliance with all
applicable laws and regulations and to the reasonable satisfaction of Landlord.
Tenant agrees to defend, indemnify and hold Landlord harmless from and against
(i) any liabilities, including judgment, court costs, and actual attorney fees
claimed or asserted against or sustained by Landlord resulting from Tenant's
failure to fully comply with the provisions of this Section 4.02 and (ii) any
costs for inspections, tests or studies referenced in Section 4.02 (c) (3) which
are incurred by Landlord.

ARTICLE V         UTILITY SERVICES

Section 5.01      Landlord's Obligation to Make Utility Services Available and
                  Option to Supply Such Services

         Landlord agrees to provide and maintain the necessary mains and
conduits in order that water and sewer facilities, gas (if available) and
electricity may be available to the Demised Premises, and Tenant agrees to
promptly pay for its use of the same.

Section 5.02      Tenant's Obligation for Payment

         The obligation of Tenant to pay for water, gas, if available, and
electricity, as herein provided, shall commence as of the date on which
possession of the Premises is delivered to Tenant as provided for in Article I,
Section 1.04 of this Lease, without regard to the formal commencement date of
this Lease, Landlord shall not be liable for damages or otherwise should the
furnishing of any services supplied by others to the Demised Premises be
interrupted by fire, accident, riot, strike, act of God, or the making of
necessary repairs or improvements or other cause beyond the control of Landlord.
To the extent said utilities in whole or in part are not furnished by Landlord.
Tenant covenants that it will maintain any pay for when due all utility
services.

ARTICLE VI        MAINTENANCE OF LEASED PREMISES

Section 6.01      Landlord's and Tenant's Obligations for Maintenance

         Landlord shall keep the four outer walls and roof of the Demised
Premises in good repair, except that Landlord shall not be called to make any
such repairs occasioned by the act of negligence of Tenant, its agents, or
employees, except to the extent that Landlord is reimbursed therefor under any
policy of insurance permitting waiver of subrogation in advance of loss.
Landlord shall be reimbursed for all roof repairs except replacement costs of
the roof pursuant to Section 3.03. Tenant shall notify Landlord of any repairs
which are the responsibility of the Landlord to perform. Landlord shall not be
called upon to make any other improvements or repairs of any kind upon said
premises and appurtenances, and said premises and appurtenances shall at all
times be kept in good order, condition and repair by Tenant, and shall also be
kept in a clean, sanitary, and safe condition in accordance with the laws of the
State of Florida, and in accordance with all directions, rules and regulations
of the health officer, fire marshal, building inspector or other proper officers
of the governmental agencies having jurisdiction, at the sole cost and expense
of Tenant, and Tenant shall comply with all requirements of law, ordinances and
otherwise touching said premises. Tenant shall permit no waste, damage or injury
to said premises, and Tenant shall at its own cost and expense will maintain and
replace any glass windows, skylight, roof exhaust fans, interior electrical
systems, heating, ventilating, and air conditioning systems, interior above
ground plumbing, ventilating fans, overhead doors, and front doors, door
hardware and frames; dock, levelers, if provided, in the premises, which may be
broken. At the expiration of the tenancy created hereunder, Tenant shall
surrender the premises in good condition and free from vermin, reasonable wear
and tear, loss by fire or other unavoidable casualty excepted. Notwithstanding
any in this Article contained, there shall be no obligation on the part of
Tenant to comply with any of the laws, directions, rules and regulations
referred to which may require structural alterations, structural changes,
structural repairs, or structural additions, unless made necessary by act of
work performed by Tenant, in which event Tenant shall comply at its sole
expense. Tenants shall perform normal maintenance on a timely schedule which
would include changing the HVAC filters.

Section 6.02      Abuse of Plumbing, Walls, Etc.

         The plumbing facilities and adjoining or connecting sewer lines or
mains shall not be used for any other purpose than that for which they are
constructed, and no foreign substance of any kind shall be thrown therein, and
the expense of any breakage, stoppage or damage resulting from a violation of
this provision shall be borne by Tenant, who shall or whose employees, agents,
invitees, or licensees shall have caused it. The Tenant, its employees or
agents, shall not paint, alter or deface any walls, ceilings, partitions,
floors, wood, stone or iron work with the Landlord's written consent being first
obtained.


                                       4
<PAGE>

ARTICLE VII       SIGNS

Section 7.01

         Tenant shall not erect or install any exterior or interior window or
door signs or advertising media or window or door lettering, or placards without
the previous written consent or Landlord. Any signs erected by the Tenant shall
be in conformance with any governmental laws. Tenant agrees not to use any
advertising media that shall be deemed objectionable to Landlord or other
tenants, such as loud speakers, phonographs, or radio broadcast in a manner to
be heard outside the leased premises. Tenant shall not install any exterior
lighting or plumbing fixtures, shades or awnings, or any exterior decorations or
painting, or build any fences or make any changes to the building exterior
without the previous written consent of Landlord. Notwithstanding anything
herein or elsewhere to the contrary contained, any sign)s) which Tenant may
install in or about the demised premises with the approval of Landlord either
simultaneously with the execution of this Lease Agreement or subsequently shall
be removed at the termination of this Lease and the Tenant shall restore the
area when the sign was mounted to its original condition.

ARTICLE VIII      ALTERATIONS

Section 8.01

         All alterations, additions, improvements and fixtures (other than trade
fixtures) which may be made or installed by either of the parties hereto upon
the premises and which in any manner are attached to the floors, walls or
ceilings or any extension thereof shall be the property of Landlord, and at the
termination of this Lease shall remain upon and be surrendered with the premises
as a part thereof, without disturbance, molestation or injury. Any floor
covering, irrespective as to manner affixed, shall be and become the property of
the Landlord absolutely; provided, however, that Landlord may designate by
written notice to Tenant those alterations, additions, improvements and
fixtures, which shall be removed by Tenant at the expiration or termination of
the Lease, and Tenant shall promptly remove the same and repair any damage to
the leased premises caused by such removal of any of the foregoing, to the
condition as when originally received by Tenant, reasonable wear and tear
excepted. Further, Tenant shall likewise remove its machinery and equipment at
the expiration or termination of this Lease and repair any damage to the leased
premises caused by such removal, restoring the premises to the condition as when
originally received by Tenant, reasonable wear and tear excepted.

ARTICLE IX        INSURANCE AND INDEMNITY

Section 9.01      Covenant to Hold Harmless

         Landlord shall be defended and held harmless by Tenant from any
liability for damages to any person or any property in or upon said premises and
the sidewalks, driveways and landscaped areas adjoining same, including the
person and property of the Tenant, and its employees and all persons in the
building at its or their invitation or with their consent. It is understood and
agreed that all property kept, stored or maintained in the Demised Premises
shall be so kept, stored or maintained at the risk of Tenant only. Tenant shall
not suffer or give cause for the filing of any lien against the Demised
Premises.

Section 9.02      Fire Insurance Premium

         Tenant shall not carry any stock of goods or do anything in or about
said premises which will in any way tend to increase the insurance rates of said
premises and in the buildings of which they are a part. Tenant agrees to pay, in
addition to its prorata share of all insurance costs as described in this Lease
Agreement, the total of any increase in premiums for insurance against loss by
fire that may be charged during the terms of this Lease on the amount of
insurance to be carried by Landlord on said premises and the buildings of which
they are a part, resulting from the business carried on in the leased premises
by Tenant, whether or not Landlord has consented to the same. If Tenant installs
any electrical equipment that overloads the lines in the herein leased premises.
Tenant shall at its own expense make whatever changes are necessary to comply
with the requirements of the Insurance Underwriters and governmental authorities
having jurisdiction.

Section 9.03      Tenant's Obligation to Carry Public Liability Insurance

         Tenant shall, during the entire term hereof, keep in full force and
effect a policy of public liability insurance with respect to the Demised
Premises and the business operated by Tenant and/or any sub-tenants of Tenant in
the Demised Premises, in which both Landlord and Tenant shall be named as
parties covered thereby, or which provides equivalent protection to and is
approved by Landlord, and in which the limits of liability shall be not less
than Five Hundred Thousand Dollars ($500,000) per person and One Million Dollars
($1,000,000) for each accident or occurrence for bodily injury and Two Hundred
Fifty Thousand Dollars ($250,000) for property damages.

         Tenant shall furnish Landlord with a certificate or certificates of
insurance, or other acceptable evidence that such insurance is in force at all
times during the term hereof.

Section 9.04      Insurance Costs

         A. Tenant shall pay to Landlord as additional rent during each lease
year, the cost of all insurance policies including, by way of illustration and
not limitation, the cost of covering all risks of loss to all of the buildings
and improvements on or about the Industrial Park on the full replacement value
of the buildings and all improvements thereon, and rental income protection
coverage, and public liability insurance including umbrella coverage as Landlord
shall deem necessary and desirable during the term of the Lease, payable by
Landlord, in any lease year or portion thereof following the Commencement Date
of the Lease. Insurance costs shall be prorated as of the Commencement Date and
the Termination Date of the Lease.

         B. Tenant's proportionate share shall be computed on the basis that the
first floor area of the Demised Premises bears to the total first floor area of
the Industrial Park as determined at the beginning of each calendar quarter.

         C. Landlord will estimate the obligations anticipated to be required to
be paid by Tenant to Landlord as provided in Section 9.04 and Tenant shall pay
1/12 thereof in equal monthly installments, together with the payment of minimum
annual rent. In the event that the aggregate of Tenant's installments during the
year shall be less than the amount of the obligations due from Tenant, such
deficiency shall be paid to Landlord within fifteen (15) days after billing is
presented therefor by Landlord. If there shall have been an overpayment by
Tenant, Tenant shall be given a credit towards the next due payment of its share
of the insurance costs.

         D. For the purpose of this Section, insurance costs shall include any
deductible required to be paid based on the terms of the insurance policy
regarding any loss attributable to Tenant's Demised Premises. Should the loss
occur only in the Tenant's Demised Premises, the Tenant agrees to pay the entire
deductible. In the event that more than one Tenant is subject to an insurable
loss, the deductible shall be prorated between the affected Tenants and computed
based upon the square footage of the Tenant's Leased Premises as compared to the
total square footage of all the Tenants affected. Such deductible or
proportionate share of the deductible shall be paid within fifteen (15) days
after a billing by the Landlord.



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<PAGE>

ARTICLE X         ASSIGNMENT AND SUBLETTING

Section 10.01

         Tenant agrees not to assign or in any manner transfer this Lease or any
estate or interest therein without the previous written consent of Landlord, and
not to sublet said premises or any part or parts thereof, and Consent by
Landlord to one or more assignments of this Lease or to one or more sublettings
of said premises shall not operate to exhaust Landlord's rights under this
Article. In the event of any assignment or sublease of all or any portion of the
Premises where the rental or other consideration reserved in the sublease or by
the assignment exceeds the rental or prorata portion of the rental as the case
may be, for such space reserved in the Lease, Tenant agrees to pay Landlord
monthly, as additional rent, on the first day of each month, the excess of the
rental or other consideration reserved in the sublease or assignment over the
rental reserved in this Lease applicable to the subleased/assigned space. Tenant
acknowledges that Landlord selected Tenant in part on the basis of Tenant's
proposed use and occupation of the Premises, and agrees that Landlord may
withhold consent to any proposed sublease or assignment if the sub-tenant's or
assignee's business or proposed use of the premises would be physically
injurious to the Building or would detract from the reputation of the Industrial
Park, if any, within which the Premises are located.

ARTICLE XI        ACCESS TO PREMISES

Section 11.01     Right of Entry by Landlord

         Landlord shall have the right to enter upon the leased premises at all
reasonable hours for the purpose of inspecting the same, or of making repairs,
additions or alterations to the Demised Premises or any property owned or
controlled by Landlord. If Landlord deems any repairs required to be made by
Tenant necessary, it may demand that Tenant make the same forthwith, and if
Tenant refuses or neglects to commence such repairs and complete the same with
reasonable dispatch, Landlord may make or cause such repairs to be made and
shall not be responsible to Tenant for any loss or damage that may accrue to its
stock or business by reason thereof, and if Landlord makes or causes such
repairs to be made, Tenant agrees that it will forthwith, on demand, pay to
Landlord the cost thereof with interest at eighteen percent (18%), and if it
shall default in such payment, Landlord shall have the remedies provided in
Article XV.

Section 11.02     Landlord's Right to Exhibit Premises

         For a period commencing ninety (90) days prior to the termination of
this Lease, Landlord may have reasonable access to the premises herein demised
for the purpose of exhibiting the same to prospective tenants.

ARTICLE XII       EMINENT DOMAIN

Section 12.01     Total Condemnation

         If the whole of the premises hereby leased shall be taken by any public
authority under the power of eminent domain, then the term of this Lease shall
cease as of the day possession shall be taken by such public authority and the
rent shall be paid up to that day with a proportionate refund by Landlord of
such rent as may have been paid in advance.

Section 12.02     Partial Condemnation

         If less than the whole, but more than 25% of the leased premises shall
be taken under eminent domain, Tenant shall have the right either to terminate
this Lease and declare the same null and void, or, continue in the possession of
the remainder of the leased premises, and shall notify Landlord in writing prior
to any such taking or Tenant's intention. In the event Tenant elects to remain
in possession, all of the terms herein provided shall continue in effect, except
that the minimum rent shall be reduced in proportion to the amount of the
premises taken and Landlord shall, at its own cost and expense, make all
necessary repairs or alterations to the basic building, front and interior work
as covered by Description of Landlord's Work attached hereto so as to constitute
the remaining premises a complete architectural unit.

Section 12.03     Landlord's and Tenant's Damages

         All damages awarded for such taking under the power of eminent domain,
whether for the whole or a part of the leased premises, shall belong to and be
the property of Landlord whether such damages shall be awarded as compensation
for diminution in value to the leasehold or to the fee of the premises;
provided, however, that Landlord shall not be entitled to the award made to
Tenant for loss of business, depreciation to, and cost of removal of stock and
fixtures.

ARTICLE XIII      DESTRUCTION OR DAMAGE TO DEMISED PREMISES

Section 13.01     Reconstruction of Damaged Premises

         In the event the Demised Premises shall be partially or totally
destroyed by fire or other casualty insurable under full standard extended
coverage insurance, as to become partially or totally untenable, the same shall
be repaired as speedily as possible at the expense of Landlord, unless Landlord
shall elect not to rebuild as hereinafter provided, and a just and proportionate
part of the rent shall be abated until so repaired. The obligation of Landlord
hereunder shall be limited to the basic building and interior work as covered by
Description of Landlord's Work attached hereto. In no event shall Landlord be
required to repair or replace Tenant's merchandise, trade fixtures, furnishings
or equipment or any alterations or additions to the leased premises accomplished
by or on behalf of the Tenant. The obligations of Landlord hereunder shall be
conditioned upon Tenant's payment of any deductible required by the insurance
policy in force for the leased premises.

Section 13.02

         If (i) either the Demised Premises or the building in which it is
located containing floor space (taken in the aggregate) shall be damaged to the
extent of more than 25% of the cost of replacement thereof, respectively, or
(ii) the proceeds of Landlord's insurance recovered or recoverable as a result
of the damage shall be insufficient to pay fully for the cost of replacement of
so much of the Demised Premises and/or the building in which they are located as
was included in the Landlord's Work provided in Section 1.03 hereof or (iii) the
Demised Premises or the building shall be damaged as a result of a risk which is
not covered by Landlord's in insurance or (iv) the Demised Premises shall be
damaged in whole or in part during the last two years of the Lease Term or (v)
the building in which the Demised Premises as a part shall be damaged to the
extent of 50% or more of the cost of replacement thereof, whether or not the
Demised Premises shall be damaged; then, and in any of such events, Landlord may
terminate this Lease by notice given within ninety (90) days after such event,
and upon the date specified in such notice, which shall not be less than thirty



                                       6
<PAGE>

(30) days nor more than sixty (60) days after the giving of said notice, this
Lease shall terminate and come to an end and Tenant shall vacate and surrender
the Demised Premises. If the casualty, repairing or rebuilding shall render the
Demised Premises untenable in whole or in part, an equitable abatement of the
Fixed Minimum Rent and Additional Rent shall be allowed from the date when the
damage occurred until completion of the Landlord's repairs or rebuilding or, in
the event Landlord elects to terminate this lease, until said date of
termination taking into account, among other things, the amount and location of
the floor space of the Demised Premises rendered untenable.

Section 13.03

         If this Lease shall not be terminated as provided above, Landlord
shall, at its expense, proceed with the repair or restoration of the Demised
Premises and the building. All repairs and restoration of the Demised Premises
not involved in Landlord's Work shall be performed by Tenant at its expense. All
salvage from repair or restoration work done at any time pursuant to this
Section shall belong to Landlord, who shall not be accountable therefor to
Tenant.

Section 13.04

         The "cost of replacement" as such term is used in Section 13.02 above
shall be determined by the company or companies s Selected by the Landlord
insuring Landlord against the casualty In question, or, if there shall be no
Insurance, then as the parties hereto shall agree, or, in the absence of an
insurance company determination or an agreement, as shall be determined by
arbitration in Broward County, Florida, in accordance with the provisions of
Section 682, Florida Statutes.

Section 13.05

         If the Demised Premises and/or the building shall be damaged or
destroyed due to the fault and/or negligence of Tenant, its agents, employees or
Invitees. Tenant shall at its expense, repair or restore the Demised Premises or
building and the Fixed Minimum Rent, Tax Rent and all other additional rents and
charges herein shall not abate.

Section 13.06     Subrogation

         "Landlord and Tenant" each hereby release the other from any and all
liability or responsibility to the other, or to any other party claiming through
or under them byway of subrogation or otherwise, for any loss or damage to
property caused by a casualty which is insurable under the standard fire and
extended coverage insurance; provided, however, that this mutual waiver shall be
applicable only with respect to a loss or damage occurring during the time when
property insurance policies, which are readily available in the marketplace,
contain a clause or permit an endorsement to the effect that any such release
shall not adversely affect or impair the policy or the right of the insured
party to receive proceeds under the policy.

ARTICLE XIV       BANKRUPTCY OR INSOLVENCY

Section 14.01     Landlord's Option to Terminate Upon Insolvency of Tenant or
                  Guarantor Under State Insolvency Law of Upon Insolvency of
                  Tenant or Guarantor Under Federal Bankruptcy Act.

         In the event the estate of Tenant created hereby shall be taken in
execution or by other process of law, or if Tenant or and guarantor of Tenant's
obligations hereunder ("guarantor") shall be adjudicated insolvent pursuant to
the provisions of any present or future Insolvency law under the laws of any
state having jurisdiction ("state law"), or if any proceedings are filed by or
against such guarantor or tenant under the Bankruptcy Code, or any similar
provisions of any future federal bankruptcy law, or if a receiver or trustee of
the property of Tenant or guarantor shall be appointed under state law by reason
of Tenant's or guarantor's insolvency or inability to pay its debts as they
become due or otherwise, or if any assignment shall be made of Tenant's or
guarantor's property for the benefit of creditors under state law, then and in
such event Landlord may at its option terminate this Lease and all rights of
Tenant hereunder by giving Tenant written notice of the election to so terminate
within thirty (30) days after occurrence of such event. I n a reorganization
under Chapter 11 of the Federal Bankruptcy Code, the debtor or trustee must
assume this Lease or assign it within sixty (60) days from the filing of the
proceeding, or he shall be deemed to have rejected and terminated this Lease.

ARTICLE XV        DEFAULT OF THE TENANT


Section 15.01     Right to Re-enter

         In the event of any failure of Tenant to pay any rental due hereunder
within five (5) days after the same shall be due, or any failure to perform any
other of the terms, conditions or covenants of this Lease to be observed or
performed by Tenant or Guarantor for more than thirty (30) days after written
notice of such default shall have been mailed to Tenant, or if Tenant or
Guarantor shall become bankrupt or insolvent, or file any debtor proceedings, or
take or have taken against Tenant or Guarantor in any Court pursuant to any
statute either of the United States of any State, a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of all or a portion of Tenant's or Guarantor's property, or if Tenant or
Guarantor makes an assignment for the benefit of creditors, or petitions for or
enters into an arrangement, or if Tenant or Guarantor shall abandon said
premises, or suffer this Lease to be taken under any writ of execution, then
Landlord, besides other rights and remedies it may have, shall have the right of
reentry provided by Florida law which provides for notice to Tenant and a
judicial hearing. After notice and a final judgment, Landlord may remove all
persons and property from the leased premises and such property may be removed
and stored in a public warehouse or elsewhere at the cost of, and for the
account: of Tenant, and all without liability to Landlord for any loss or damage
which may be occasioned thereby.

         Should Landlord elect to re-enter, as herein provided, or should it
take possession pursuant to legal proceedings or pursuant to any notice provided
for by law, it may either terminate this Lease or it may from time to time
without terminating this Lease make such alterations and repairs as may be
necessary in order to relet the premises, and relet said premises or any part
thereof for such term or terms which may be for a term extending beyond the
term of this Lease) and at such rental or rentals and upon such other terms and
conditions of Landlord in its sole discretion may doom advisable; upon each such
reletting all rentals received by Landlord from such relening shall be applied,
first to the payment of any indebtedness other than rent due hereunder from
Tenant to Landlord; second, to the payment of any costs and expenses of such
reletting, including brokerage fees and attorney's fees and of cost of such
alterations and repairs; third, to the payment of rent due and unpaid hereunder,
and the residue, if any, shall be held by Landlord and applied in payment of
future rent as the same may become due and payable hereunder.  If such rentals
received from such reletting during any month be less than that to be paid
during that month by Tenant hereunder Tenant shall pay any such deficiency to
Landlord.  Such deficiency shall be calculated and paid monthly.  If such
rentals received from such reletting during any month be more than that to be
paid during that month by Tenant hereunder, then such excess shall not benefit
Tenant by reducing the amount of any of Tenant's obligations due Landlord.  Any
amounts obtained by reletting shall be for the sole benefit of Landlord.  No
such re-entry or taking possession of said premises by Landlord shall be
construed as an election on its part


                                       7
<PAGE>
to terminate this Lease unless a written notice of such intention be given to
Tenant or unless the termination thereof be decreed by a court of competent
jurisdiction. Notwithstanding any such reletting without termination, Landlord
may at any time thereafter elect to terminate this Lease for such previous
breach. Should Landlord at any time terminate this Lease for any breach, in
addition to any other remedies it may have, it may recover from Tenant all
damages it may incur by reason of such breach, including the cost of recovering
the leased premises, reasonable attorney's fees, and including the worth at the
time of such termination of the excess, it any, of the amount of rent and
charges equivalent to rent reserved in this Lease for the remainder of the
stated term over the amount, if any, actually received by Landlord from the
reletting of the leased premises, all of which amount shall be immediately due
and payable from Tenant to Landlord. (n determining the rent which would be
payable by Tenant hereunder, subsequent to default, the annual rent for each
year of the unexpired term shall be equal to the average annual minimum rent
paid by Tenant from the commencement of the term to the time of default, or
during the proceeding three full calendar years, whichever period is shorter.
Whether or not forfeiture has been declared, Landlord will not be obligated or
responsible, in any way, for failure to release the Premises or, in the event
that the Premises are released, for failure to collect the rent under such re
leasing. The failure of Landlord to re-lease all or any part of the Premises
will not release or affect Tenant's liability for rent or damages,

Section 15.02     Legal Expenses

         In case suit shall be brought for recovery of possession of the leased
premises, for the recovery of rant or any other amount due under the provisions
of this Lease, or because of the breach of any other covenant herein contained
on the part of Tenant to be kept or performed, and a breach shall be
established, Tenant shall pay to Landlord all expenses incurred therefor,
including reasonable attorney's foe,

Section 15.03     Waiver of Jury Trial and Counterclaims

         The parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties any way
connected with this Lease relating to any monetary defaults.

Section 15,04     Curing of Tenant's Default

         Notwithstanding anything herein contained to the contrary, if Tenant
shall be in default in the performance of any of the terms or provisions of this
Lease and if Landlord shall give to Tenant notice in writing of such default
specifying the nature thereof, and if Tenant shall fail to cure such default
within the time provided in Section 15.01 hereof, or immediately if such default
requires emergency action, Landlord may, in addition to its other legal and
equitable remedies, cure such default for the account of and at the cost and
expense of' tenant and the sums so expended by Landlord, together with an
administrative fee equal to twenty-five percent (25(degree).6) of the sum
expended by Landlord, shall be deemed to be additional rent and shall be paid by
Tenant on the day when rent shall next become due and payable.

ARTICLE XVI       TENANT'S PROPERTY

Section 16.01     Taxes on Leasehold

         Tenant shall be responsible for and shall pay before delinquency all
municipal, county or state taxes assessed during the term of this Lease against
any leasehold interest or personal property of any kind, owned by or placed in,
upon or about the leased premises by the Tenant.

Section 16.02     Notice by Tenant

         Tenant shall give immediate notice to Landlord in case of fire or
accidents in the leased premises or in the building of which the premises are a
part, or of defects therein any fixtures or equipment.

ARTICLE XVII      QUIET ENJOYMENT


Section 17.01      Landlord's Covenant

         Upon payment by the Tenant of the rents herein provided, and upon the
observance and performance of all the covenant:., terms and conditions on
Tenant's part to be observed and performed, Tenant shall peaceably and quietly
hold and enjoy the leased premises for the term hereby demised without hindrance
or interruption by Landlord or any other person or persons lawfully or equitably
claiming by, through or under the Landlord, subject, nevertheless, to the terms
and conditions of this Lease.

ARTICLE XVIII     HOLDING OVER, SUCCESSORS

Section 18.01     Holding Over

         If Tenant remains in possession of the leased premises after the
expiration of this Lease without executing a new lease, it will be deemed to be
occupying the leased premises as a tenant from month to month, and Tenant will
be responsible for the rent and all other charges on a monthly basis with no
prorations, subject to all the provisions of this Lease to the extent that they
can be applicable to a month to month tenancy, except that the minimum rental
for each month will be increased to an amount established by Landlord. The new
monthly amount will be established by written notice from Landlord to Tenant.

Section 18.02     Successors

         All rights and liabilities herein given to, or imposed upon, the
respective parties hereto shall extend to and bind the respective heirs,
executors, administrators, successors, and assigns of the said parties; and if
there shall be more than one tenant, they shall all be bound jointly and
severally by the terms, covenants, and agreements herein. No rights, however,
shall inure to the benefit of any assignee of Tenant unless the assignment to
such assignee has been approved by Landlord In writing as provided in Section
10.01 hereof.

ARTICLE XIX       CERTAIN RIGHTS OF LESSOR WITH RESPECT TO THE LAND

Section 19.01     Easements and Utilities

         The Landlord shall have the right, without the consent of Lessee, to
grant to adjacent land owners, purchasers, Tenants or occupants or any
governmental agency or public or private utility company, including Tenant, at
any time and from time to time during the term of the Lease, as extended
easements and rights of ingress, egress and common use and enjoyment with
respect to the roads, walks, unimproved portions of the land, water, sewage,
telephone, gas and electricity lines, and Landlord may at anytime and from time
to time grant easements, public and private, for such purposes to itself and to
others, and relocate any easements now or hereafter affecting the land.


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ARTICLE XX        MISCELLANEOUS

Section 20.01     Waiver

         One or more waivers of any covenant or condition by Landlord shall not
be construed as a waiver of a subsequent breach of the same covenant or
condition. and the consent or approval by Landlord to or of any act by Tenant
requiring Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent or approval to or of any subsequent similar act
by Tenant.

Section 20.02     Subordination

         Tenant hereby grants the right to Landlord to. and Landlord hereby
reserves the right to, subject and subordinate this Lease (at all times) to any
mortgage(s) or deeds) of trust that may hereafter be placed upon the Demised
Premises and to any and all advances to be made thereunder and to the interest
thereon and all renewals, replacements and extensions thereof. Landlord may
execute and deliver any instrument or instruments subordinating this Lease to
any such mortgage or deed of trust without any further action or consent by
Tenant. and Tenant hereby irrevocably appoints the Landlord the attorney-in-fact
of the Tenant to execute and deliver any such instrument or instruments for and
in the name of the Tenant. Tenant additionally hereby grants to any first
mortgagee of the leased premises the right to subject and subordinate this Lease
(at all times) to any such first mortgage and to any and all advances to be made
thereunder, and to the interest thereon and all renewals, replacements and
extensions thereof. Any such first mortgages may execute and deliver any
instrument or instruments subordinating this Lease to any such first mortgage
without any further action or consent by Tenant, and Tenant hereby irrevocably
appoints such first mortgagee the attorney-in-fact of the Tenant to execute and
deliver any such instrument or instruments for and in the name of the Tenant. In
confirmation of any such subordination, the Tenant shall promptly execute any
certificate that the the Landlord or such first mortgagee may request.

Section 20.03     Notices

         Whenever under this Lease a provision is made for notice of any kind,
it shall be deemed sufficient notice and service thereof if such notice to
Tenant is in writing, addressed to Tenant at the last known post office address
or office address of Tenant or at the leased premises, and sent by registered or
certified mail with postage prepaid, and if such notice to Landlord is in
writing, addressed to the last mown post office address of Landlord and sent by
registered or certified mail with postage prepaid. Notice must be sent to but
one Tenant or Landlord where Tenant or Landlord is more than one person.

Section 20.04     Construction

         Nothing contained herein shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent or of partnership or of joint venture between the parties hereto, it being
understood and agreed that neither the method of computation of rent, nor any
other provision contained herein, nor any acts of the parties herein, shall be
deemed to create any relationship between the parties hereto other than the
relationship of Landlord and Tenant, Wherever herein the singular number is
used, the same shall include the plural, and the masculine gender shall include
the feminine and neuter genders. In the event any language is deleted from this
Lease said language shall be deemed to have never appeared and no other
implication shall be drawn therefrom.

Section 20.05     Non-Liability

         Landlord shall not be responsible or liable to Tenant for any loss or
damage that may be occasioned by or through the acts or omissions of persons
occupying adjoining premises, if any, or any part of the premises adjacent to or
connected with the premises hereby leased or any loss or damage resulting to
Tenant or his property from burst, stopped or leaking water, gas, sewer or steam
pipes, or for any damage or loss or property within the Demised Premises from
any cause whatsoever

         Notwithstanding any provisions of this Lease to the contrary, Tenant
acknowledges and agrees that no personal liability of any kind under any of the
terms, conditions or provisions of this Lease shall attach to the Landlord
(including any joint venturer of the joint venture which is the Landlord
hereunder or any leasing agent, broker or other agent or representative of
Landlord) for the payment of any amounts payable under this Lease or for the
performance of any terms, conditions or provisions required to be performed by
Landlord under this Lease. If Landlord shall fail to perform any term, condition
or provision of this Lease required to be performed by Landlord and if as a
consequence of such default, Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only out of the proceeds of sale
received upon execution and levy of such judgment against the right, title and
interest of the Landlord in the building of which the Tenant's Demised Premises
are a part, and neither Landlord nor any of the joint venturers of the joint
venture which is the Landlord hereunder shall be personally liable for any Such
judgment or monetary deficiency.

Section 20.06     Net Lease

         It is the intent of the parties that the within Lease be a net, not,
net Lease.

Section 20.07     Financing and Tenant's Acknowledgment of Acceptance
                  of Premises

         Notwithstanding anything herein or elsewhere to the contrary contained.

         A. The Landlord shall not be obligated to proceed with the construction
of the leased promises unless and until financing; acceptable to Landlord is
obtained. Should such financing not be obtainable within six (6) months after
completion of final plans and specifications, Landlord may so notify Tenant in
writing, and this Lease shall thereupon cease and terminate, and each of the
parties hereto shall be released and discharged from any and all liability and
responsibility hereunder. If Landlord can obtain financing only upon the basis
of modification of the terms and provisions of this Lease, the Landlord shall
have the right to cancel this Lease if the Tenant refuses to approve in writing
any such modifications within thirty (30) days after Landlord's request
therefor. If such right to cancel is exercised, this Lease shall thereafter be
null and void, any money or security deposited hereunder shall be returned to
the Tenant, and neither party shall have any liability to the other by reason of
such cancellation.

         B. Tenant agrees to furnish Landlord, upon request and after Tenant has
taken possession of the Demised Premises, a letter addessed to Landlord's
mortgagee or financial institution, giving the information, as described in the
attached Exhibit "C".

         Failure of Tenant to provide Landlord such a letter at the request of
Landlord, Landlord's mortgagee or financial institution at any time during the
lease term as above described, shall give Landlord the right to cancel this
Lease at that time upon five (5) days written notice to Tenant of such
cancellation, and the Tenant shall remain liabile to the Landlord for any
damages sustained by the Landlord because of such failure by the Tenant.


                                       9
<PAGE>

Section 20.08     Accord and Satisfaction

         No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly rental herein stipulated shall be deemed t:) be other than on account of
the earliest stipulated rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy in this Lease provided.

Section 20.09     Captions and Section Numbers

         The captions, section numbers, article numbers and index appearing in
this Lease are inserted only as a matter of convenience and in no way define,
limit, construe or describe the scope or intent of such sections or articles of
this Lease nor in any way affect this Lease.

Section 20.10     Partial Invalidity

         If any term, covenant or condition of this Lease or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term,
covenant or condition to persons or circumstances other than those to which it
is held invalid or unenforceable, shall not be affected thereby and each term,
covenant or condition of this Lease shall be valid and be enforced to the
fullest extent permitted by law.

Section 20.11     No Option

         The submission of this Lease for examination does not constitute a
reservation of or option for the leased premises, and this Lease becomes
effective as a Lease only upon execution and delivery thereof by Landlord and
Tenant.

Section 20.12     Recording

         This Lease shall not be recorded by the Tenant. However, it may be
recorded by Landlord at Landlord's option. If this Lease is recorded by Tenant
without the written consent of the Landlord, then this Lease may, at any time,
without notice and whenever the Landlord so elects, be declared by Landlord null
and void,

Section 20.13     Sale or Transfer of the Demised Premises

         Upon any sale or transfer, including any transfer by operation of law,
of the Demised Premises, or the Industrial Park, Landlord shall be relieved from
all subsequent obligations and liabilities under this Lease as long as successor
Landlord assumes all of the obligations of the lease

Section 20.14     Liens

         In the event a mechanic's lien shall be filed against the Demised
Premises or Tenant's interest (herein as a result of the work undertaken by
Tenant to ready the Demised Premises for the opening of Tenant's business or as
a result of any repairs or alterations made by Tenant, Tenant shall, within ten
(10) days after receiving notice of such lien, discharge such lien, either by
payment of the indebtedness due the mechanic's lien claimant or by filing a bond
(as provided by statute) as security therefore. If Tenant shall fail to cause
such lien to be discharged upon demand, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to, discharge the
same by paying the amount claimed to be due or by bonding or other proceeding
deemed appropriate by Landlord and the amount so paid by Landlord and/or all
costs and expenses, including reasonable attorney's fees, incurred by Landlord
in procuring the discharge of such lien shall be deemed to be additional rent.
Nothing in this Lease contained shall be construed as a consent on the part of
the Landlord to subject Landlord's estate in the Demised Premises to any lien or
liability under the Lien Law of the State of Florida.

         Tenant shall never, under any circumstances, have the power to subject
the interest of Landlord in the Demised Premises to any mechanics or
materialmen's liens or liens of any kind. In accordance with the applicable
provisions of the Florida Lien Law, it is specifically provided that neither
Tenant or anyone claiming by, through or under Tenant, including, but not
limited to, contractors, subcontractors, materialmen, mechanics, and laborers
shall have any right to file or place any mechanics and laborers, mechanics or
material men's liens of any kind whatsoever upon the Demised Premise nor upon
any building or improvements thereof, and any such liens are hereby prohibited.
All parties with whom Tenant may deal are put on notice that Tenant has no power
to subject Landlord's interest to any claim or lien of any kind or character,
and all persons so dealing with Tenant must look solely to the credit of Tenant
and not to Landlord's interest or assets. Further, Tenant acknowledges that
Tenant, with respect to improvements or alterations made by Tenant or caused to
be made by Tenant hereunder shall promptly notify the contractor making such
improvements to the Demised Premises of this provision exculpating Landlord's
liability for such liens,

Section 20.15     Attornment

         In the event any proceedings are brought for foreclosure or in the
event of exercise of the power of sale under any mortgage made by Landlord
covering the leased premises, or areas surrounding same, Tenant shall, at the
option and request of purchaser, attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as the Landlord under this
Lease,

Section 20.16     Set-Off Statement

         Tenant agrees within ten (10) days after any request therefor by the
Landlord to execute in recordable form and deliver to Landlord a statement, in
writing, certifying (a) that this Lease is in full force and effect, (b) the
date of commencement of the term of this Lease, (c) that rent is paid currently
without set-off or defense thereto, (d) the amount of rent, if any, paid in
advance, and (e) that there are no uncured defaults by Landlord or stating those
claimed by Tenant.

 Section 20.17    Entire Agreement

         This Lease shall constitute the entire agreement of the parties hereto.
All prior agreements, statements or representations between the parties and
their agents and/or employees, whether written or oral, are expressly merged
herein and if not contained in this Lease agreement shall be of no force or
effect. This Lease agreement shall not be modified, changed, altered, or
discharged whatsoever, excepting only by an agreement in writing and executed by
both Landlord and Tenant.


                                       10
<PAGE>

Section 20.18     Brokerage

         Tenant warrants that it has had no dealings with any broker or agent in
connection with this Lease, and Tenant covenant's pay, hold harmless and
indemnify Landlord from and against any and all costs, expense or liability for
any compensation, commissions and charges claimed by any broker or agent with
respect to this Lease or the negotiation thereof based upon or arising out of
any acts or dealings which Tenant or any representative of Tenant has had or is
claimed to have had with such broker or agent.

Section 20.19     No Oral Changes

          This Lease may not be changed or terminated orally but only upon an
agreement In writing signed by the parties hereto.

Section 20.20     No Representations by Landlord

         Landlord or landlord's agents have made no representations, warranties
or promises with respect to the Demised Premises or the building except as
herein expressly set forth.

Section 20.21     Corporate or Partnership Tenant

         If Tenant is or will be a corporation, partnership, or other entity,
the persons executing this Lease on behalf of Tenant hereby covenant and warrant
that Tenant has been duly organized and is qualified or authorized to do
business in the State of Florida; and that the person(s) executing this Lease on
behalf of Tenant is (are) duly authorized to sign and execute this Lease.
Furthermore, prior to the Commencement Date, Tenant shall provide Landlord with
evidence of the foregoing which, where applicable, will include a certificate
from the State of Florida that Tenant is qualified to do business in that state,
and a certified resolution of the Board of Directors or partners of Tenant that
the person(s) executing this Lease on behalf of Tenant was (were) duly
authorized to do so. Furthermore, Tenant agrees to take any and ail necessary
action to keep its existence as an entity in good standing throughout the term
of this Lease in the state in which Tenant has been organized and, If such state
is other that the State of Florida, to continue to be qualified to do business
in the State of Florida.

Section 20.22     Damage From Roof Leaks

         As to Tenant's machinery, equipment and Inventory:

         Tenant understands and agrees that the Landlord shall have no liability
for any resultant damage from any leaks as a result of excessive rain, roofing
defects or hurricane damage, and that it shall be the responsibility of the
Tenant to protect itself as it sees fit concerning any leakage of water
whatsoever, either from the roof, leaking or burst pipes or from any other
source.

Section 20.23     Security Deposit

         The Tenant has, simultaneously herewith, deposited with Landlord, the
Sum of Two thousand six hundred twenty eight and 80/100 Dollars ($2,628.80).
Said deposit shall be held by Landlord as security for the faithful performance
by Tenant of the terms, covenants, provisions and conditions of this Lease. It
is agreed that in the event Tenant defaults in respect to any of the terms,
covenants, provisions and conditions of this Lease, including but not limited to
the payment of rental, Landlord may, but in no event shall Landlord be required
to, use, apply or retain the whole or any part of the security so deposited to
the extent required for the payment of any rental or any other sum as to which
Tenant is in default or any sum which Landlord may expend or may be required to
expend, including attorney's fees, by reason of Tenant's default, in respect to
any of the terms ,covenants, provisions and conditlons of this Lease, including
but not limited to any damages or deficiencies in the reletting of the premises,
whether such damages or deficiencies accrued before or after summary proceedings
or other reentry by Landlord. Should the entire deposit, or any portion thereof,
be appropriated and applied by Landlord for the payment of overdue rental or
other sums due and payable to Landlord by Tenant hereunder, then Tenant shall,
upon the written demand of Landlord, forthwith remit to Landlord a sufficient
amount in cash to restore said security to the original sum deposited, and
Tenant's failure to do so within five (5) days after receipt of such demand
shall constitute a breach of this Lease. Said security deposit if not applied
toward the payment of rent in arrears or toward the payment of damages suffered
by the Landlord by reason of the Tenant's breach of the covenants, conditions
and agreements of this Lease, is to be returned to the Tenant when this Lease is
terminated, according to these terms and in no event is said security deposit to
be returned until the Tenant has vacated the premises and delivered possession
to the Landlord upon the terms and conditions as provided and required under
this Lease. In the event of a sale of the land and building or leasing of the
same of which the premises form a part, Landlord stall have the right to
transfer the security to the vendee or the lessee, and Landlord shall thereupon
be released by Tenant from all liability for the return of such security, and it
is agreed that the provisions hereof shall apply to every transfer or assignment
made of the security to a new Landlord. Tenant further covenants that it will
not assign or encumber or attempt to assign or encumber the security deposited
hereunder and that neither Landlord nor its successors or assigns shall be bound
by any such assignment, encumbrance, attempted assignment or attempted
encumbrance. Landlord shall not be required to segregate Tenant's security
deposit, nor shall Tenant be entitled to any interest on the aforesaid deposit
or security. It is expressly understood and agreed that the issuance of a writ
or restitution and the reentering of the premises by Landlord for any default on
the part of Tenant prior to the expiration of the term, shall not be deemed such
a termination of this Lease as to entitle Tenant to the recovery of the said
security and that the said deposit shall be retained and remain in the
possession of Landlord until the end of the term as hereinbefore stated.

Section 20.24     Administrative Charge

         All rent is due on the first of the month. Any rent paid after the
tenth of any month will be subject to a service charge of 10% of the minimum
rent due, which will be for administrative expenses.

Section 20.25     Laws of the State of Florida

         This Lease shall be governed by and construed !n accordance with the
laws of the State of Florida.

Section 20.26     Counterparts

         This Lease shall be executed by Landlord and Tenant in two
counterparts, each of which shall be deemed to be an original but both of which
shall constitute one and the same agreement. If requested by Landlord or any
mortgagee holding any mortgage encumbering the leased premises or any part
thereof, Tenant agrees to execute and deliver to Landlord or any such mortgagee
within five (5) days of such request a duplicate original of this Lease together
with all exhibits, drawings, riders or amendments thereto.


                                       11
<PAGE>


Section 20.27     Right to Plat

         Landlord reserves the right to plat or otherwise subdivide the property
during the term of the Lease and Tenant agrees to cooperate with Landlord.

Section 2028      Radon Gas

         Florida State Law requires that every lease contain the following
statement:

         "RADON GAS: Radon is a naturally occurring radioactive gas that, when
         it has accumulated in a building in sufficient quantities, may present
         health risks to persons who are exposed to it over time. Levels of
         radon that exceed federal and state guideline:, have been found in
         buildings in Florida. Additional information regarding radon and radon
         testing may be obtained from your county public health unit."

         Section 20.29 Tenant's Time to Sue

         A. Commencement of Action. Any claim, demand, right or, defense by
Tenant that arises out of this Lease or the negotiations that preceded this
Lease shall be barred unless Tenant commences an action thereon, or interposes a
defense by reason thereof, within six (6) months after the date of the inaction,
omission, event, or action that gave rise to such claim, demand, right or
defense.

         B. Tenant Acknowledgment. Tenant acknowledges and understands, after
having consulted with its legal counsel, that the purpose of Paragraph A is to
shorten the period within which Tenant would otherwise have to raise such
claims, demands, rights, or defenses under applicable laws.

Section 20.30     Rider

         A Rider is attached hereto and made part hereof.

         IN WITNESS WHEREOF, Landlord and Tenant have signed their names and
affixed their seals the day and year first above written.


SIGNED, SEALED AND DELIVERED IN THE PRESENCE OF:

                                       LANDLORD:
                                       LYONS CORPORATE PARK, LLLP



/s/  Ann (illegible)                   By: /s/ Michal J. Ferrera
- -------------------------------        --------------------------------------
                                       Michael J. Ferrera, Trustee, as a
                                       General Partner


/s/  Vicki Buzzeli                     By: /s/ Michele Ferrera
- -------------------------------        --------------------------------------
                                       Michele Ferrera, Trustee, as a
                                       General Partner


                                       By: /s/ Augustine Ferrera
                                       --------------------------------------
                                       Augustine Ferrera, Trustee, as a
                                       General Partner


                                       By: /s/ Lee S. Lasser
                                       --------------------------------------
                                       Lee S. Lasser, Trustee, as a General
                                       Partner



                                      TENANT: The Singing Machine Co., Inc.
                                              (A Florida Corporaiton)


/s/  Melody (illegible                 By: /s/ April J. Green
- -------------------------------        --------------------------------------
                                       Title:  Director of Finance & Admin
                                       --------------------------------------


                                       12
<PAGE>


                                   INDIVIDUAL

STATE OF          )
COUNTY OF         ) ss

On this day of ____________________, 20___________________, before me personally

appeared ______________________________________________________________________
who did acknowledge before me that he/she executed the within and foregoing
instrument by his free act and deed for the purpose therein expressed.


            (SEAL)                 --------------------------------------------
                                      Print, Type or Stamp Name of Notary


                         PERSONALLY KNOWN ______________________________________

        OR PRODUCED IDENTIFICATION______________________________________________

TYPE OF IDENTIFICATION PRODUCED_________________________________________________


                           PARTNERSHIP OR CORPORATION

STATE OF FLORIDA    )
                    )ss
COUNTY OF BROWARD   )


The foregoing instrument was acknowledged before me this 12th day of March, 2002
by April J. Green, as Director of Finance for The Singing Marchine Co., Inc.


                                 /s/ Vickie Buzzeli
         (SEAL)                -------------------------------------------------
                                Print, Type or Stamp Name of Notary


                         PERSONALLY KNOWN       X
                                          --------------------------------------

              OR PRODUCED IDENTIFICATION
                                          --------------------------------------

         TYPE OF IDENTIFICATION PRODUCED
                                          --------------------------------------



STATE OF FLORIDA    )
                    )ss
COUNTY OF BROWARD   )


The foregoing instrument was acknowledged before me this 12th day of March, 2002
by MICHAEL J. FERRERA, Trustee, MICHELE FERRERA, Trustee, AUGUSTINE FERRERA,
Trustee, and LEE S. LASSER, Trustee all as General Partners of Lyons Corporate
Park, LLLP, freely and voluntarily under authority duly vested in them by said
Partnership.  They are personally known to me.

My Commission Expires:

                                 /s/ Vickie Buzzeli
         (SEAL)                -------------------------------------------------
                                Print, Type or Stamp Name of Notary
[GRAPHIC OMMITTED]


                                       13
<PAGE>



RIDER NO. 1 ATTACHED TO AND MADE A PART OF LEASE AGREEMENT DATED March 12, 2002
BETWEEN LYONS CORPORATE PARK, LLLP (A Florida Limited Liability Limited
Partnership) LANDLORD AND THE SINGING MACHINE CO., INC. (A FLORIDA CORPORATION)

AS TENANT, DATED THE 12th DAY OF MARCH, 2002.

1.       Landlord and Tenant agree that Landlord has supplied and placed in the
         demised premises, storm shutters and bolts to cover all of the glass in
         front of the bay and the front door. Tenant agrees that it is the sole
         responsibility of Tenant to install the storm shutters should the need
         arise. At the termination of the occupancy, the Tenant agrees to return
         the shutters and bolts to the Landlord in good condition.


                                       LANDLORD:
                                       LYONS CORPORATE PARK, LLLP

Witnesses:

/s/  Ann (illegible)                   By: /s/ Michal J. Ferrera
- -------------------------------        --------------------------------------
                                       Michael J. Ferrera, Trustee, as a
                                       General Partner


/s/  Vicki Buzzeli                     By: /s/ Michele Ferrera
- -------------------------------        --------------------------------------
                                       Michele Ferrera, Trustee, as a
                                       General Partner


                                       By: /s/ Augustine Ferrera
                                       --------------------------------------
                                       Augustine Ferrera, Trustee, as a
                                       General Partner


                                       By: /s/ Lee S. Lasser
                                       --------------------------------------
                                       Lee S. Lasser, Trustee, as a General
                                       Partner



                                      TENANT: The Singing Machine Co., Inc.
                                              (A Florida Corporaiton)


                                       By: /s/ April J. Green
                                       --------------------------------------
                                               April J. Gree

<PAGE>

                                  EXHIBIT "A"
                                  -----------


                               LEGAL DESCRIPTION
                               -----------------


         Lot 1 & 2 of Lyons Business Park according to the Plat thereof as
recorded in Plat Book 137, Page 47, of the Public Records of Broward County.



<PAGE>



                                  EXHIBIT "B"
                                  -----------





                                   SITE PLAN






                               [GRAPHIC OMMITTED]


<PAGE>
                                                                     Page 1 of 2


                                   Exhibit "D"
                                   -----------

                          RIDER - LEASE SPECIFICATIONS
                          ----------------------------

                        (Description of Landlord's Work)

                                FOR LOT 1 & 2 OF

                           LYONS CORPORATE PARK, LLLP
                           --------------------------



A. Building Construction

1.       Building Fill - compacted to a density of 98 percent at optimum
         moisture contact.

2.       Foundations: Reinforced concrete (3,000 p.s.i.) spread footings. Soil
         bearing capacity assumed to be 2,500 psf.

3.       Exterior Walls: 8" concrete masonry units with tie columns and tie
         beams with painted stucco exterior finish, interior finish not painted.


4.       Structural Frame: A-36 steel roof framing made up of open web steel
         bar joists bearing on steel girder joists supported by steel pipe
         columns. minimum clear height to be 18'-0" from finish floor slab to
         underside of roof structure.

5.       Floor slab: 4" concrete slab reinforced with 6" x 6" - 1.4/1.4 welded
         wire mesh on 6 mil. visqueen vapor barrier.

6.       Roof Construction:

         a)       22 ga. corrigated metal deck with 1" rigid insulation board
                  fastened to metal deck.

         b)       4 ply built-up tar and gravel roof.

7.       Doors:

         a)       Overhead doors: 12'w x 14'h at bays and 8'w x 8'h at truck
                  dock. Metal overhead rolling door with manual drive surface
                  mounted inside space.

         b)       Entrance Doors: 3'0" x 7'0" Gray tinted tempered glass set in
                  Satin aluminum frames.

         c)       Rear Doors" 3'0" x 7'0" metal doors in hollow metal frames.

         d)       Interior Doors: Wood hollow core stain grade door set in wood
                  jamb. 3'0" x 6'8" x 1-3/8" at office and 2'8" x 6'8" x 1-3/8"
                  at toilets.'

8.       Interior Partitions: Building D, Building H and Building I 8'0" high
         constructed from 3-5/8" galvanized metal studs with top and bottom cap
         .25 gauge thickness. Studs to be placed 24" o.c. Finish on walls to be
         1/2" gypsum wallboard, joints to be; finished with 2" joint tape
         covered with 3 costs of spackling compound sanded smooth. 3-/2" batt
         insulation at perimeter interior partitions.

9.       Toilet Facilities Each toilet facility shall have 1 water closet, 1
         lavatory. 1-18" x 24" plate glass mirror, 1 paper holder. Floor finish
         shall be vinyl tile, walls to be painted dry wall and coiling to be
         acoustical tile.

         1 toilet facility per bay shall conform to the American National
         Standards "Specifications for Making Buildings and Facilities
         Accessible to, and Usable by, the Physically Handicapped" ANSI A 117.1.


<PAGE>

                                                                     Page 2 of 2


                                   Exhibit "D"
                                   -----------

                          RIDER - LEASE SPECIFICATIONS
                          ----------------------------

                        (Description of Landlord's Work)

                                FOR LOT 1 & 2 OF

                           LYONS CORPORATE PARK, LLLP
                           --------------------------



10.      Office Area Finishes:

         a)       Walls, 2 coats of interior type flat latex paint.

         b)       Doors and Frames: 2 coats semi-gloss paint or stain.

         c)       Flooring: carpet allowance of $9.00 s.y.

         d)       Base: 4" vinyl or rubber.

         e)       Ceiling: 2' x 4' x 5/8" mineral fiber board White flush type,
                  with fissured face. Runners and edge moldings to be 5/8" x 6"
                  fiberglass batt insulation above ceiling. Ceiling height at
                  Building C is 9' and at Building F and G is 8'.

11.      Hardware:

         a)       Entrance Doors to have double cylinder dead bolt lockset with
                  interior thumb turn, push/pull bar. automatic closer and
                  offset pivot hinges. All finishes to match finish of door
                  frame.

         b)       Interior Door - 1 pr. at 3-1/2" x 3-1/2" antique brass finish
                  mortise type butte with one Schlage or equal f series tulip
                  antique brass finish passage hardware per door and one door
                  stop.

         c)       Rear Door - 1-1/2" pr. at 4-1/2" x 4-1/2" paint grade mortise
                  type butts. with double cyllnder dead bolt with 1" throw.

         d)       Washroom Doors with privacy HDW.

12.      Plumbing - Exterior lines all to be polyvinyl chloride type (PVC).
         Interior waste and vent lines to be PVC. Interior water distribution to
         be copper pipe.

13.      HVAC - Air conditioning to be provided by split package with the
         compressor mounted on steel curbs set on the roof, andthe air handler
         suspended from the roof, above the office area. A/C supplied at 1
         ton/400 s.f. of office space. Heating will be accomplished by heat
         strips in air handling unit. Ductwork to be standard fiberglass
         foil-clad. One 1/3 h.p. ventilator exhaust fan in shop area.


14.      Electrical Service - Individual meters, 200 amp 3 phase service for
         each bay. Lighting is to be provided in the office space by 2' x 4' lay
         in 4 lamp florescent fixtures and in warehouse area by 1' x 8' lamp
         florescent fixtures mounted to underside of roof structures.


15.      Water Service - 3/4' supply with 5/8' meter - each bay in individually
         metered.


16.      Accessories - Shop area 3' x 3' white translucent skylights.


17.      The plans for thin premises are Job No. 9506 ,dated 5/3/94 drawn by
         Perez & Associates.


18.      Landlord and Tenant agrees that Tenant accepts the premises in an "AS
         IS, WHERE IS" condition except for the following:

         1.       Landlord will paint the office area.

         2.       Landlord will clean the carpet in the office area.

         3.       Landlord will provide an opening in the warehouse wall between
                  Suites A- 5 and A-6.

<PAGE>
                                 SIGN CRITERIA
                                 -------------



LOCATION :             Lyons Corporate Park I.LLP
                       6601 Lyons Road
                       Coconut Creek, Florida 33073

 EXTERIOR  BUILDING SIGNS: All signs shall be fabricated identically using the
                           following construction specifications:

                           1)       All sign layouts must be approved by
                                    landlord before installation. Sketch and
                                    specifications must be submitted.

                           2)       All live sign areas are restricted in size
                                    to allow perimeter air space where no sign
                                    element can be placed.



                           3)       All signs to consist of individual molded 3
                                    dimensional (not flat) plastic letters
                                    outfitted with etude and perforated mental
                                    pads for cementing onto steel sign band. A
                                    silicone adhesive and sticky back tape roust
                                    be used to allow for removal of letters when
                                    necessary. Perforated pads must be adjusted
                                    to allow a minimum of 1/B" projection from
                                    back of letters to wall (See Diagram B).

                           4)       Tenant may choose from a variety of letter
                                    styles available and the color must be
                                    white.

                           5)       Logos and company emblems may be used as
                                    long as they conform to these general
                                    construction specifications and do not
                                    exceed sign "size" regulations.


NOTE:    The Tenant shall confirm with the City of Coconut Creek that their sign
         conforms to City Ordinances prior to construction of their sign.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>4
<FILENAME>busung-sublease.txt
<DESCRIPTION>BUSUNG SUBLEASE
<TEXT>
                                                                    Exhibit 10.5


[LOGO]
                   AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

                                STANDARD SUBLEASE
                                  MULTI-TENANT

1.       Basic Provisions ("Basic Provisions").

         1.1 Parties: This Sublease ("Sublease"), dated for reference purposes
only May 28, 2002, is made by and between The Singing Machine Co., Inc., A
Florida Corporation ("Sublessor") and Busung America Corp., a California
Corporation ("Sublessee"), (collectively the "Parties", or individually a
"Party").

         1.2(a) Premises: That certain portion of the Project (as defined
below), known as 967 East Sandhill Avenue, Carson, California 90246, consisting
of approximately 22,950 square feet ("Premises"). The Premises are located at:
967 East Sandhill Avenue, in the City of Carson, County of Los Angeles, State of
California, with zip code 90746. In addition to Lessee's rights to use and
occupy the Premises as hereinafter specified, Lessee shall have nonexclusive
rights to the Common Areas (as defined below) as hereinafter specified, but
shall not have any rights to the roof, the exterior walls, or the utility
raceways of the building containing the Premises ("Building") or to any other
buildings in the Project. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "Project."

         1.2(b) Parking: 30 unreserved and -0- reserved vehicle parking spaces.

         1.3 Term: 1 years and 8 months commencing June 1, 2002 ("Commencement
Date") and ending January 31, 2004 ("Expiration Date").

         1.4 Early Possession: ("Early Possession Date").

         1.5 Base Rent: $12,393.00 per month ("Base Rent"), payable on the first
(1st) day of each month commencing June 1, 2002.

[ ]      If this box is checked, there are provisions in this Lease for the
Base Rent to be adjusted.

         1.6 Lessee's Share of Operating Expenses: fifty percent (50%)
("Lessee's Share").

         1.7 Base Rent and Other Monies Paid Upon Execution:

                  (a) Base Rent: $12,393.00 for the period July 2002.

                  (b) Security Deposit: $24,786.00 ("Security Deposit").

                  (c) Other: $            for                .

                  (d) Total Due Upon Execution of this Lease: $37,179.00.

         1.8 Agreed Use: warehousing and distribution of restaurant equipment,
primarily refrigerators.

         1.9 Real Estate Brokers:

         (a) Representation: The following real estate brokers (the "Brokers")
and brokerage relationships exist in this transaction (check applicable boxes):

[X]      Lee & Associates Los Angeles South Bay, Inc. represents Sublessor
exclusively ("Lessor's Broker");

         [X] Coldwell Banker Commercial, JM Properties represents Subleasee
exclusively ("Lessee's Broker"); or

[ ]      ______________ represents both Sublessor and Sublessee ("Dual Agency").

         (b) Payment to Brokers: Upon execution and delivery of this Sublease by
both Parties, Sublessor shall pay to the Brokers the brokerage fee agreed to in
a separate written agreement (or if there is no such agreement, the sum of % of
the total Base Rent for the brokerage services rendered by the Brokers).

         1.10 Guarantor. The obligations of the Subleassee under this Sublease
shall be guaranteed by ("Guarantor").

         1.11 Attachments. Attached hereto are the following, all of which
constitute a part of this Sublease:

[ ]      An Addendum consisting of Paragraphs       through      :

[ ]      a plot plan depicting the Premises and/or Project;

[ ]      a current set of the Rules and Regulations;

[ ]      a Work Letter;

[ ]      a copy of the Master Lease;

[ ]      other (specify):


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2.       Premises.

         2.1 Letting. Sublessor hereby subleasses to Sublessee, and Sublessee
hereby subleases from Sublessor, the Premises, for the term, at the rental, and
upon all of the terms, covenants and conditions set forth in this Sublease.
Unless otherwise provided herein, any statement of size set forth in this
Sublease, or that may have been used in calculating Rent, is an approximation
which the Parties agree is reasonable and any payments based thereon are not
subject to revision whether or not the actual size is more or less. Note:
Subleassee is advised to verify the actual size prior to executing this
Sublease.

         2.2 Condition. Sublessor shall deliver the Premises to Sublessee broom
clean and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("Start Date"), and warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), and any items which the Lessor is obligated to
construct pursuant to the Work Letter attached hereto, if any, other than those
constructed by Lessee, shall be in good operating condition on said date. If a
noncompliance with such warranty exists as of the Start Date, or if one of such
systems or elements should malfunction or fail within the appropriate warranty
period, Sublessor shall, as Sublessor's sole obligation with respect to such
matter, except as otherwise provided in this Sublease, promptly after receipt of
written notice from Subleassee setting forth with specificity the nature and
extent of such noncompliance, malfunction or failure, rectify same at
Sublessor's expense. The warranty periods shall be as follows: (i) 6 months as
to the HVAC systems, and (ii) 30 days as to the remaining systems and other
elements. If Sublessee does not give Sublessor the required notice within the
appropriate warranty period, correction of any such noncompliance, malfunction
or failure shall be the obligation of Sublessee at Sublessee's sole cost and
expense.

         2.3 Compliance. Sublessor warrants that any improvements, alterations
or utility installations made or installed by or on behalf of Sublessor to or on
the Premises comply with all applicable covenants or restrictions of record and
applicable building codes, regulations and ordinances ("Applicable
Requirements") in effect on the date that they were made or installed. Sublessor
makes no warranty as to the use to which Sublessee will put the Premises or to
modifications which may be required by the Americans with Disabilities Act or
any similar laws as a result of Sublessee's use. NOTE: Sublessee is responsible
for determining whether or not the zoning and other applicable Requirements are
appropriate for Sublessee's intended use, and acknowledges that past uses of the
Premises may no longer be allowed. If the Premises do not comply with said
warranty, Sublessor shall, except as otherwise provided, promptly after receipt
of written notice from Sublessee setting forth with specificity the nature and
extent of such noncompliance, rectify the same.

         2.4 Acknowledgements. Sublessee acknowledges that: (a) it has been
advised by Sublessor and/or Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical, HVAC and
fire sprinkler systems, security, environmental respects, and compliance with
Applicable Requirements and the Americans with Disabilities Act, and their
suitability for Sublessee's intended use, (b) Sublessee has made such
investigation as it deems necessary with reference to such matters and assumes
all responsibility therefor as the same relate to its occupancy of the Premises,
and (c) neither Sublessor, Sublessor's agents, nor Brokers have made any oral or
written representations or warranties with respect to said matters other than as
set forth in this Sublease. In addition, Sublessor acknowledges that: (i)
Brokers have made no representations, promises or warranties concerning
Sublessee's ability to honor the Sublease or suitability to occupy the Premises,
and (iii) it is Sublessor's sole responsibility to investigate the financial
capability and/or suitability of all proposed tenants.

         2.5 Americans with Disabilities Act. In the event that as a result of
Sublessee's use, or intended use, of the Premises the Americans with
Disabilities Act or any similar law requires modifications or the construction
or installation of improvements in or to the Premises, Building, Project and/or
Common Areas, the Parties agree that such modifications, construction or
improvements shall be made at: [ ] Sublessor's expense [ ] Sublessee's expense.

         2.6 Vehicle Parking. Sublessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time for
parking. Sublessee shall not use more parking spaces than said number. Said
parking spaces shall be used for parking by vehicles no larger than full size
passenger automobiles or pickup trucks, herein called "Permitted Size Vehicles."
Sublessor may regulate the loading and unloading of vehicles by adopting Rules
and Regulations as provided in Paragraph 2.9. No vehicles other than Permitted
Size Vehicles may be parked in the Common Area without the prior written
permission of Sublessor.

                  (a) Sublessee shall not permit or allow any vehicles that
belong to or are controlled by Sublessee or Sublessee's employees, suppliers,
shippers, customers, contractors or invitees to be loaded, unloaded, or parked
in areas other than those designated by Sublessor and such activities.

                  (b) Sublessee shall not service or store any vehicles in the
Common Areas.

                  (c) If Sublessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Sublessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Sublessee,
which cost shall be immediately payable upon demand by Sublessor.

         2.7 Common Areas - Definition. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Project and interior utility raceways and installations within the
Premises that are provided and designated by the Sublessor from time to time for
the general nonexclusive use of Sublessor, Sublessee and other tenants of the
Project and their respective employees, suppliers, shippers, customers,
contractors and invitees, including parking areas, loading and unloading areas,
trash areas, roadways, walkways, driveways and landscaped areas.

         2.8 Common Areas - Sublessee's Rights. Sublessor grants to Sublessee,
for the benefit of Sublessee and its employees, suppliers, shippers,
contractors, customers and invitees, during the term of this Sublease, the
nonexclusive right to use, in common with others entitled to such use, the
Common Areas as they exist from time to time, subject to any rights, powers, and
privileges reserved by Sublessor under the terms hereof or under the terms of
any rules and regulations or restrictions governing the use of the Project.
Under no circumstances shall the right herein granted to use the Common Areas be
deemed to include the right to store any property, temporarily or permanently.
In the Common Areas. Any such storage shall be permitted only by the prior
written consent of Sublessor or Sublessor's designated agent, which consent may
be revoked at any time. In the event that any unauthorized storage shall occur
then Sublessor shall have the right, without notice, in addition to such other
rights and remedies that it may have, to remove the property and charge the cost
to Sublessee, which cost shall be immediately payable upon demand by Sublessor.

         2.9 Common Areas - rules and Regulations. Sublessor or such other
person(s) as Sublessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right from time to time, to
establish, modify, amend and enforce reasonable rules and regulations ("Rules
and Regulations") for the management, safety, care, and cleanliness of the
grounds, the parking and unloading of vehicles and the preservation of good
order, as well as for the convenience of other occupants or tenants of the
Building and the Project and their invitees. Sublessee agrees to abide by and
conform to all such Rules and Regulations, and to cause its employees,
suppliers, shippers, customers, contractors and invitees to so abide and
conform. Sublessor shall not be responsible to Sublessee for the noncompliance
with said Rules and Regulations by other tenants of the Project.

         2.10 Common Areas - Changes. Sublessor shall have the right, in
Sublessor's sole discretion, from timeto time:

                  (a) To make changes to the Common Areas, including, without
limitation changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;

                  (b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available:

                  (c) To add additional buildings and improvements to the Common
Areas;

                  (d) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Project; and

                  (e) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Project as Sublessor may,
in the exercise of sound business judgment, deem to be appropriate.

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3.       Possession.

         3.1 Early Possession- If Sublessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Sublease (Including but not limited to the obligations to pay Sublessee's Share
of Common Area Operating Expenses, Real Property Taxes and insurance premiums
and to maintain the Premises) shall, however. be in effect during such period.
Any such early possession shall not affect the Expiration Date.

         3.2 Delay in Commencement. Sublessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises by the
Commencement Date. If, despite said efforts, Sublessor is unable to deliver
possession as agreed, the rights and obligations of Sublessor and Sublessee
shall be as set forth in Paragraph 3.3 of the Master Lease (as modified by
Paragraph 7.3 of this Sublease).

         3.4 Sublessee Compliance. Sublessor shall not be required to tender
possession of the Premises to Sublessee until Sublessee complies with its
obligation to provide evidence of insurance. Pending delivery of such evidence,
Sublessee shall be required to perform all of its obligations under this
Sublease from and after the Start Date, including the payment of Rent,
notwithstanding Sublessors election to withhold possession pending receipt of
such evidence of insurance. Further, if Sublessee Is required to perform any
other conditions prior to or concurrent with the Start Date, the Start Date
shall occur but Sublessor may elect to withhold possession until such conditions
are satisfied.

4.       Rent and Other Charges.

         4.1 Rent Defined. All monetary obligations of Sublessee to Sublessor
under the terms of this Sublease (except for the Security Deposit) are deemed to
be rent ("Rent"). Rent shall be payable in lawful money of the United States to
Sublessor at the address stated herein or to such other persons or at such other
places as Sublessor may designate in writing.

         4.2 Common Area Operating Expenses. Sublessee shall pay during the
term hereof, in addition to the Base Rent, Sublessee's Share of all Common Area
Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Sublease, in accordance with the following provisions:

                  (a) "Common Area Operating Expenses" are defined, for purposes
of this Sublease, as all costs incurred by Sublessor relating to the operation
of the Project, including, but not limited to, the following:

                           (i) The operation, repair and maintenance, in neat,
clean. good order and condition, but not the replacement (see subparagraph (e)),
of the following:

                                    (aa) The Common Areas and Common Area
improvements, including parking areas, loading and unloading areas, trash areas,
roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation
systems, Common area lighting facilities, fences and gates, elevators, roofs,
and roof drainage systems.

                                    (bb) Exterior signs and any tenant
directories.

                                    (cc) Any fire sprinkler systems.

                           (ii) The cost of water, gas, electricity and
telephone to service the Common Areas and any utilities not separately metered.

                           (iii) Trash disposal, pest control services, property
management, security services, and the costs of any environmental inspections.

                           (iv) Reserves set aside for maintenance and repair of
Common Areas.

                           (v) Real Property Taxes.

                           (vi) Insurance premiums.

                           (vii) Any deductible portion of an insured loss
concerning the Building or the Common Areas,

                  (b) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Sublessor to either have said improvements or facilities or to provide
those services unless Sublessor already provides the services, or Sublessor has
agreed elsewhere in this Sublease to provide the same or some of them.

                  (c) Sublessee's Share of Common Area Operating Expenses shall
be payable by Sublessee within 10 days after a reasonably detailed statement of
actual expenses is presented to Sublessee. At Sublessor's option, however, an
amount may be estimated by Sublessor from time to time of Sublessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Sublessor shall designate, during each 12 month period of the
Sublease term, on the same day as the Base Rent is due hereunder. Sublessor
shall deliver to Sublessee within 60 days after the expiration of each calendar
year a reasonably detailed statement showing Sublessee's Share of the actual
Common Area Operating Expenses incurred during the preceding year. If
Sublessee's payments under this Paragraph 4.2(c) during the preceding year
exceed Sublessee's Share as indicated on such statement, Sublessor shall credit
the amount of such overpayment against Sublessee's Share of Common Area
Operating Expenses next becoming due, If Sublessee's payments under this
Paragraph 4.2(c) during the preceding year were less than Sublessee's Share as
indicated on such statement, Sublessee shall pay to Sublessor the amount of the
deficiency within 10 days after delivery by Sublessor to Sublessee of the
statement.

         4.3 Utilities. Sublessee shall pay for all water, gas, heat, light,
power, telephone, trash disposal and other utilities and services supplied to
the Premises, together with any taxes thereon. Notwithstanding the provisions of
Paragraph 4.2, if at any time in Sublessor's sole judgment, Sublessor determines
that Sublessee is using a disproportionate amount of water, electricity or other
commonly metered utilities, or that Sublessee is generating such a large volume
of trash as to require an increase in the size of the dumpster and/or an
increase in the number of times per month that the dumpster is emptied, then
Sublessor may increase Sublessee's Base Rent by an amount equal to such
increased costs.

5.       Security Deposit. The rights and obligations of Sublessor and Sublessee
as to said Security Deposit shall be as set forth in Paragraph 5 of the Master
Lease (as modified by Paragraph 7.3 of this Sublease).

6.       Agreed Use. The Premises shall be used and occupied only for
warehousing and distribution of restaurant equipment, primarily refrigerator,and
related legal uses in office and for no other purpose.

7.       Master Lease.

         7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter the "Master Lease", wherein Marcel George and Joanne Marie George,
Trustees of Marcel George Family Trusts of September 2, 1982 is the
lessor,hereinafter the "Master Lessor".

         7.2 This Sublease is and shall be at all times subject and subordinate
to the Master Lease.

         7.3 The terms, conditions and respective obligations of Sublessor and
Subleasee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this Sublease
document shall control over the Master Lease. Therefore, for the purposes of
this Sublease, wherever in the Master Lease the word "Lessor" is used it shall
be deemed to mean the Sublessor herein and wherever in the Master Lease the word
'Lessee" is used it shall be deemed to mean the Subleasee herein.

         7.4 During the term of this Sublease and for all periods subsequent for
oblibations which have arisen prior to the termination of this Sublease,
Subleasee does hereby expressly assume and agree to perform and comply with, for
the benefit of Subleassor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom:

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         7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".

         7.6 Sublessee shall hold Sublessor free and harmless from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.

         7.7 Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject, however, to any earlier termination of the
Master Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublesses free and harmless from
all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.

         7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any Party to the
Master Lease.

         8. Assignment of Sublease and Default.

         8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease, subject however to the provisions of
Paragraph 8.2 hereof,

         8.2 Master Lessor, by executing this document, agrees that until a
Default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the Rent accruing
under this Sublease. However, if Sublessor shall Default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all Rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the Rent from the Sublessee, be deemed liable
to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.

         8.3 Sublessor hereby irrevocably authorizes and directs Sublessee upon
receipt of any written notice from the Master Lessor stating that a Default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the Rent due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such Rent
to Master Lessor without any obligation or right to inquire as to whether such
Default exists and notwithstanding any notice from or claim from Sublessor to
the contrary and Sublessor shall have no right or claim against Sublessee for
any such Rent so paid by Sublessee.

         8.4 No changes or modifications shall be made to this Sublease without
the consent of Master Lessor.

         9. Consent of Master Lessor.

         9.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.

         9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then neither this Sublease, nor the
Master Lessor's consent, shall be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving their consent to this
Sublease.

         9.3 In the event that Master Lessor does give such consent then:

                  (a) Such consent shall not release Sublessor of its
obligations or alter the primary liability of Sublessor to pay the Rent and
perform and comply with all of the obligations of Sublessor to be performed
under the Master Lease.

                  (b) The acceptance of Rent by Master Lessor from Sublessee or
any one else liable under the Master Lease shall not be deemed a waiver by
Master Lessor of any provisions of the Master Lease.

                  (c) The consent to this Sublease shall not constitute a
consent to any subsequent subletting or assignment.

                  (d) In the event of any Default of Sublessor under the Master
Lease, Master Lessor may proceed directly against: Sublessor, any guarantors or
any one else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.

                  (e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor or any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability,

                  (f) In the event that Sublessor shall Default in its
obligations under the Master Lease, then Master Lessor, at its option and
without being obligated to do so, may require Sublessee to attorn to Master
Lessor in which event Master Lessor shall undertake the obligations of Sublessor
under this Sublease from the time of the exercise of said option to termination
of this Sublease but Master Lessor shall not be liable for any prepaid Rent nor
any Security Deposit paid by Sublessee, nor shall Master Lessor be liable for
any other Defaults of the Sublessor under the Sublease.

         9.4 The signatures of the Master Lessor and any Guarantors of Sublessor
at the end of this document shall constitute their consent to the terms of this
Sublease.

         9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no Default presently exists under the Maser Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.

         9.6 In the event that Sublessor Defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any Default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such Default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.

10.      Additional Brokers Commissions.

         10.1 Sublessor agrees that if Sublessee exercises any option or right
of first refusal as granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the term of this Sublease, to
renew this Sublease, to purchase the Premises, or to lease or purchase adjacent
property which Sublessor may own or in which Sublessor has an interest, then
Sublessor shall pay to Broker a fee in accordance with the schedule of Broker in
effect at the time of the execution of this Sublease. Notwithstanding the
foregoing, Sublessor's obligation under this Paragraph is limited to a
transaction in which Sublessor is acting as a Sublessor, lessor or seller.

         10.2 Master Lessor agrees that if Sublessee shall exercise any option
or right of first refusal granted to Sublessee by Master Lessor in connection
with this Sublease, or any option or right substantially similar thereto, either
to extend or renew the Master Lease, to purchase the Premises or any part
thereof, or to lease or purchase adjacent property which Master Lessor may own
or in which Master Lessor has an interest, or if Broker is the procuring cause
of any other lease or sale entered into between Sublessee and Master Lessor
pertaining to the Premises, any part thereof, or any adjacent property which
Master Lessor owns or in which it has an interest, then as to any of said
transactions, Master Lessor shall pay to Broker a fee, in cash, in accordance
with the schedule of Broker in effect at the time of the execution of this
Sublease.

         10.3 Any fee due from Sublessor or Master Lessor hereunder shall be due
and payable upon the exercise of any option to extend or renew, upon the
execution of any new lease, or, in the event of a purchase, at the close of
escrow.

         10.4 Any transferee of Sublessor's interest in this Sublease, or of
Master Lessor's interest in the Master Lease, by accepting an assignment
thereof, shall be deemed to have assumed the respective obligations of Sublessor
or Master Lessor under this Paragraph 10. Broker shall be deemed to be a
third-party beneficiary of this paragraph 10.

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11.      Representations and Indemnities of Broker Relationships. The Parties
each represent and warrant to the other that he has had no dealings with any
person, firm, broker or finder (other than the Brokers, if any) in connection
with this Sublease, and that no one other than said named Brokers is entitled to
any commission or finder's fee in connection herewith. Sublessee and Sublessor
do each hereby agree to indemnify, protect, defend and hold the other harmless
from and against liability for compensation or charges which may be claimed by
any such unnamed broker, finder or other similar party by reason of any dealings
or actions of the indemnifying Party, including any costs, expenses, attorneys'
fees reasonably incurred with respect thereto.

12.      Attorney's fees. If any Party or Broker brings an action or proceeding
involving the Premises whether founded in contract or equity, or to declare
rights hereunder, the Prevailing Party (as hereafter defined) in any such
proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to decision
or judgment. The term, "Prevailing Party" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, Judgment, or the abandonment by
the other Party or Broker of its claim or defense, The attorneys' fees award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. In addition,
Sublessor shall be entitled to attorneys' fees, costs and expenses incurred in
the preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach ($200 is a reasonable minimum
per occurrence for such services and consultation).

13.      No Prior or Other Agreements; Broker Disclaimer. This Sublease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Sublessor and Sublessee each represents and warrants to the Brokers
that it has made, and is relying solely upon, its own Investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Sublease and as to the use, nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. The liability (including court costs
and attorneys' fees), of any Broker with respect to negotiation, execution,
delivery or performance by either Sublessor or Sublessee under this Sublease or
any amendment or modification hereto shall be limited to an amount up to the fee
received by such Broker pursuant to this Sublease; provided, however, that the
foregoing limitation on each Broker's liability shall not be applicable to any
gross negligence or willful misconduct of such Broker.


13.      (A) Condition of the Premises. Sublessor and Sublessee agree that the
premises is leased in an "as is - where is" condition as of the commencement
date, except however, the Sublessor agrees to repair areas of damaged drywall
throughout the warehouse within the first (lst) twenty-one (21) days of the
lease term and Subleasee is responsible for maintaining and/or reconditioning
those areas at Lease termination. Sublessor is responsible for all other
maintenance and repair pursuant to the terms of the Master Lease and the
Sublease.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY REAL ESTATE BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS SUBLEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE
PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE
PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PROPERTY, THE STRUCTURAL
INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY
OF THE PREMISES FOR SUBLESSEE'S INTENDED USE.

WARNING IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
CERTAIN PROVISIONS OF THE SUBLEASE MAY NEED TO BE REVISED TO COMPLY WITH THE
LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.

Executed at: (time) 11:50 am
on: (date) 6/7/02

By SUBLESSOR:
The Singing Machine Co., Inc., A Florida Corporation

By: /s/ April J. Green
Name Printed: Aprill J Green
Title: CFO

By:
Name Printed:
Title:
Address: 6601 Lyons Road, Blvd A-7
Coconut Creek, FL 33073
Telephone/Facsimile: (954) 596-1000/(954) 596-2000
Federal ID No.

Executed at: (time) 1:30 pm
on: (date) 5-30-02

By SUBLESSEE:
Busung America Corp., A California Corporation

By: /s/ Yong Ho Less
Name Printed: Yong Ho Lee
Title: President

By:
Name Printed:
Title:
Address:
Telephone/Facsimile:
Federal ID No.

Page 5 of 6
REVISED


YHL
Initials


                                  Page 5 of 6
                                    REVISED
<PAGE>

BROKER:

Lee & Associates Los Angeles South Bay, Inc.
Attn: D. Jerry Evans
Title: President
Address: 1411 West 190th Street, Suite 450
Gardenia, CA 90248
Telephone/Facsimile: (310) 768-8800/(310) 768-8978
Federal ID No.

Consent to the above Sublease is hereby given.

Executed at: 12:30 P.M.
On: 6-04-02

By MASTER LESSOR:

Marcel George and Joanne Marie George,
Trustees of Marcel George Family Trusts of
September 2, 1982

By: /s/ Arthur Beach
Name Printed: Arthur Beach
Title: [ILLEGIBLE]

By:
Name Printed:
Title:
Address:
Telephone/Facsimile: (310) 472-3552
Federal ID No.



BROKER:

Coldwell Banker Commercial, JM Properties
Attn: Andrew Kim
Title:
Address: 1125 West 190th Street, Suite 250
Gardena, CA 90248
Telephone/Facsimile: (310) 767-5600/(310) 767-5601
Federal ID No.

Executed At:
on:

By GUARANTORS(S):

By:
Name Printed:
Address:

By:
Name Printed:
Address:

                                                                             YHL
                                                                        Initials


                                  Page 6 of 6
                                    REVISED

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>5
<FILENAME>premises-schedule.txt
<DESCRIPTION>OCEAN CENTRE LEASE
<TEXT>
                                                                    Exhibit 10.6

HARBOUR
CITY


Your Reference:

Our Reference:        011 EST 11/6.1216                          12th June 2002

                      International SMC (HK) Ltd.
                      Suite 1210, Ocean Centre,
                      Harbour City,
                      5 Canton Road, Kowloon


                      Attn: Ms. M. Alicia Haskamp
                      ---------------------------

Dear Ms. Haskamp,

                            Final Measurement of Area
                            Suite 1216, Ocean Centre
                            ------------------------

         We are pleased to confirm that, pursuant to the "The Premises Schedule"
of your Letter of Offer, the final measurement of the subject premises is 794
sq. ft. Accordingly the monthly rent, air- conditioning charge and service
charge will be calculated on this measurement.

         Thank you for your attention.


                                                Yours sincerely,
                                                For and on behalf of
                                                HARBOUR CITY MANAGEMENT LIMITED



                                                Shirley Lai
                                                Tenant Services Manager

SL/JC/cl




HARBOUR CITY MANAGEMENT LIMITED
- --------------------------------------------------------------------------------


<PAGE>




                            OCEAN CENTRE - 12TH FLOOR


                                   FLOOR PLAN


                                [GRAPHIC OMITTED]


                                   Suite 1216









<PAGE>



                                                               Yours Truthfully,




                                                        ------------------------
                                                        For and on behalf of

Signature

Name in block letter:      For and on behalf of
                           INTERNATIONAL SMC (HK) LIMITED

Position                   /s/ M. A. Haskamp
                           -----------------
                           Director/Authorized Signatory

                           Ms. M.A. Haskamp
                           Managing direction
                           11/6/2002

                                   ACCEPTANCE
                                   ----------

         We, HARRIMAN LEASING LIMITED, as Leasing Agent for the Landlord HEREBY
accept the foregoing offer.

         Dated

Signed by   Doreen Y. F. Lee
for and on behalf of                            For and on behalf of
HARRIMAN LEASING LIMITED                        HARRIMAN LEASING LIMITED
as Leasing Agent for the
Landlord in the presence of:                    /s/  [Illegible]
                                                -----------------------------
                                                 Director & General Manager
         /s/ Illegible

                     THE SUPPLEMENTARY INFORMATION SCHEDULE
                     --------------------------------------

(Please PRINT the following information):

1.       Full name of the person (or persons) (a partnership) or company to be
         shown as Tenant in the Lease/Tenancy Agreement:

2.       Address, which in the case of a company should be the REGISTERED OFFICE
         ADDRESS:

3.       Name and Address of Solicitors:

4.       Bankers' Name and Address:

5.       Business Registration No.

6.       Approximate date of establishment in Hong Kong:

7.       General nature of business/profession:

8.       If Company, authorized capital: paid-up capital:

9.       Where a subsidiary company, name and address of parent company:

10.      Where a partnership, number and name of partners:

11.      Name of previous/current landlord.

12.      Other relevant background information in support of this Offer:

13.      Contact Person and Telephone No.:



<PAGE>


                              THE PREMISES SCHEDULE
                              ---------------------

1.       The Landlord means the registered owner of the said Lot, Wharf
         {ILLEGIBLE} Limited, (including where the context so admits its
         successors and assigns) acting by its duly authorized agent, Marriman
         Leasing Limited.

2.       Premises:
         Suites 1216, 12th Floor, Ocean Centre, Harbor City Kowloon (as shown on
         the floor plan attached hereto and thereon [ILLEGIBLE] pink).

3.       Approximate Area: 750 sq. ft. gross (subject to final measurement to be
         conducted by the Landlord)

4.       Use of Premises: Restricted to Commercial Offices Use Only. For this
         avoidance of doubt it is hereby declared and confirmed that no private
         sales, sample sales, clearance sales or any similar sales or any
         activities related thereto including but without limiting to
         distribution of circulars or erection or posting up or may revises or
         any [ILLEGIBLE] of any kind may be allowed in any circumstances.

5.       Term of Lease/Tenancy: Three (3) Years from the Commencement Date

6.       Commencement Date: 1st June, 2002 or such other date as specified by
         the Landlord by notice in writing which date shall be within 3 days of
         completion of the Building Finishes as referred to in Clause 2.1 of
         this Offer, whichever date is the later.

7.       Rent and Other Charges:

         (a)(1)   Rent: The rent shall be:

         (i)      From The 1st month to The 36th month HK$ 15.00 per sq ft gross
                  per month;

         and all payable monthly in advance.

         (a)(2)   Market Rental: The Market Rental referred to in paragraph
                  7(a)(1) above shall be determined for the appropriate period
                  or periods in question in accordance with the provisions of
                  Section XI of the Lease/Tenancy Agreement.

         (b)      Air-Conditioning Charges: HK$ 2.70 per sq ft gross per month
                  payable monthly in advance, subject to increase either before
                  or after the Commencement Date. The air-conditioning charge
                  will commence to be payable on and from the date the
                  Landlord's Managing Agent at our request commences the supply
                  or air-conditioning service, but no in any case later than the
                  expiry of the Rent-Free Period.

         (c)      Service Charge: HK$ 1.90 per sq ft gross per month payable
                  monthly in advance, subject to increase either before or after
                  the Commencement Date. The service charge will commence to be
                  payable on and from the Commencement Date.

         (d)      Government Ratios: Estimated at HK$ 562.50 per month.

         (e)      Utility Charges: We shall be responsible for all charges for
                  the supply of gas, water, telephone and electricity including
                  electricity consumed by the air-conditioning unit(s),
                  apparatus and equipment serving the Premises and all deposits
                  to the utility companies.

8.       Rent-Free Period: Rent will commence to be payable 61 days after the
         Commencement date. The service charge, air-conditioning charge, utility
         charges and government rates shall be payable by us during such period.

9.       Deposit: HK$ 45.787.50 representing 3 months' rent (at the highest rate
         specified in paragraph 7(a) above), government rates, air-conditioning
         charge and service charge.

10.      Decoration Deposit: HK$ 5,000.00 payable prior to the commencement of
         the fitout work upon demand to ensure due compliance of instructions
         and directions by our contractors in accordance with Clause 5.2 of this
         Offer. This deposit is refundable by the Managing Agent to us upon
         completion of our [ILLEGIBLE] work after deducting any cost of loss or
         damage incurred including cost of remedy insofar as it is practically
         possible so to do.

11.      Submission of Plans: Immediate after the Landlord's acceptance of this
         Offer.

12.      Facilitation Fee: HK$ 2.00 per sq ft gross representing the costs
         incurred by the Landlord in providing services including consumption of
         temporary electricity to the Premises and removal of construction
         debris from a central collection point during the period of fitting out
         payable upon signing of this Offer.



<PAGE>


5.       TENANT'S WORK
         -------------

         5.1      All approved work (other than that to be carried out by the
                  Landlord's nominated contractors as referred to in Clause 4.1
                  of this Offer) may be carried out by our own contractor (who
                  shall in any event be required to be approved by the Landlord)
                  and we shall be responsible for enduring that these
                  contractors co-operate fully with the Landlord, its servants,
                  agents, workman and contractors and is carrying out their work
                  in such a manner as to avoid any delay to or interference with
                  the Landlord or third parties.

         5.2      We shall ensure that such contractors comply with all
                  instructions and directions (including hours of work) given by
                  the Landlord's representative and/or its Managing Agent and/or
                  the building manager and that our contractors shall remove
                  daily all trash, rubbish and surplus building materials
                  resulting from the work.

         5.3      We shall be responsible for effecting adequate public
                  liability and consumers' all risks insurance and furnishing to
                  the Landlord's representative before the commencement of any
                  work in or to the Premises such evidence as the Landlord may
                  require that the insurance is in place.

6.       LEGAL TENANCY AGREEMENT PREPARATION
         -----------------------------------

         6.1      The Offer is accepted, we agree to execute a lease/tenancy
                  agreement (the "Lease/Tenancy Agreement") in duplicate in the
                  standard form which is sent with this offer and in the
                  attached Schedule(s).

         6.2      We also undertake to pay one half of the stamp duty and
                  registration fee (if any) on this Offer and on the
                  Lease/Tenancy Agreement and its counterpart and to return both
                  copies of the agreement duly executed within 14 days of
                  presentation [ILLEGIBLE] in any event before the Commencement
                  Date specified in paragraph 6 of the Premises Schedule.

7.       SIGNS
         -----

         7.1      We understand that the Landlord will provide at our cost one
                  sign (according to the Landlord's standard design and
                  specifications) to be fixed at some appropriate point(s) in
                  the building for the display of our name and such other
                  particulars as the Landlord may at its discretion approve.

         7.2      We acknowledge and agree that the installation work in respect
                  or such aforesaid sign shall be carried out by the Landlord's
                  nominated contractor at our cost.

8.       CHANGE OF NUMBERING OR NAME OF DEVELOPMENT
         ------------------------------------------

         8.1      We acknowledge that the Landlord reserves the right at any
                  time and from time to time to change the numbering of the
                  Premises (or any part thereof) or the name of the
                  Building/Development (or any part thereof) that the Premises
                  form part as it shall in its absolute discretion [ILLEGIBLE]
                  upon giving to us no less than 3 months' prior notice in
                  writing and the Landlord shall not be liable to us for any
                  loss, damage, claims, costs or expenses resulting therefrom or
                  in connection therewith.

9.       DEPOSIT
         -------

         9.1      We enclose a cheque in your favour as agent of the Landlord in
                  the sum specified in paragraph 9 of the Premises Schedule as a
                  deposit.

         9.2      We acknowledge that in case there shall have been any increase
                  in the air-conditioning charge and/or service charge imposed
                  by the Landlord prior to the Commencement Date, the deposit
                  will be increased accordingly and we undertake to pay such
                  increase forthwith upon demand. We further acknowledge that we
                  shall not be entitled to possession of the Premises until we
                  have paid the whole of the deposit including any increase
                  pursuant to this Clause but that the [ILLEGIBLE]..

         9.3      We acknowledge that if after this Offer has been accepted we
                  fail to execute agreement in accordance with Clause 6 of this
                  Offer or fail to comply with any of the terms and conditions
                  herein the Landlord shall be entitled to its absolute
                  discretion to forfeit the deposit and determine the agreement
                  constituted by your acceptance of this Offer (the "Agreement")
                  by giving notice to us. Nothing herein contained however shall
                  prevent the Landlord from exercising its right to enforce
                  specific performance of the Agreement or claiming against us
                  for damages for breach of the Agreement.

         9.4      We understand that you are at liberty to cash this cheque
                  immediately pending the Landlord's consideration of this Offer
                  and such action on your part shall not be deemed to be an
                  acceptance thereof. Should this Offer not be accepted, the
                  deposit will be returned to us (without interest or other
                  compensation).

         9.5      We understand upon execution of the [ILLEGIBLE] Agreement the
                  deposit will be set against the deposit payable under Section
                  IX of the Lease/Tenancy Agreement.

10.      LANDLORD'S APPROVAL
         -------------------

         10.1     We acknowledge that whatever the consent or approval of the
                  Landlord's required, the same may be given or withheld or
                  given subject to conditions, at the Landlord in its sole
                  discretion may determine.

11.      LANDLORD'S AGENTS
         -----------------

         11.1     We acknowledge that Harriman Leasing Limited acts as Leasing
                  Agent of the Landlord, and has authority to accept/reject this
                  Offer on behalf of the Landlord and that Harbour City
                  Management Limited acts as Managing Agent of the Landlord and
                  has authority to represent and bind the Landlord in all
                  [ILLEGIBLE] in connection with this Offer and if this Offer
                  herein is accepted, in all matters missing from or in
                  connection with the tenancy of the premises.

12.      PRIVACY ORDINANCE NOTICE AND CONSENT
         ------------------------------------

         12.1     The Landlord shall be entitled to supply to any company within
                  the Landlord's group of companies and also to any company
                  which is the ultimate holding company or the Landlord as the
                  Landlord may determine such information or personal data is
                  respect of us for marketing purposes, including the exchange
                  of non-financial information with selected business partners
                  without our further consent being obtained. "Group of
                  companies" and "holding company" shall have the meanings
                  attributed thereto in the companies Ordinance Cap 22 of the
                  Laws of Hong Kong Special Administrative Region.

13.      BANK REFERENCE
         ---------------

         13.1     We enclose a Bank's Reference in support of this Offer.

14.      SUPPLEMENTARY INFORMATION
         -------------------------

         14.1     We have completed the Supplementary Information Schedule as
                  requested by the Landlord.

15.      ADDITIONAL CONDITIONS
         ---------------------

         15.1     We acknowledge that the terms, conditions and provisions set
                  out in the Additional Conditions Schedule attached to this
                  Offer (if any) shall apply and be incorporated in this Offer.

16.      IRREVOCABLE OFFER
         -----------------

         16.1     This Offer shall be irrevocable.

17.      ACCEPTANCE
         ----------

         17.1     To indicate the Landlord's acceptance of this Offer, please
                  sign the Acceptance endorsed at the foot of this Offer.



<PAGE>


To: HARRIMAN LEASING LIMITED
Suite 1611, 16th Floor
Ocean Centre
Harbour City
Kowloon

From: International SMC (HK) Limited
L1 Unit 6
Mirror Tower
61 Mody Road
Kowloon

Dear Sirs,

                       LETTER OF OFFER FOR OFFICE PREMISES
                       -----------------------------------

1.       OFFER
         -----

         1.1      We offer to lease the premises identified in the attached
                  Premises Schedule (the "Premises") from your principal, the
                  registered owner of the Premises (the "Landlord"), on the
                  terms and conditions and subject to payment of the rent and
                  other charges fees and amounts as set out in this letter or
                  offer (this "Offer") and in the Schedule(s).

2.       BUILDING FINISHES
         -----------------

         2.1      We understand that the Landlord's obligations are limited to
                  making the premises available to us with the following:

                  (1)      Concrete floor with cement said screeding;

                  (2)      Standard and emulsion paint painted walls and
                           columns;

                  (3)      Suspended ceiling with acoustic tiles and standard
                           light fittings without wiring in a standard layout;

                  (4)      Standard entrance door;

                  (5)      Automatic smoke detectors and sprinkler system in a
                           standard layout;

                  (6)      Air-conditioning system; and

                  (7)      Electricity supply terminated at a plug-in unit or
                           barber chamber, as the ease may be, in the meter
                           room.

         2.2      We shall undertake and be responsible at our cost for:

                  (1)      all air-conditioning duct work, floor finish,
                           clerical work (including [ILLEGIBLE] of light and
                           power circuits) light-fittings, transfer of air duct
                           to our suspended ceilings, and security, fire
                           services (including sprinklers, infra-red detectors
                           and/or smoke detectors) and air-conditioning unit
                           (on/or control system serving the Premises:

                  (2)      Any other installation, adjustment, modification and
                           alteration of the provisions and fixtures and
                           fittings in the Premises, if approved by the
                           Landlord.

                  2.3      Any other items including any additional fixtures or
                           fittings and interior decoration which we may require
                           will likewise be for our account.

3.       APPROVAL OF INTERNAL LAYOUT
         ---------------------------

         3.1      Within the period specified in paragraph 11 of the Premises
                  Schedule, we shall submit to the Landlord for approval layout
                  plans in respect to the Premises together with detailed design
                  drawings and specifications for the design and construction of
                  all proposed interior work installations and listings.

         3.2      We acknowledge and agree that:

                  (1)      under no circumstances may work be commenced until
                           the full approval of the Landlord in writing has been
                           obtained:

                  (2)      no delays, whether in submitting or resubmitting our
                           proposals and plans or in the Landlord approving the
                           same or otherwise will entitle us to any [ILLEGIBLE]
                           of the rent-free period granted hereunder or to any
                           claim for compensation or otherwise:

                  (3)      the term of [ILLEGIBLE] may commence even though any
                           of the plans, drawings and specifications have not
                           been fully approved or any [ILLEGIBLE] work has not
                           been commenced.

         3.3      We agree to pay upon submission of our initial internal layout
                  plans a Floor Handling Fee to the Landlord or its managing
                  agent at the rate of HK$3.50 per sq. ft. based on the area of
                  the Premises as specified in paragraph 3 of the Premises
                  Schedule for:

                  (1)      voting our initial internal layout plans; and

                  (2)      where such plans include or necessitate work which is
                           required hereunder to be carried out by the
                           Landlord's nominated contractors, handling and
                           co-ordinating the carrying on of such work.

4.       ALTERATION WORK BY NOMINATED CONTRACTORS
         ----------------------------------------

         4.1      We acknowledge that to enable the electrical,
                  air-conditioning, plumbing, drainage, sprinkler, security,
                  building automation and the direction alarm systems in the
                  building to be effectively co- ordinated and controlled all
                  work required by us within the Premises affecting these
                  services and facilities shall be designed and supervised by a
                  professional electrical and Mechanical consultant employed by
                  us, and carried out at our cost by the Landlord's nominated
                  contractors for which purpose we undertake to engage the
                  appropriate contractor nominated by the Landlord for the
                  category of work in question and to pay the nominated
                  contractors' charges for the work as follows:

                  (1)      50% of the [ILLEGIBLE] sum for each category of work
                           and the Landlord's charges at the same time as
                           returning the signed statement of cost(s)

                  (2)      progress payment(s) (if any) as stipulated by the
                           Landlord in the estimate upon presentation of
                           invoices; and

                  (3)      the final account for each category of work and the
                           balance of the Landlord's charges (if any) upon
                           presentation of the relevant invoices.

         4.2      We acknowledge that since the appropriate nominated
                  contractors shall be engaged by us, the Landlord shall
                  notwithstanding the nomination not have any liability to us
                  for or in respect of any set deed matter or thing arising out
                  of or in connection with the engagement of any such contractor
                  or contractors or any work done or omitted to be done by them
                  or any of them pursuant to such engagement.

         4.3      We further agree that in respect of any subsequent [ILLEGIBLE]
                  work in or to the Premises, a handling fee shall be payable to
                  the Landlord in accordance with Section III Clause 7 of the
                  [ILLEGIBLE] Agreement sent with this Offer.




<PAGE>



HARBOUR
CITY


Your Reference:

Our Reference:        011 EST 11/6.1210                          16th April 2002

                      International SMC (HK) Ltd.
                      Suite 1210, Ocean Centre,
                      Harbour City,
                      5 Canton Road, Kowloon

                      Attn: Ms. M. Alicia Haskamp

Dear Ms. Haskamp,

                            Final Measurement of Area
                            Suite 1210, Ocean Centre
                            ------------------------

         We are pleased to confirm that, pursuant to the "The Premises Schedule"
of your Letter of Offer, the final measurement of the subject premises is 3,579
sq. ft. Accordingly the monthly rent, air-conditioning charge and service charge
will be calculated on this measurement.

         Thank you for your attention.


                                                 Yours sincerely,
                                                 For and on behalf of
                                                 HARBOUR CITY MANAGEMENT LIMITED



                                                 Shirley Lai
                                                 Tenant Services Manager

SL/JC/cl


<PAGE>




                            OCEAN CENTRE - 12TH FLOOR


                                   FLOOR PLAN


                                [GRAPHIC OMITTED]


                                   Suite #1210



<PAGE>



                                                  Yours Truthfully,
                                                   International SMC (HK) LTD


                                                  /s/ M. S. Haskamp
                                                  ------------------------
                                                  Director/Authorized Signatory
                                                  For and on behalf of


Signature                  /s/ M. A. Haskamp
                           -----------------
Name in block letters:     Ms. M. A. Haskamp

Position:                  Managing Director

Company Chop:              For and on behalf of
                           INTERNATIONAL SMC (HK) LIMITED

Dated:
                           --------------------------------
                           Director/Authorized Signatory


                                   ACCEPTANCE
                                   ----------

         We, HARRIMAN LEASING LIMITED, as Leasing Agent for the Landlord HEREBY
accept the foregoing offer.

         Dated

Signed by   Doreen Y. F. Lee
for and on behalf of                                For and on behalf of
HARRIMAN LEASING LIMITED                            Harriman LEASING LIMITED
as Leasing Agent for the
Landlord in the presence of:                        /s/  [illegible]
                                                         -----------
                                                    Director & General Manager

/s/ Yvonne Y. F. Lau
Yvonne Y. F. Lau

                     THE SUPPLEMENTARY INFORMATION SCHEDULE
                     --------------------------------------

(Please PRINT the following information):

1.       Full name of the person (or persons) (a partnership) or company to be
         shown as Tenant in the Lease/Tenancy Agreement:

                           International SMC (HK) Ltd.

2.       Address, which in the case of a company should be the REGISTERED OFFICE
         ADDRESS:

         Unit 6, L1, Mirror Tower, 61 Mody Road, TST East, Kowloon

3.       Name and Address of Solicitors:
         T. S. Tong & Co., Wing Lung Building, 9th Floor, 45 Des Voeux Road,
         Central, Hong Kong (Mr. Iu Ting Kwok)

4.       Bankers' Name and Address:
         HSBC, Rm 1006-1012, Cheung Sha Wan Plaza, Tower 2, 833 Cheung Sha Wan
         Road, Kowloon (Mr. Eric W. P. Lee)

5.       Business Registration No.
         18350489-000-07-01-8

6.       Approximate date of establishment in Hong Kong:
         26-Jul-1994

7.       General nature of business/profession:
         Trading

8.       If Company, authorized capital: $10,000
                        paid-up capital: $100

9.       Where a subsidiary company, name and address of parent company:
         100% owned subsidiary of The Singing Machine Co., Inc., 5501 Lyons
         Road, Bldg A-7, Coconut Creek, FL 33073, U.S.A. (A public listed
         company in the American Stock Exchange.)

10.      Where a partnership, number and name of partners:
         NIL

11.      Name of previous/current landlord.
         Koon Wah Mirror Holdings Ltd.

12.      Other relevant background information in support of this Offer:

13.      Contact Person and Telephone No.:
         Miss Dora Lee at 3107-7997 or Miss Michelle Ho at 3107-7992
           (Operations Manager)                 (Finance Manager)



<PAGE>


                              THE PREMISES SCHEDULE
                              ---------------------

1.       The Landlord means the registered owner of the said Lot, Wharf
         {ILLEGIBLE} Limited, (including where the context so admits its
         successors and assigns) acting by its duly authorized agent, Harriman
         Leasing Limited.

2.       Premises:
         Suites 1210, 12th Floor, Ocean Centre, Harbour City Kowloon (as shown
         on the floor plan attached hereto and thereon colored pink).

3.       Approximate Area: 3,535 sq. ft. gross (subject to final measurement to
         be conducted by the Landlord)

4.       Use of Premises: Restricted to Commercial Offices Use Only. For this
         avoidance of doubt it is hereby declared and confirmed that no private
         sales, sample sales, clearance sales or any similar sales or any
         activities related thereto including but without limiting to
         distribution of circulars or erection or posting up or may revises or
         any [ILLEGIBLE] of any kind may be allowed in any circumstances.

5.       Term of Lease/Tenancy: Three (3) Years from the Commencement Date

6.       Commencement Date: 1st May, 2002 or such other date as specified by the
         Landlord by notice in writing which date shall be within 3 days of
         completion of the Building Finishes as referred to in Clause 2.1 of
         this Offer, whichever date is the later.

7.       Rent and Other Charges:

         (a)(1)   Rent: The rent shall be:

                  (i)      From The 1st month to The 36th month HK$ 17.00 per sq
                           ft gross per month; and all payable monthly in
                           advance.

         (a)(2)   Market Rental: The Market Rental referred to in paragraph
                  7(a)(1) above shall be determined for the appropriate period
                  or periods in question in accordance with the provisions of
                  Section XI of the Lease/Tenancy Agreement.

         (b)      Air-Conditioning Charges: HK$ 2.70 per sq ft gross per month
                  payable monthly in advance, subject to increase either before
                  or after the Commencement Date. The air-conditioning charge
                  will commence to be payable on and from the date the
                  Landlord's Managing Agent at our request commences the supply
                  or air-conditioning service, but no in any case later than the
                  expiry of the Rent-Free Period.

         (c)      Service Charge: HK$ 1.90 per sq ft gross per month payable
                  monthly in advance, subject to increase either before or after
                  the Commencement Date. The service charge will commence to be

         payable on and from the Commencement Date.

         (d)      Government Ratios: Estimated at HK$ 3,005.00 per month.

         (e)      Utility Charges: We shall be responsible for all charges for
                  the supply of gas, water, telephone and electricity including
                  electricity consumed by the air-conditioning unit(s),
                  apparatus and equipment serving the Premises and all deposits
                  to the utility companies.

8.       Rent-Free Period: Rent will commence to be payable 87 days after the
         Commencement date. The service charge, air-conditioning charge, utility
         charges and government rates shall be payable by us during such period.

9.       Deposit: HK$ 238.083.00 representing 3 months' rent (at the highest
         rate specified in paragraph 7(a) above), government rates,
         air-conditioning charge and service charge.

10.      Decoration Deposit: HK$ 5,000.00 payable prior to the commencement of
         the fitout work upon demand to ensure due compliance of instructions
         and directions by our contractors in accordance with Clause 5.2 of this
         Offer. This deposit is refundable by the Managing Agent to us upon
         completion of our [ILLEGIBLE] work after deducting any cost of loss or
         damage incurred including cost of remedy insofar as it is practically
         possible so to do.

11.      Submission of Plans: Immediate after the Landlord's acceptance of this
         Offer.

12.      Facilitation Fee: HK$ 2.00 per sq ft gross representing the costs
         incurred by the Landlord in providing services including consumption of
         temporary electricity to the Premises and removal of construction
         debris from a central collection point during the period of fitting out
         payable upon signing of this Offer.


<PAGE>


5.       TENANT'S WORK
         --------------

         5.1      All approved work (other than that to be carried out by the
                  Landlord's nominated contractors as referred to in Clause 4.1
                  of this Offer) may be carried out by our own contractor (who
                  shall in any event be required to be approved by the Landlord)
                  and we shall be responsible for enduring that these
                  contractors co-operate fully with the Landlord, its servants,
                  agents, workman and contractors and is carrying out their work
                  in such a manner as to avoid any delay to or interference with
                  the Landlord or third parties.

         5.2      We shall ensure that such contractors comply with all
                  instructions and directions (including hours of work) given by
                  the Landlord's representative and/or its Managing Agent and/or
                  the building manager and that our contractors shall remove
                  daily all trash, rubbish and surplus building materials
                  resulting from the work.

         5.3      We shall be responsible for effecting adequate public
                  liability and consumers' all risks insurance and furnishing to
                  the Landlord's representative before the commencement of any
                  work in or to the Premises such evidence as the Landlord may
                  require that the insurance is in place.

6.       LEGAL TENANCY AGREEMENT PREPARATION
         -----------------------------------

         6.1      The Offer is accepted, we agree to execute a lease/tenancy
                  agreement (the "Lease/Tenancy Agreement") in duplicate in the
                  standard [ILLEGIBLE] and in the attached Schedule(s).

         6.2      We also undertake to pay one half of the stamp duty and
                  registration fee (if any) on this Offer and on the
                  Lease/Tenancy Agreement and its counterpart and to return both
                  copies of the agreement duly executed within 14 days of
                  presentation [ILLEGIBLE] in any event before the Commencement
                  Date specified in paragraph 6 of the Premises Schedule.

7.       SIGNS
         -----

         7.1      We understand that the Landlord will provide at our cost one
                  sign (according to the Landlord's standard design and
                  specifications) to be fixed at some appropriate point(s) in
                  the building for the display of our name and such other
                  particulars as the Landlord may at its discretion approve.

         7.2      We acknowledge and agree that the installation work in respect
                  or such aforesaid sign shall be carried out by the Landlord's
                  nominated contractor at our cost.

8.       CHANGE OF NUMBERING OR NAME OF DEVELOPMENT
         ------------------------------------------

         8.1      We acknowledge that the Landlord reserves the right at any
                  time and from time to time to change the numbering of the
                  Premises (or any part thereof) or the name of the
                  Building/Development (or any part thereof) that the Premises
                  form part as it shall in its absolute discretion [ILLEGIBLE]
                  upon giving to us no less than 3 months' prior notice in
                  writing and the Landlord shall not be liable to us for any
                  loss, damage, claims, costs or expenses resulting therefrom or
                  in connection therewith.

9.       DEPOSIT
         -------

         9.1      We enclose a cheque in your favour as agent of the Landlord in
                  the sum specified in paragraph 9 of the Premises Schedule as a
                  deposit.

         9.2      We acknowledge that in case there shall have been any increase
                  in the air-conditioning charge and/or service charge imposed
                  by the Landlord prior to the Commencement Date, the deposit
                  will be increased accordingly and we undertake to pay such
                  increase forthwith upon demand. We further acknowledge that we
                  shall not be entitled to [ILLEGIBLE] of the Premises until we
                  have paid the whole of the deposit including any increase
                  pursuant to this Clause but that the [ILLEGIBLE]..

         9.3      We acknowledge that if after this Offer has been accepted we
                  [ILLEGIBLE] agreement in accordance with Clause 6 of this
                  Offer or fail to comply with any of the terms and conditions
                  herein [ILLEGIBLE] Landlord shall be entitled to its absolute
                  discretion to forfeit the deposit and determine the agreement
                  constituted by your acceptance of this Offer (the "Agreement")
                  by giving notice to us. Nothing herein contained however shall
                  prevent the Landlord from exercising its right to enforce
                  specific performance of the Agreement or claiming against us
                  for damages for breach of the Agreement.

         9.4      We understand that you are at liberty to cash this cheque
                  immediately pending the Landlord's consideration of this Offer
                  and such action on your part shall not be deemed to be an
                  acceptance thereof. Should this Offer not be accepted, the
                  deposit will be returned to us (without interest or other
                  compensation).

         9.5      We understand upon execution of the [ILLEGIBLE] Agreement the
                  deposit will be set against the deposit payable under Section
                  IX of the Lease/Tenancy Agreement.

10.      LANDLORD'S APPROVAL
         -------------------

         10.1     We acknowledge that whatever the consent or approval of the
                  Landlord's required, the same may be given or withheld or
                  given subject to conditions, at the Landlord in its sole
                  discretion may determine.

11.      LANDLORD'S AGENTS
         -----------------

         11.1     We acknowledge that Harriman Leasing Limited acts as Leasing
                  Agent of the Landlord, and has authority to accept/reject this
                  Offer on behalf of the Landlord and that Harbour City
                  Management Limited acts as Managing Agent of the Landlord and
                  has authority to represent and bind the Landlord in all
                  [ILLEGIBLE] in connection with this Offer and if this Offer
                  herein is accepted, in all matters missing from or in
                  connection with the [ILLEGIBLE].

12.      PRIVACY ORDINANCE NOTICE AND CONSENT
         ------------------------------------

         12.1     The Landlord shall be entitled to supply to any company within
                  the Landlord's group of companies and also to any company
                  which is the ultimate holding company or the Landlord as the
                  Landlord may determine such information or personal data is
                  respect of us for marketing purposes, including the exchange
                  of non-financial information with selected business partners
                  without our further consent being obtained. "Group of
                  companies" and "holding company" shall have the meanings
                  attributed thereto in the companies Ordinance Cap 22 of the
                  Laws of Hong Kong Special Administrative Region.

13.      BANK REFERENCE
         --------------

         13.1     We enclose a Bank's Reference in support of this Offer.

14.      SUPPLEMENTARY INFORMATION
         -------------------------

         14.1     We have completed the Supplementary Information Schedule as
                  requested by the Landlord.

15.      ADDITIONAL CONDITIONS
         ---------------------

         15.1     We acknowledge that the terms, conditions and provisions set
                  out in the Additional Conditions Schedule attached to this
                  Offer (if any) shall apply and be incorporated in this Offer.

16.      IRREVOCABLE OFFER
         -----------------

         16.1     This Offer shall be irrevocable.

17.      ACCEPTANCE
         ----------

         17.1     To indicate the Landlord's acceptance of this Offer, please
                  sign the Acceptance endorsed at the foot of this Offer.



<PAGE>



To: HARRIMAN LEASING LIMITED
Suite 1611, 16th Floor
Ocean Centre
Harbour City
Kowloon

From: International SMC (HK) Limited
L1 Unit 6
Mirror Tower
61 Mody Road
Kowloon

Dear Sirs,

                       LETTER OF OFFER FOR OFFICE PREMISES
                       -----------------------------------

1.       OFFER
         -----

         1.1      We offer to lease the premises identified in the attached
                  Premises Schedule (the "Premises") from your principal, the
                  registered owner of the Premises (the "Landlord"), on the
                  terms and conditions and subject to payment of the rent and
                  other charges fees and amounts as set out in this letter or
                  offer (this "Offer") and in the Schedule(s).

2.       BUILDING FINISHES
         -----------------

         2.1      We understand that the Landlord's obligations are limited to
                  making the premises available to us with the following:

                  (1)      Concrete floor with cement said screeding;

                  (2)      Standard and emulsion paint painted walls and
                           columns;

                  (3)      Suspended ceiling with acoustic tiles and standard
                           light fittings without wiring in a standard layout;

                  (4)      Standard entrance door;

                  (5)      Automatic smoke detectors and sprinkler system in a
                           standard layout;

                  (6)      Air-conditioning system; and

                  (7)      Electricity supply terminated at a plug-in unit or
                           barber chamber, as the ease may be, in the meter
                           room.

         2.2      We shall undertake and be responsible at our cost for:

                  (1)      all air-conditioning duct work, floor finish,
                           clerical work (including [ILLEGIBLE] of light and
                           power circuits) light-fittings, transfer of air duct
                           to our suspended ceilings, and security, fire
                           services (including sprinklers, infra-red detectors
                           and/or smoke detectors) and air-conditioning unit
                           (on/or control system serving the Premises:

                  (2)      Any other installation, adjustment, modification and
                           alteration of the provisions and fixtures and
                           fittings in the Premises, if approved by the
                           Landlord.

         2.3      Any other items including any additional fixtures or fittings
                  and interior decoration which we may require will likewise be
                  for our account.

3.       APPROVAL OF INTERNAL LAYOUT
         ---------------------------

         3.1      Within the period specified in paragraph 11 of the Premises
                  Schedule, we shall submit to the Landlord for approval layout
                  plans in respect to the Premises together with detailed design
                  drawings and specifications for the design and construction of
                  all proposed interior work installations and listings.

         3.2      We acknowledge and agree that:

                  (1)      under no circumstances may work be commenced until
                           the full approval of the Landlord in writing has been
                           obtained:

                  (2)      no delays, whether in submitting or resubmitting our
                           proposals and plans or in the Landlord approving the
                           same or otherwise will entitle us to any [ILLEGIBLE]
                           of the rent-free period granted hereunder or to any
                           claim for compensation or otherwise:

                  (3)      the term of [ILLEGIBLE] may commence even though any
                           of the plans, drawings and specifications have not
                           been fully approved or any [ILLEGIBLE] work has not
                           been commenced.

         3.3      We agree to pay upon submission of our initial internal layout
                  plans a Floor Handling Fee to the Landlord or its managing
                  agent at the rate of HK$3.50 per sq. ft. based on the area of
                  the Premises as specified in paragraph 3 of the Premises
                  Schedule for:

                  (1)      voting our initial internal layout plans; and

                  (2)      where such plans include or necessitate work which is
                           required hereunder to be carried out by the
                           Landlord's nominated contractors, handling and
                           co-ordinating the carrying on of such work.

4.       ALTERATION WORK BY NOMINATED CONTRACTORS
         ----------------------------------------

         4.1      We acknowledge that to enable the electrical,
                  air-conditioning, plumbing, drainage, sprinkler, security,
                  building automation and the direction alarm systems in the
                  building to be effectively co- ordinated and controlled all
                  work required by us within the Premises affecting these
                  services and facilities shall be designed and supervised by a
                  professional electrical and Mechanical consultant employed by
                  us, and carried out at our cost by the Landlord's nominated
                  contractors for which purpose we undertake to engage the
                  appropriate contractor nominated by the Landlord for the
                  category of work in question and to pay the nominated
                  contractors' charges for the work as follows:

                  (1)      50% of the [ILLEGIBLE] sum for each category of work
                           and the Landlord's charges at the same time as
                           returning the signed statement of cost(s)

                  (2)      progress payment(s) (if any) as stipulated by the
                           Landlord in the estimate upon presentation of
                           invoices; and

                  (3)      the final account for each category of work and the
                           balance of the Landlord's charges (if any) upon
                           presentation of the relevant invoices.

         4.2      We acknowledge that since the appropriate nominated
                  contractors shall be engaged by us, the Landlord shall
                  notwithstanding the nomination not have any liability to us
                  for or in respect of any set deed matter or thing arising out
                  of or in connection with the engagement of any such contractor
                  or contractors or any work done or omitted to be done by them
                  or any of them pursuant to such engagement.

         4.3      We further agree that in respect of any subsequent [ILLEGIBLE]
                  work in or to the Premises, a handling fee shall be payable to
                  the Landlord in accordance with Section III Clause 7 of the
                  [ILLEGIBLE] Agreement sent with this Offer.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>6
<FILENAME>amb-lease.txt
<DESCRIPTION>AMB INDUSTRIAL LEASE
<TEXT>
                                                                    Exhibit 10.7


                               AMB PROPERTY, L.P.
                                INDUSTRIAL LEASE



                                 by and between



                               AMB PROPERTY, L.P.

                                  "LANDLORD"


                                       and



                        THE SINGING MACHINE COMPANY, INC.
                                    "TENANT"





                              Dated: March 1, 2002


<PAGE>


                                TABLE OF CONTENTS

                                                                     Page

1. BASIC PROVISIONS                                                    1
    1.1    PARTIES                                                     I
    1.2    PREMISES                                                    I
    1.3    TERM                                                        1
    1.4    BASE RENT                                                   1
    1.5    TENANT's SHARE or OPERATING EXPENSES                        1
    1.6    TENANT'S ESTIMATED MONTHLY RENT PAYMENT                     1
    1.7    SECURITY DEPOSIT                                            1
    1.8    PERMITTED USE                                               1
    1.9    GUARANTOR                                                   I
    1.10   ADDENDA
    1.11   EXHIBITS                                                    2
    1.12   ADDRESS FOR RENT PAYMENTS                                   2

2. PREMISES AND COMMON AREAS                                           3
    2.1    LETTING                                                     3
    2.2    COMMON AREAS - DEFINITION
    2.3    COMMON AREAS - TENANT'S RIGHTS                              3
    2.4    COMMON AREAS - RULES AND REGUALTIONS                        3
    2.5    COMMON AREA CHANGES                                         3

3. TERM                                                                3
    3.1    TERM                                                        3
    3.2    DELAY IN POSSESSION
    3.3    COMMENCEMENT DATE CERTIFICATE                               4

4. RENT                                                                4
    4.1    BASE RENT                                                   4
    4.2    OPERATING EXPENSES                                          4

5. SECURITY DEPOSIT                                                    5

6. USE                                                                 5
    6.1    PERMITTED USE
    6.2    HAZARDOUS SUBSTANCES                                        5
    6.3    TENANT'S COMPLIANCE WITH REQUIREMENTS                       6
    6.4    INSPECTION; COMPLIANCE WITH LAW                             6

 7. MAINTENANCE, RE, PAW, TRADE FIXTURES AND ALTERATIONS               7
    7.1    TENANT'S OBLIGATIONS                                        7
    7.2    LANDLORD'S OBLIGATIONS
    7.3    ALTERATIONS                                                 7
    7.4    SURRENDER/RESTORATION

 8. INSURANCE; INDEMNITY                                               7
    8.1    PAYMENT of PREMIUMS                                         7
    8.2    TENANTS INSURANCE                                           7
    8 33   LANDLORD'S INSURANCE
    8.4    WAIVER of SUBROGATION                                       8
    8.5    INDEMNITY                                                   8
    8.6    EXEMPTION OF LANDLORD FROM LIABILITY

9. DAMAGE OR DESTRUCTION .
    9.1    TERMINATION RIGHT                                           9
    9.2    DAMAGE CAUSED BY TENANT                                     9

10.REAL PROPERTY TAXES                                                 9
    10.1   PAYMENT OF REAL PROPERTY TAXES                              9
    10.2   REAL PROPERTY TAX DEFINITION                                9
    10.3   ADDITIONAL IMPROVEMENTS                                    10
    10.4   JOINT ASSESSMENT                                           10
    10.5   TENANT'S PROPERTY TAXES                                    10

<PAGE>


11. UTILITIES                                                         10

12. ASSIGNMENT AND SUBLETTING                                         10
    12.1   LANDLORD'S CONSENT REQUIRED                                10
    12.2   RENT ADJUSTMENT                                            10

13. DEFAULT; REMEDIES                                                 10
    13.1   DEFAULT                                                    10
    13.2   REMEDIES                                                   11
    13.3   LATE CHARGES                                               12

14. CONDEMNATION 13

15. ESTOPPEL CERTIFICATE AND FINANCIAL STATEMENTS                     13
    15.1   ESTOPPEL CERTIFICATE                                       13
    15.2   FINANCIAL STATEMENT                                        13

16. ADDITIONAL COVENANTS AND PROVISIONS                               13
    16.1   SEVERABILTY                                                13
    16.2   INTEREST ON PAST-DUE OBLIGATION'S                          13
    16.3   TIME OF ESSENCE                                            13
    16.4   LANDLORD LIABILITY                                         14
    16.5   NO PRIOR OR OTHER AGREEMENTS                               14
    16.6   NOTICE REQUIREMENTS                                        14
    16.7   DATE of NOTICE                                             14
    16:8   WAIVERS                                                    14
    16.9   HOLDOVER                                                   14
    16.10  CUMULATIVE REMEDIES                                        14
    16.11  BINDING EFFECT: CHOICE OF LAW                              14
    16.12  LANDLORD                                                   14
    16.13  ATTORNEYS' FEES AND OTHER COSTS                            15
    16.14  LANDLORD'S ACCESS; SHOWING PREMISES; REPAIRS               15
    16.15  SIGNS                                                      15
    16.16  TERMINATION; MERGER                                        15
    16.17  QUIET POSSESSION                                           15
    16.18  SUBORDINATION; ATTORNMENT; NON-DISTURBANCE                 15
    16.19  RULES AND REGULATIONS                                      16
    16.20  SECURITY MEASURES                                          16
    16.21  RESERVATIONS                                               16
    16.22  CONFLICT                                                   16
    16.23  OFFER                                                      16
    16.24  AMENDMENTS                                                 16
    16.25  MULTIPLE PARTIES                                           16
    16.26  AUTHORITY                                                  16



<PAGE>

                            AMB PROPERTY CORPORATION
                                INDUSTRIAL LEASE

1.       Basic Provisions ("Basic Provisions").

         1.1 Parties: This Lease ("Lease") dated Februag 6, 2002, is made by and
between AM-13 Property, L.P., a Delaware limited partnership, ("Landlord") and
The Singing Machine Company, Inc., a -Delaware corporation ("Tenant")
(collectively, the "Parties" or individually, a "Party").

         1.2 Premises The premises ("Premises"), which are the subject of this
Lease, are located at 303 West Artesia Blvd., Compton, CA 90220 in the
industrial center commonly known as the Artesia Industrial Center (the
"Industrial Center"). The Premises are:

                  [XX] Approximately 79,000 square feet of space as depicted on
Exhibit A. This space is a part of the building ("Building") which is also
identified on Exhibit A.

                                       or

                  [ ] A11 of the building ("Building") identified on Exhibit A,
consisting of approximately square feet.

If the Premises are all of the Building, there shall, for purposes of this
Lease, be no distinction between the words "Premises" or "Building." Tenant
shall have nonexclusive rights to the Common Areas (as defined in Paragraph 2.2
below) but shall not have any rights to the roof, exterior walls, or utility
raceways of the .Building or to any other buildings in the Industrial Center.
The Industrial Center-consists of the Premises, the Building, the Common Areas,
the land upon which they are located, and all other buildings and improvements
within the boundaries of the Industrial Center.

         1.3 Term: Five 5 years and ten (IQ) months ("Term") commencing upon
completion of tenant improvements as set forth in the Tenant Improvement
Addendum ("Commencement Date") and ending at the end of the seventieth (70`x)
month after the Commencement Date ("Expiration Date").

         1.4 Base Rent: $33,970.00 per month ("Base Rent"). $33,970.00 is
payable on execution of this Lease for the period which is the fourth month of
the Term. Tenant shall not be required to pay Base Rent for months 1 through 3
of the Term.

         1.5      Tenant's Share of Operating Expenses ("Tenant's Share"):

                 (a) Common Area Operating Expenses           33.1%

                 (b), Building Operating Expenses             33.1%

         1.6 Tenant's Estimated Monthly Rent Payment: Following is the estimated
monthly Rent payment to Landlord pursuant to the provisions of this Lease. This
estimate is made at the inception of the Lease and is subject to adjustment
pursuant to the provisions of this Lease:

                 (a)   Base Rent (Paragraph 4.1)              $33,970.00
                 (b)   Operating Expenses (Paragraph 4.2,
                       excluding Real Property Taxes,
                       Landlord Insurance, and HVAC)          $ 1,574.00
                 (c)   Landlord Insurance (Paragraph 8.3)     $   687.50
                 (d)   Real Property Taxes (Paragraph 10)     $ 4,206.92
                 (e)   HVAC                                   $    75.00

                          Estimated Monthly Payment                   $40.513.42

         1.7 Security Deposit $33,970.00 ("Security Deposit").

         1.8 Permitted Use ("Permitted Use"): manufacture, repair and
distribution karaoke equipment, audio software and electronic audio equipment
and accessories related thereto and for no other purpose.

         1.9 Guarantor: None

         1.10 Addenda: Attached hereto are, the following Addenda, all of which
constitute a part of this Lease

                  (a)      Addenda: Tenant Improvement Addendum
                  (b)      Addenda: Rent Adjustment Addendum
                  (c)      Addenda: Early Inducement and Recapture Addendum


                                      -1-
<PAGE>

                  (d)      Addenda: Existing Tenant Contingency Addendum

         1.11 Exhibits: Attached hereto are the following Exhibits, all of which
constitute a part of this Lease:

                  Exhibit A: Description of Premises.
                  Exhibit B: Commencement Date Certificate.
                  Exhibit C: Hazardous Substances Questionnaire
                  Exhibit D: Move-Out Standards

          1.12 Address for Rent Payments: All amounts payable by Tenant to
Landlord shall, until further notice from Landlord, be paid to AMB Property
Corporation at the following address:

                             AMB Property, L.P.
                             -----------------------------
                             P.O. Box 84254
                             -----------------------------
                             Dallas, TX 75284-2524
                             -----------------------------

                                      -2-
<PAGE>


2.       Premises and Common Areas.

         2.1 Letting. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the Premises upon all of the terms, covenants, and conditions, set
forth in this Lease. Any statement of square footage set forth in thus Lease or
that may have been used in calculating Base Rent and/or Operating Expenses is an
approximation which Landlord and Tenant agree is reasonable, and the Base Rent
and Tenant's Share based thereon is not subject to revision whether or not the
actual square footage is more or less.

         2.2 Common Areas - Definition. "Common Areas" are all areas and
facilities outside the Premises and within the exterior boundary line of the
Industrial Center and interior utility raceways within the Premises that are
provided and designated by the Landlord from time to time for the general
nonexclusive use of Landlord, Tenant, and other tenants of the Industrial Center
and their respective employees, suppliers, slippers, tenants, contractors, and
invitees.

         2.3 Common Areas - Tenant's Rights. Landlord hereby grants to Tenant,
for the benefit of Tenant and its employees, suppliers, slippers, contractors,
customers, and invitees, during the term of this Lease, the nonexclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Landlord under the terms hereof or under the terns of any rules and
regulations or covenants, conditions, and restrictions governing the use of the
Industrial Center.

         2.4 Common Areas - Rules and Regulations. Landlord shall have the
exclusive control arid management of the Common Areas and shall have the right,
from time to time, to establish-, modify, amend, and enforce reasonable Rules
and Regulations with respect thereto in accordance with Paragraph 16.19.

         2.5 Common Area Changes. Landlord shall have the right, in Landlord's
sole discretion; from time to time;

                  (a) To make changes to the Common Areas, including, without
limitation, changes in the locations, size, shape, and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways, and utility raceways,
so long as Tenant's use and enjoyment of the Premises are not materially,
adversely affected for a period of greater than 5 consecutive business days;

                  (b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;

                  (c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas, so long as such land can, in
Landlord's sole reasonable judgment, be considered to serve and benefit the
Building and the tenants thereof;

                  (d) To add additional buildings and improvements to the Common
Areas, provided that the capital costs of such construction (except as set forth
in Section 4.2(a)(viii) of this Lease) are not charged back to Tenant, the
availability of parking for the Premises is not materially, adversely affected
for a period of greater than 5. consecutive business days and reasonable access
to the Premises remains available;

                  (e) To use the Common Areas while engaged in making additional
improvements, repairs, or alterations to the Industrial Center, or any portion
thereof; and

                  (f) To do and perform such other acts and make such other
changes in, to, or with respect to the Common Areas and Industrial Center as.
Landlord may, in the exercise of sound business judgment, deem to be
appropriate, so long as the capital costs of same shall not be charged back to
Tenant, and Tenant's use and enjoyment of,the Premises are not materially,
adversely affected for a period of greater than 5 consecutive business days.

3. Term.

         3.1 Tenn. The Commencement~Date, Expiration Date, and Tern of this
Lease are as specified in Paragraph 1.3.

         3.2 Delay in Possession. If for any reason Landlord cannot deliver
possession of the Premises to Tenant by the Commencement Date, Landlord shall
not be subject to any liability therefor, nor shall such failure affect the.
validity of this Lease or the obligations of Tenant hereunder, In such case,
Tenant shall not, except as otherwise provided herein, be obligated to pay Rent
or perform any other obligation of Tenant under the terms of this Lease until
Landlord delivers possession of the Premises to Tenant. The term of the Lease
shall commence on the earlier of (a) the date Tenant takes possession of the
Premises or (b) 10 days following notice to Tenant that Landlord is prepared
totender possession of the Premeises to Tenant. If possession of the Premises is
not delivered to Tenant within 60 days after the Commencement Date and such
delay is not due to Tenant's acts, failure to act, or omissions, Tenant may by
notice in writing to

                                      -3-
<PAGE>


Landlord within 20 days after the end of said 60-day period cancel this Lease
and the parties shall be dischared from all obligations hereunder. If such
written notice of Tenant is not received by Landlord within said 20-day period,
Tenant's right to cancel this Lease shall terminate.

         3.3 Commencement Date Certificate. At the request of of Landlord,
Tenant shall execute and deliver to Landlord a completed certificate
("Commencement Date Certificate") in the form attached hereto as Exhibit B.

4.       Rent.

         4.1 Base Rent. Tenant shall pay to Landlord Base Rent and ~ other
monetary obligations of Tenant to Landlord under the terms of this Lease (such
other monetary obligations are herein referred to as "Additional Rent") in
lawful money of the United States, without offset or deduction, in advance on or
before the first day of each month. Base Rent and Additional Rent for any period
during the term hereof which is for less than one full month shall be prorated
based upon the actual number of days of the month involved. Payment of Base Rent
and Additional Rent shall be made to Landlord at its address stated herein or to
such other persons or at such other addresses as Landlord may from time to time
designate in writing to Tenant. Base Rent and Additional Rent are collectively
referred to as "Rent." All monetary obligations of Tenant to Landlord under the
terms of this Lease are deemed to be Rent.

         4.2 Operating Expenses. Tenant shall pay to Landlord on the first day
of each month during the term hereof, in addition to the Base Rent, Tenant's
Share of all Operating Expenses in accordance with the following provisions:

                  (a) "Operating Expenses" are all costs incurred by Landlord
relating to the ownership and operation of the Industrial Center, Building, and
Premises including, but not limited to, the following:

                           (i) The operation, repair, maintenance, and
replacement in neat, clean, good order, and condition of the Common Areas,
including parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, drainage systems, lighting facilities, fences and gates,
exterior signs, and tenant directories.

                           (ii) Water, gas, electricity, telephone, and other
utilities servicing the Common Areas.

                           (iii) Trash disposal, janitorial services, snow
removal, property management (not to exceed 3% per year of gross revenues of the
Industrial Center), and security services.

                           (iv) Reasonable reserves set aside for maintenance,
repair, and replacement of the Common Areas and Building, provided that Tenant
shall not be required to make an initial "lump sum" contribution to any reserve
fund.

                           (v) Real Property Taxes.

                           (vi) Premiums for the insurance policies maintained
by Landlord under Paragraph 8 hereof,

                           (vii) Environmental monitoring and insurance
programs.

                           (viii) Monthly amortization of capital improvements
to the Common Areas and the Building. The monthly amortization of any given
capital improvement shall be the sum of the (a) quotient obtained by dividing
the cost of the capital improvement by Landlord's estimate of the number of
months of useful life of such improvement as determined pursuant to the Internal
Revenue Code plus (b) an amount equal. to the cost of the capital improvement
times 1/12 of the lesser of 12% or the maximum annual interest rate permitted by
law.

                           (ix) Maintenance of the Building including, but not
limited to, painting, caulking, and repair and replacement of Building
components, including, but not limited to, roof, elevators, and fire detection
and sprinkler systems.

                           (x) Heating, ventilating, and air conditioning
systems ("HVAC").

                           (xi) If Tenant fails to maintain the Premises, any
expense incurred by Landlord for such maintenance, but not expenses incurred
with respect to other tenants' premises, or, generally, expenses incurred by
Landlord which do not reasonably benefit the Building or the tenants thereof.

                  (b) Tenant's Share of Operating Expenses that are not
specifically attributed to the Premises or Building ("Common Area Operating
Expenses") shall be that percentage shown in Paragraph 1.5(a). Tenant's Share of
Operating Expenses that are attributable to the Building ("Building Operating
Expenses") shall be that percentage shown in Paragraph 1.5(b). Landlord

                                      -4-
<PAGE>

in its reasonable discretion shall determine which Operating Expenses are Common
Area Operating Expenses, Building Operating Expenses, or expenses, or expenses
to be entirely borne by Tenant.

                  (c) The inclusion of the improvements, facilities, and
services set forth in Subparagraph 4.2(a) shall not impose any obligation upon
Landlord either to have said improvements or facilities or to provide those
services, so long as Landlord has not levied a charge for same.

                  (d) Tenant shall pay monthly in advance, on the same day that
the Base Rent is due, Tenant's Share of estimated Operating Expenses and HVAC
maintenance costs in the amount set forth in Paragraph 1.6. Landlord shall
deliver to Tenant within 90 days after the expiration of each .calendar year a
reasonably detailed statement showing Tenant's Share of the actual Operating
Expenses incurred during the preceding year. If Tenant's estimated payments
under thus Paragraph 4(d) during the preceding year exceed Tenant's Share as
indicated on said statement, Tenant shall be credited the amount of such
overpayment against Tenant's Share of Operating Expenses next becoming due. If
Tenant's estimated payments under thus Paragraph 4.2(d) during said preceding
year were less than Tenant's Share as indicated on said statement, Tenant shall
pay to Landlord the amount of the deficiency within 10 days after delivery by
Landlord to Tenant of said statement. No more than one time per year, Landlord
may adjust the amount of the estimated 1 tenant's Share of Operating Expenses
and HVAC maintenance costs to reflect Landlord's estimate of such expenses for
the year.

5. Security Deposit. Tenant shall deposit with Landlord upon Tenant's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Tenant's
faithful performance of Tenant's obligations under this Lease. If Tenant fails
to pay Base Rent or Additional Rent or otherwise defaults under this Lease (as
defined in Paragraph 13.1), Landlord may use the Security Deposit for the
payment of any amount due Landlord or to reimburse or compensate Landlord for
any liability, cost, expense, loss, or damage (including attorneys' fees) which
Landlord may suffer or incur by reason thereof. Tenant shall on demand pay
Landlord the amount so used or applied so as to restore the Security Deposit to
the amount set forth in Paragraph 1.7. Landlord shall not be required to keep
all or any part of the Security Deposit separate from its general accounts.
Landlord shall, at the expiration or earlier termination of the term hereof and
within 30 days after Tenant has vacated the Premises, return to Tenant that
portion of the Security Deposit not used or applied by Landlord. No part of the
Security Deposit shall be considered to be held in trust, to bear interest, or
to be prepayment for any monies to be paid by Tenant under this Lease.

6.       Use.

         6.1 Permitted Use. Tenant shall use and occupy the Premises only for
the Permitted Use set forth in Paragraph 1.8. Tenant shall not commit any
nuisance, permit the emission of any objectionable noise or odor, suffer any
waste, make any use of the Premises which is contrary to any law or ordinance,
or which will invalidate or increase the premiums for any of Landlord's
insurance. Tenant shall not service, maintain, or repair vehicles on the
Premises, Building, or Common Areas. Tenant shall not store foods, pallets,
drums; or any other materials outside the Premises.

6.2      Hazardous Substances.

         (a) Reportable Uses Require Consent. The term, "Hazardous Substance,"
as used in this Lease, shall mean any product, substance, chemical, material, or
waste whose presence, nature, quantity, and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release, or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Landlord to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil, or any products or by products thereof. Tenant
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Landlord and compliance in a timely manner (at
Tenant's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3) "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal or a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration, or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on, or about the Premise of a Hazardous Substance with respect to which may
any Applicable Requirements require
                                      -5-
<PAGE>

that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Tenant may, without
Landlord's prior consent, but upon notice to Landlord and in compliance with all
Applicable Requirements, use any ordinary and customary materials reasonably
required to be used by Tenant in the normal course of the Permitted Use, so long
as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage, or
expose Landlord to any liability therefor. In addition, Landlord may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Tenant upon Tenant's ,giving Landlord such additional
assurances as Landlord, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises, and the environment against damage,
contamination, injury, and/or liability therefor, including but not limited to
the installation (and, at Landlord's option, removal on or before Lease'
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit. Notwithstanding the foregoing, Landlord has
no current and actual knowledge of any Reportable Use in or on the Premises.
Further notwithstanding the foregoing, Tenant shall only be responsible under
this Section for any Hazardous Substance or Reportable Use which has been caused
by Tenant or its employees, contractors, affiliates or agents.

         (b) Duty to Inform Landlord. If Tenant knows, or has reasonable cause
to believe, that a Hazardous Substance is located iii, under, or about the
Premises or the Building, Tenant shall immediately give Landlord written notice
thereof, together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to such Hazardous Substance.
Tenant shall not cause or permit any Hazardous Substance to be spilled or
released in, on, under, or about the Premises (including, without limitation,
through the plumbing or sanitary sewer system).

         (c) Indemnification. Tenant shall indemnify, protect, defend, and hold
Landlord, Landlord's affiliates, Lenders, and the officers, directors,
shareholders, partners, employees, managers, independent contractors, attorneys,
and agents of the foregoing ("Landlord Entities") and the Premises harmless from
and against any and all damages, liabilities, judgments, costs, claims, liens,
expenses, penalties, loss of permits, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance on or brought onto the
Premises by or for Tenant or by any of Tenant's employees, agents, contractors,
servants, visitors, suppliers, or invitees (such employees, agents, contractors,
servants, visitors, suppliers, and invitees as herein collectively referred to
as "Tenant Entities"). Tenant's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property, or the environment created or suffered by Tenant, and the cost
of investigation (including consultants' and attorneys' fees and testing),
removal, remediation, restoration and/or abatement thereof, or of 'any
contamination therein involved. Tenant's obligations under this Paragraph 6.2(c)
shall survive the Expiration Date or earlier tennination of this Lease.

         6.3 Tenant's Compliance with Requirements. Tenant shall, at Tenant's
sole cost and expense, fully, diligently, and in a timely manner comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements,. and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Landlord's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (a) industrial hygiene, (b)
environmental conditions on, in, under, or about the Premises, including soil
and groundwater conditions, and (c) the use, generation, manufacture; .
production, installation, maintenance, removal, transportation, storage, spill,
or release of any Hazardous Substance), now in effect or which may hereafter
come into effect- Tenant shall, within S days after receipt of Landlord's
written request, provide Landlord with copies of all documents and information
evidencing Tenant's compliance with any Applicable Requirements, and shall
immediately upon receipt notify Landlord in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint, or report pertaining to or involving failure by Tenant or
the Premises to comply with any Applicable Requirements.

         6.4 Inspection Compliance with Law. In addition to Landlord's
environmental monitoring and insurance program, the cost of which is included in
Operating Expenses, Landlord and the holders of any mortgages, deeds of trust,
or ground leases on the Premises ("Lenders") shall have the right to enter the
Premises at any time in the case of an emergency,

                                      -6-
<PAGE>

and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Tenant with this Lease and all
Applicable Requirements. Landlord shall be entitled to employ experts and/or
consultants in connection therewith to advise Landlord with respect to Tenant's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The cost and expenses of any such
inspections shall be paid by the party requesting same unless a violation of
Applicable Requirements exists or is imminent, or the inspection is requested or
ordered by a governmental authority and arises from Tenant's use or occupancy of
the Premises, Tenant shall upon request reimburse Landlord or Landlord's Lender,
as the case may be, for the costs and expenses of such inspections.

7.       Maintenance, Repairs, Trade Fixtures and Alterations.

         7.1 Tenant's Obligations. Subject to the provisions of Paragraph 7.2
(Landlord's Obligations), Paragraph 9 (Damage or Destruction), and Paragraph 1 4
(Condemnation), Tenant shall, at Tenant's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition, and
repair (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonable or readily accessible to Tena>>t and
whether or not the need for such repairs occurs as a result of Tenant's use, the
elements, or the age of such portion of the Premises including, without limiting
the generality of the foregoing, all equipment or facilities specifically
serving the Premises, such as plumbing, heating, ventilating, electrical,
lighting facilities, boilers, fired or .unfired pressure vessels, fire hose
connectors if within the Premises, fixtures, interior walls, interior surfaces
of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights,
but excluding any items which are the responsibility of Landlord pursuant to
Paragraph 7.2 below. Tenant's obligations shall include restorations,
replacements, or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition, and state of
repair.

         7.2 Landlord's Obligation s. Subject to the provisions of Paragraph 6
(Use), Paragraph 7.1 (Tenant's Obligations), Paragraph 9 (Damage or
Destruction), and Paragraph 14 (Condemnation), Landlord, at its expense and not
subject to the reimbursement requirements of Paragraph 4.2, shall keep in good
order, condition, and repair the roof structure, foundations and exterior walls
of the Building and utility systems within the Industrial Center, including, for
greater certainly, all utility lines, pipes and conduits running under or within
the Building and the Premises. Landlord, subject to reimbursement pursuant to
Paragraph 4.2, shall keep in good order, condition, and repair the air
conditioning systems servicing the Premises, Building roof membrane, and Common
Areas.

         7.3 Alterations. Tenant shall not make nor cause to be made any
alterations or installations in, on, under, or about the Premises, except for
non-structural alterations which do not penetrate the roof membrane or structure
that serve to better adapt the Premises for its ,purposes which 'do not exceed
$50,000 per lease year in costs and of which Tenant gives Landlord at least 20
days' prior written notice.

         7.4 Surrender/Restoration. Tenant shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition, and state of repair,
ordinary wear and tear excepted. Without limiting the generality of the above,
Tenant shall remove all personal property, trade fixtures, and floor bolts,
patch all floors, axed cause all lights to be in good operating condition.
Notwithstanding the foregoing, other than those improvements made pursuant to
the Tenant Improvement Addendum to the Lease (which Tenant shall not be required
to remove at the end of the Term or earlier termination), at the time that
Tenant seeks consent From Landlord or gives notice to Landlord of any
improvement to be made by Tenant, Landlord, as a condition to consent to such
improvement (if consent is required) or within 10 days of receipt of written
notice (if no consent is required), may require that Tenant remove such
improvement(s) at Tenant's sole cost and expense at the end of the Term or
earlier termination.

8.       Insurance; Indemnity.

         8.1 Payment of Premiums. The cost of the premiums for the insurance
policies maintained by Landlord under this Paragraph 8 shall be a Corm-non Area
Operating Expense reimbursable pursuant to Paragraph 4.2 hereof. Premiums for
policy periods commencing prior to, or extending beyond, the term of this Lease
shall be prorated to coincide with the corresponding Commencement Date and
Expiration Date.

                                      -7-
<PAGE>

         8.2 Tenant's Insurance.

                  (a) At its sole cost and expense, Tenant shall maintain in
full force and effect during the Term of -the Lease the following insurance
coverages insuring against claims which may arise from or in connection with the
Tenant's operation,and use of the Premises.

                           (i) Commercial General Liability insurance with
minimum limits of $1,000,000 per occurrence and $3,000,000 general aggregate for
bodily injury, personal injury, and property damage. If required by Landlord,
liquor liability coverage will be included. Such insurance shall be endorsed to
include Landlord and Landlord Entities as additional insureds, shall be primary
and noncontributory with any Landlord insurance, and shall provide severability
of interests between or among insureds.

                           (ii) Workers' Compensation insurance with statutory
limits and Employers Liability with a $1,000,000 per accident limit for bodily
injury or disease. (iii) To the extent that Tenant owns or leases vehicles which
are using or nonowned, and damage.

                           (iv) Property insurance against "all risks" at least
as broad as the current ISO Special Form policy, including earthquake and flood,
for loss to any tenant improvements or betterments, floor and wall coverings,
and business personal property on a full insurable replacement cost basis with
no coinsurance clause, and Business Income insurance covering at least six
months of loss of income and continuing expense.

                  (b) Tenant shall deliver to Landlord certificates o-f all
insurance reflecting evidence of required coverages prior to initial occupancy,
and annually thereafter.

                  (c) If, in the opinion of Landlord's insurance advisor, the
amount or scope of such coverage is deemed inadequate at any time during the
Term, Tenant shall increase such coverage to such reasonable amounts or scope as
Landlord's advisor deems adequate and is comparable to coverages carried by a
majority of similar size and use tenants in Compton, CA.

                  (d) All insurance required under Paragraph 8.2 (i) shall be
issued by insurers licensed to do business in the state in which the Premises
are located and which are rated A:VI1 or better by Best's Key Rating Guide and
(ii) shall be endorsed to provide at least 30-days prior notification of
cancellation or material change in coverage to said additional insureds.

         8.3 Landlord's Insurance. Landlord shall maintain "all risks" coverage
as broad as the current ISO Special Form policy, including earthquake and flood,
covering the buildings within the Industrial Center, Commercial General
Liability insurance, and such other insurance in such amounts and covering such
other liability or hazards as deemed appropriate by Landlord. The amount and
scope of coverage of Landlord's insurance shall be determined by Landlord from
time to time in its sole discretion and shall be subject to such deductible
amounts as Landlord may elect. Landlord shall have the right to reduce or
terminate any insurance or coverage to limits and amounts carried by a majority
of owners of similar buildings in Compton, California.

         8.4 Waiver of Subrogation. To the extent permitted by law and with
permission of their insurance. carriers, Landlord and Tenant each waive any
right to recover against the other on account of any and all claims Landlord or
Tenant may have against the other with respect to property insurance actually
carried, or required to be carried hereunder, to the extent of the proceeds
realized from such insurance coverage.

         8.5 Indemnity. Each party shall protect, defend, indemnify, and hold
the other and their respective Entities harmless from and against any and all
loss, claims, liability, or costs (including court costs and attorneys' fees)
incurred by reason of:

                  (a) any damage to any property (including but not limited to
property of either party's Entities or death, bodily, or personal injury to any
person occurring in or about the Premises, the Building, or the Industrial
Center to the extent that such injury or damage shall be caused by or arise from
any actual or alleged act, neglect, fault, or omission by or of that party or
that party's agents, servants, employees, invitees; contractors, suppliers,
subtenants, or visitors (collectively "Entities");

                  (b) the conduct or management of any work or anything
whatsoever done by either party on or about the Premises or from transactions of
either party concerning the Premises;

                  (c) Either party's failure to comply with any and all
governmental laws, ordinances, and regulations applicable to the condition or
use of the Premises, Building or Industrial Center, or the operation or
occupancy thereof; or

                  (d) any breach or default on the part of either party in the
performance of any covenant or agreement to be performed pursuant to this Lease.

                                      -8-
<PAGE>

                  The provisions of this Paragraph 8.5 shall, with respect to
any claims or liability accruing prior to such termination, survive the
Expiration Date or earlier termination of this Lease.

         8.6 Exemption of Landlord from Liability. Except to the extent caused
by the gross negligence or willful misconduct of Landlord, Landlord shall not be
liable for and Tenant waives any claims against Landlord for injury or damage to
the person or the property of Tenant, Tenant Entities, or any other person in or
about the Premises, Building, or Industrial Center from any cause whatsoever,
including, but not limited to, damage or injury which is caused by or results
from (a) fire, steam, electricity, gas, water, or rain, or from the breakage,
leakage, seepage, back up of sewers or drains, obstruction, or other defects of
pipes, fire sprinklers, wires, appliances, plumbing, air conditioning, or
lighting fixtures or (b) from the condition of the Premises, other portions of
the Building, or Industrial Center, Landlord shall not be liable for any damages
arising From any act or neglect of any other tenant of Landlord nor from the
failure by Landlord to enforce the provisions of any other lease in the
Industrial Center. Notwithstanding Landlord's negligence or breach of this
Lease, Landlord shall under no circumstances be liable for injury to Tenant's
business, for any loss of income or profit therefrom, or any indirect,
consequential, or punitive damages.

9.       Damage or Destruction.

         9.1 Termination Right. Tenant shall give Landlord immediate written
notice of any damage to the Premises. Subject to the provisions of Paragraph
9.2, if the Premises or the Building shall be damaged to such an extent that
there is substantial interference for a period exceeding 90 consecutive days
with the conduct by Tenant of its business at the Premises, or it is determined
that such damage cannot be repaired within 180 days of its occurrence, Tenant,
at any time prior to commencement of repair of the Premises and following 10
days written notice to Landlord, may terminate this Lease effective 30 days
after delivery of such notice to Landlord. Such termination shall not excuse the
performance by Tenant of those covenants which under the terms hereof survive
termination. Rent shall be abated in proportion to the degree of interference
during the period that there is such substantial interference with the conduct
of Tenant's business at the Abatement of rent and Tenant's right of termination
pursuant to this provision shall be Tenant's sole remedy for failure of Landlord
to keep in good order, condition, and repair the foundations and exterior walls
of the Building, Building roof, utility systems outside the Building, the Common
Areas, and RVAC.

         9.2 Damage Caused by Tenant. Tenant's termination rights under
Paragraph 9.1 shall not apply if the damage to the Premises or Building is
the'result of any actor omission of Tenant or of any of Tenant's agents,
employees, customers, invitees, or contractors ("Tenant Acts"). Any damage
resulting from a Tenant Act shall be promptly repaired by Tenant. Landlord at
its option may at Tenant's expense repair any damage caused by Tenant Acts.
Tenant shall continue to pay all rent and other sums due hereunder and shall be
liable to Landlord for all damages that Landlord may sustain resulting from a
Tenant Act.

10.      Real Property Taxes:

         10.1 Payment of Real Property Taxes. Landlord shall pay the Real
Property Taxes due and payable during the term of thus Lease and, except as
otherwise provided in Paragraph 10.3, such payments shall be a Common Area
Operating Expense reimbursable pursuant to Paragraph 4.2.

         10.2 Real Property Tax Definition. As used herein, the term "Real
Property Taxes" is any form of tax or assessment, general, special, ordinary, or
extraordinary, imposed or levied upon (a) the Industrial Center or Building, (b)
any interest of Landlord in the Industrial Centcr or Building, (c) Landlord's
right to rent or other income from the Industrial Center or Building, and/or (d)
Landlord's business of leasing the Premises. Real Property Taxes include (a) any
license fee, commercial rental tax, excise tax, improvement bond or bonds, levy,
or tax; (b) any lax or charge'which replaces or is in addition to any of such
above-described "Real Properly Taxes," and (c) any fees, expenses, or costs
(including attorneys' fees, expert fees, and the like) incurred by Landlord in
protesting or contesting any assessments levied or any tax rate. Real Properly
Taxes for tax years commencing prior to, or extending beyond, the term of this
Lease shall be prorated to coincide with the corresponding Commencement Date and
Expiration Date. Real Property Taxes shall not include any tax levied against
Landlord in respect of income earned by Landlord under this Lease, except to the
extent that such tax is in lieu of Real Property Taxes.

         10.3 Additional Improvements. Operating Expenses shall not include Real
Property Taxes attributable to improvements placed upon the Industrial Center by
other tenants or by

                                      -9-
<PAGE>

Landlord for the exclusive enjoyment of such other tenants. Tenant shall,
however, pay to Landlord at the time Operating Expenses are payable under
Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed
by reason of improvements placed upon the Premises by Tenant or at Tenant's
request, provided that Tenant shall not be required to contribute to an increase
in Real Property Taxes that results from the actions of any other tenant of the
Industrial Center.

         10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of.
the Real Property Taxes for all of the land and improvements included within the
parcel assessed.

         10.5 Tenant's Property Taxes. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon Tenant's improvements, fixtures,
furnishings, equipment, and all personal property of Tenant contained in the
Premises or stored within the Industrial Center.

11. Utilities. Tenant shall pay. directly for all utilities and services
supplied to the premises, including but not limited to electricity, telephone,
security, gas, and cleaning of the Premises, together with any taxes thereon.

12.      Assignment and Subletting

         12.1 Landlord's Consent Required. Tenant shall not assign, transfer,
mortgage, or otherwise transfer or encumber (collectively, "assign") or sublet
all or any part of. Tenant's interest in this Lease or in the Premises without
Landlord's prior written consent, which consent shall not be unreasonably
withheld. Relevant criteria in determining reasonability of consent include, but
are not limited to, credit history of a proposed assignee or sublessee,
references from prior landlords, any change or intensification of use-of the
Premises or the Common Areas, and any limitations imposed by the. Internal
Revenue Code and the Regulations promulgated thereunder relating to Real Estate
Investment Trusts. Assignment or sublet shall not release Tenant from its
obligations hereunder. Tenant shall not (i) sublet, assign, or enter into other
arrangements in which the amounts to be paid by the sublessee or assignee
thereunder would be based, in whole or in part, on the income or profits derived
by the business activities of the sublessee or assignee; (ii) sublet the
Premises or assign this Lease to any person or entity in which Landlord owns an
interest, directly or indirectly (by applying constructive ownership rules set
forth in Section 856(d)(5) , of the Internal Revenue Code (the "Code"); or (iii)
sublet the Premises or assign this Lease hi any other manner which could cause
any portion o f the amounts received by Landlord pursuant to this Lease or any
sublease to fail to qualify as "rents from real property" within the meaning of
Section 856(d) of the Code, or which could cause any other income received by
Landlord to fail to qualify as income described in Section 856(c)(2) of the
Code. The requirements of this Section 12.1 shall apply to any further
subleasing by any subtenant. Notwithstanding the foregoing, in the event of any
assignment or subletting to which Landlord consents, Landlord shall receive
fifty percent (50%), in the event of a sublease, of any rent received by Tenant
above the rent then being paid by Tenant to Landlord less any commissions or
marketing expense paid by Tenant for such sublease. In addition, Landlord shall
receive fifty percent (50%), in the event of an assignment, of any profit
derived by Tenant from such assignment less any commissions or marketing expense
paid by Tenant for such assignment. In the event of. any assignment or
subletting, Tenant (or the proposed assignee or subtenant) shall pay to Landlord
or its authorized managing agent (as directed by Landlord) a fee of $750.00 to
cover Landlord's costs of review, negotiation, preparation or execution of any
documentation regarding such assignment or subletting.

         12.2 Rent Adjustment It; as of the effective date of any permitted
assignment or subletting, the then remaining term of thus Lease is less than 1
year, Landlord may, as a condition to its consent: (a) require that the amount
of the Rent payable under this Lease be adjusted to what is then the market
value for property similar to the Premises as then constituted, as determined by
Landlord; or (b) terminate the Lease as of the. date of assignment or
subletting, subject to the performance by Tenant of those covenants whih under
the terms hereof survive termination.

13.      Default; Remedies.

         13.1 Default. The occurrence of any one of the following events shall
constitute an event of default of the part of Tenant ("Default"):

                  (a) The abandonment of the Premises by Tenant;

                  (b) Failure to pay any installment of Base Rent, Additional
Rent, or any other monies due and payable hereunder, said failure continuing for
a period of 7 days after the same is due;

                                      -10-
<PAGE>

                  (c) A general assignment by Tenant or any guarantor for the
benefit of. creditors;

                  (d) The filing of a voluntary petition of bankruptcy by Tenant
or any guarantor; the filing of a voluntary petition for an arrangement; the
filing of a petition, voluntary or involuntary, for reorganization; or the
filing of an involuntary petition by Tenant's creditors or guarantors Premises
that is not dismissed within 60 days after such event;

                  (e) Receivership, attachment, of other judicial seizure of the
Premises,or all or substantially all of Tenant's assets on the Premises that is
not dismissed within 60 days after such event;

                  (f) Failure of Tenant to maintain insurance as required by
Paragraph 8.2; (g) Any breach by Tenant of its covenants under Paragraph 6.2;

                  (h) Failure in the performance of any of Tenant's covenants,
agreements, or obligations hereunder (except those failures specified as
events-of Default in other Paragraphs of this Paragraph 13.1 which shall be
governed by such other Paragraphs), which failure continues for 10 days after
written notice thereof from Landlord to Tenant; provided that, if Tenant has
exercised reasonable diligence to cure such failure and such failure cannot be
cured within such 10-day period despite reasonable diligence, Tenant shall not
be in default under this subparagraph unless Tenant fails thereafter diligently
and continuously to prosecute the cure to completion;

                  (i) Any transfer of a substantial portion of the assets of
Tenant, or any incurrence of a material obligation by Tenant, unless such
transfer or obligation is undertaken or incurred in the ordinary course of
Tenant's business, or in good faith for equivalent consideration, or with
Landlord's consent; and

                  (j) The default of any guarantors of Tenant's obligations
hereunder under any guaranty of this Lease, or the attempted repudiation or
revocation of any such guaranty.

         13.2 Remedies. In the event, of any Default by Tenant, Landlord shall
have any or all of the following remedies:

                  (a) Termination. In the event of any Default by Tenant, then
in addition to any other remedies available to Landlord at law or in equity and
under this Lease, Landlord shall have the immediate option to terminate this
Lease and all rights of Tenant hereunder by giving written notice of such
intention to terminate. In the event that Landlord shall elect to so terminate
this Lease then Landlord may recover from Tenant:

                           (1) the worth at the time of award of any unpaid Rent
and any other suns due and payable which have been earned at the time of such
termination; plus

                           (2) the worth at the time of award of the amount by
which the unpaid Rent and any other sums due and payable which would have been
earned alter termination until the time of award exceeds the amount of such
rental loss Tenant proves could have been reasonably avoided; plus

                           (3) the worth at the time of award of the amount by
which the unpaid Rent and any other sums due and payable for the balance of the
term of this Lease after the time of award exceeds the amount of such rental
loss that Tenant proves could be reasonably avoided; plus

                           (4) any other amount necessary to compensate Landlord
for all die detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course would be likely to
result therefrom, including, without limitation, any costs or expenses incurred
by Landlord (i) in retaking possession of the Premises; (ii) in maintaining,
repairing, preserving, restoring, replacing, cleaning, the Premises or any
portion thereof, including such acts for reletting to a new lessee or lessees;
(iii) for leasing commissions; or (iv) for any other costs necessary or
appropriate to relet the Premises; plus

                           (5) such reasonable, attorneys' fees incurred by
Landlord as a result of a Default, and costs in the event suit is filed by
Landlord to enforce such remedy (to the extent awarded by any court or
arbitrator); and plus

                           (6) at Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law. As used in subparagraphs (1) and (2) above, the "worth at the
time of award" is computed by allowing interest at an annual rate equal to
twelve percent (12%) per annum or the maximum rate permitted by law, whichever
is less. As used in subparagraph (3) above, the "worth at the time of award" is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Fransisco at the time of award, plus one percent (1%). Tenant waives
redemption or relief from forfeiture under California Code of Civil Procedure
Sections 1174 and 1179, or under any other present or future law, in the event
Tenant is evicted or Landlord takes possession of the Premises by reason of any
Default of Tenant hereunder.


                                      -11-
<PAGE>

                  (b) Continuation of Lease. hi the event of any Default by
Tenant, then in addition to any other remedies available-to Landlord at law or
in equity and under this Lease, Landlprd shall have the remedy described in
California Civil Code Section 1951.4 (Landlord may continue this Lease in effect
after Tenant's Default and abandonment and recover Rent as it becomes due,
provided tenant has the right to sublet or assign, subject only to reasonable
limitations).

                  (c) Re-entry. In the event of any Default by Tenant, Landlord
shall also have the right, with or without terminating this Lease, in compliance
with applicable law, to re-enter the Premises and remove all persons and
property from the Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant.

                  (d) Reletting. In the event of the abandonment of the Premises
by Tenant or in the event that Landlord shall elect to re-enter or shall take
possession of the Premises pursuant to legal proceeding or pursuant to any
notice provided by law, then if Landlord does not elect to terminate this Lease
as provided in Paragraph a, Landlord may from time to time, without terminating
this Lease, relet the Premises or any part thereof for such term or terms and at
such rental or rentals and upon such other terms and conditions as Landlord in
its sole discretion may deem advisable with the right to make alterations and
repairs to the Premises. In the event that Landlord shall elect to so relet,
then rentals received by Landlord from such reletting shall be applied in the
following order: (1) to reasonable attorneys' fees incurred by Landlord as a
result of a Default and costs in the event suit is filed by Landlord to enforce
such remedies (to the extent awarded by any court or arbitrator); (2) to the
payment of any indebtedness other than Rent due hereunder from Tenant to
Landlord; (3) to the payment of any costs of such reletting; -(4)~to the payment
of the costs of any alterations and repairs to the Premises; (5) to the payment
of Rent due and unpaid hereunder; and (6) the residue, if any, shall be held by
Landlord and applied in payment of future Rent and other sums payable by Tenant
hereunder as the same may become due and payable hereunder. Should that portion
of such rentals received from such reletting during any month, which is applied
to the payment of Rent hereunder, be less than the Rent payable during the month
by Tenant hereunder, then Tenant shall pay such deficiency to Landlord. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in
such reletting or in making such alterations and- repairs not covered by the
rentals received from such reletting.

                  (e) Termination. No re-entry or taking of possession. of the
Premises by Landlord pursuant to this Addendurn shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given to Tenant or unless the termination thereof is decreed by a court of
competent jurisdiction. Notwithstanding any reletting without termination by
Landlord because of any Default by Tenant, Landlord may at any time after such
reletting elect to terminate this Lease for any such Default.

                  (f) Cumulative Remedies. The remedies herein provided are not
exclusive and Landlord shall have any and all other remedies provided herein or
by law or in equity.

                  (g) No Surrender. No act or conduct of Landlord, whether
consisting of the acceptance of the keys to the Premises, or otherwise, shall be
deemed to be or constitute an acceptance of the surrender of the Premises by
Tenant prior to the expiration of the Term, and such acceptance by Landlord of
surrender by Tenant shall only flow from and must be evidenced by a written
acknowledgment of acceptance of surrender signed by Landlord. The surrender of
this Lease by Tenant, voluntarily or otherwise, shall not work a merger unless
Landlord elects in writing that such merger take place, but shall operate as an
assignment to Landlord of any and all existing subleases, or Landlord may, at
its option, elect in writing to treat such surrender as a merger , terminating
Tenant's estate under this Lease, and thereupon Landlord may terminate any or
all such subleases by notifying the sublessee of its election so to do within
five (5) days after such surrender.

                  (h) Notice Provisions Tenant agrees that any notice given by
Landlord pursuant to Paragraph 13.1 of the Lease shall satisfy the requirements
for notice wider California Code of Civil Procedure Section 1161, and Landlord
shall not be required to give any additional notice in order to he entitled to
commence an unlawful detainer proceeding.

         13.3 Late Charges. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Rent and other sums due hereunder will cause Landlord to
incur costs not contemplated by this 'Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges. Accordingly, if Landlord's designee within 4
days after such, amount shall be due, then, without any requirement for notice
to Tenant, Tenant shall pay to Landlord a late charge equal to 5% of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's Default with respect to such


                                      -12-
<PAGE>

overdue amount, nor prevent Landlord from exercising any of the other rights and
remedies granted hereunder. Notwithstanding the foregoing, on the first two
occasions during the Term in which Tenant would otherwise be subject to payment
of a late charge, no late charge shall accrue until after Landlord has given
Tenant five (5) days' written notice thereof and Tenant has failed to pay the
amount due within that period. In addition, should Landlord be tunable to
negotiate any payment made by Tenant on the first attempt by Landlord and
without any notice to Tenant, Tenant shall pay to Landlord a fee of $50.00 per
item which the parties hereby agree represents a fair and reasonable estimate of
the costs Landlord will incur by reason of Landlord's inability to negotiate
such item(s).

14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of exercise of said power (all
of which are herein called "condemnation"), thus Lease shall terminate as to the
part so taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than 10% of the floor area of the Premises, or
more than 25% of the portion of the Common Areas designated for Tenant's
parking, is taken by condemnation, Tenant may, at Tenant's option, to be
exercised in writing within 10 days after Landlord shall have given Tenant
written notice of such taking or in the absence of such notice, within 10 days
after the condemning authority shall have taken possession), terminate this
Lease as of the date the condemning authority takes such possession, If Tenant
does not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the.portion of the Premises remaining,
except that the Base Rent shall be reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor area
of the Premises. No reduction of Base Rent shall occur if the condemnation does
not apply to any portion of the Premises- Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Landlord;
provided, however, that Tenant shall be entitled to any compensation, separately
awarded to Tenant, for Tenant's relocation expenses and/or loss of Tenant's
trade fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Landlord shall to the extent of its net severance damages in the
condemnation matter, repair any damage to the Premises caused by such
condemnation authority. Tenant shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.

15.      Estoppel Certificate and Financial Statements.

         15.1 Estoppel Certificate. Each party (herein referred to as
"Responding Party") shall within 10 days after written notice from the other
Party (the "Requesting Party") execute, acknowledge, and deliver, without charge
therefor to the Requesting Patty, and to the extent it can truthfully do so, ari
estoppcl certificate in a form reasonably acceptable to Requesting Party, or any
of Requesting Party's lenders or any prospective purchasers of the Premises or
the Industrial Center as the case may be, plus such additional information,
confirmation and statements as be reasonably requested by the Requesting Party.
Should Responding Party fail to deliver an executed and acknowledged estoppel
certificate to Requesting Party as prescribed herein, Responding Party hereby
authorizes Requesting Party to act as its attorney-in-fact in executing such
estoppel certificate.

         15.2 Financial Statement. If Landlord desires to finance, refinance, or
sell the Building, Industrial Center, or any part thereof, Tenant and all
Guarantors shall deliver to any potential lender or purchaser designated by
Landlord such financial statements of Tenant and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Tenant's financial statements for the past 3 years. All such financial
statements shall be received by Landlord and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
Notwithstanding the foregoing, Tenant shall not be required to provide financial
statements pursuant to this Section as long as Tenant's stock is publicly traded
on the American or New York Stock Exchange or NASDAQ.

16.      Additional Covenants and Provisions.

         16.1 Severability. The invalidity of any provision of thus Lease, as
determined by a court of competent jurisdiction, shall not affect the validity
of any other provision hereof.

         16.2 Interest on Past-Due Obligations. Any monetary payment due
Landlord hereunder not received by Landlord within 10 days following the date
following the date on which it was due shall bear interest from the date at 12%
per annum, but not exceeding the maximum rate allowed by law in addition to the
late charge provided for in Paragraph 13.3.

         16.3 Time of Essence. Time is of the essence with respect to the
performance of all obligations to be preformed or observed by the Parties under
this Lease.


                                      -13-
<PAGE>

         16.4 Landlord Liability. Tenant, its successors, and assigns shall not
assert nor seek to enforce any claim for breach of this Lease against any of
Landlord's assets other than Landlord's interest in the Industrial Center.
Tenant agrees to look solely to such interest for the satisfaction of any
liability or claim against Landlord under thus Lease. In no event whatsoever
shall, Landlord (which term shall include, without limitation, any general or
limited partner, trustees, beneficiaries, officers, directors, or stockholders
of Landlord) ever be personally liable for any such liability.

         16.5 No Prior or Other Agreements. This Lease contains all agreements
between the Parties with respect to any matter mentioned herein, and supersedes
all prior or contemporaneous oral or written agreements or understandings.

         16.6 Notice Requirements. All notices'required or permitted by this
Lease shall be in writing and may be delivered in person (by hand, messenger, or
courier service) or may be sent by regular, certified, or registered mail or
U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 16.6. The addresses
noted adjacent to a Party's signature on this Lease shall be that Party's
address for delivery or mailing of notice purposes. Either Party may by written
notice to the other specify a different address for notice purposes, except that
upon Tenant's taking possessing of the premises, the Premises shall constitute
Tenant's address for the purpose of mailing or delivering notices to Tenant. A
copy of all notices required or permitted to be given to Landlord hereunder
shall be concurrently transmitted to such party or parties at such addresses as
Landlord may from time to time hereafter designate by written notice to Tenant.

         16.7 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, of if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given 48 hours after the, same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or an overnight courier that guarantees next day ,
delivery shall be deemed given 24 hours after delivery of the same to the United
States Postal Service or courier. If any notice is transmitted by facsimile
transmission or similar means, the same shall be deemed served or delivered upon
telephone or facsimile confirmation of receipt of the transmission thereof,
provided a copy is also delivered via hand or overnight delivery or certified
mail. If notice is received on a Saturday, Sunday, or legal holiday, it shall be
deemed received on the next business day.

         16.8 Waivers. No waiver by Landlord of a Default by Tenant .shall be
deemed a waiver of any other term, covenant, or condition hereof, or of any
subsequent Default by Tenant of the same or any other tern, covenant, or
condition hereof In addition the acceptance by Landlord of any rent or other
payment after it is due, whether or not a notice of default has been served or
any action has been filed by Landlord, thereon, shall not be deemed a waiver of
Landlord's rights to proceed on any notice of default or action which has been
filed against Tenant based upon Tenant's breach of the Lease.

         16.9 Holdover. Tenant has no right to retain possession of the Premises
or any partthereof beyond the expiration or earlier termination of this Lease.
If Tenant holds over with the consent of Landlord: (a) the Base Rent payable
shall be increased to 150% of the Base Rent applicable during the month
immediately preceding such expiration or earlier termination; (b) Tenant's right
to possession shall terminate on 30 days notice from Landlord; and (c) all other
terms and conditions of this Lease shall 'continue to apply. Nothing contained
herein shall be construed as a consent by Landlord to any holding over by
Tenant. Tenant shall indemnify, defend, and hold Landlord harmless -f-rom and
against any and all claims, demands, actions, losses, damages, obligations,
costs, and expenses, including, without limitation, attorneys' fees incurred or
suffered by Landlord by reason of Tenant's failure to surrender the Premises on
the expiration or earlier termination of this Lease in accordance with the
provisions of this Lease.

         16.10 Cumulative Remedies, No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies in law or in equity.

         16.11 Binding affect: Choice of Law. Thus Lease shall be binding upon
the Parties, their personal representatives, successors, and assigns, and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be initiated
in the country in which the Premises are located.

         16.12 Landlord. The covenant and obligations contained in this Lease on
the part of the Landlord are binding on Landlord, its successors, and assigns
only during their respective period or ownership of an interest in the Building.
In the event of any transfer or transfers of such title

                                      -14-
<PAGE>

to the Building, and to the extent such transferee expressly agrees to assume
the obligations of Landlord hereunder, Landlord (and, iii the case of any
subsequent transfers or conveyances, the then grantor) shall be concurrently
freed and relieved from and after the date of such transfer or conveyance,
without any further instrument or agreement, of all liability with respect to
the performance of any covenants or obligations on the part of Landlord
contained in this Lease thereafter to be performed. Landlord shall use
commercially reasonable efforts to have any such Transferee provide Tenant with
an acknowledgment that it has received and is holding Tenant's Security Deposit.

         16.13 Attorneys' Fees and Other Costs. If any party brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the
Prevailing Party (as hereafter defined) in any such proceeding shall be entitled
to reasonable attorneys' fees. The tenn "Prevailing Party" shall include,
without, limitation, a Party who substantially obtains or defeats the relief
sought. Landlord shall be entitled to reasonable attorneys' fees, costs, and
expenses incurred in the preparation and service, of notices of Default and
consultations in conriection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting breach.
Tenant shall reimburse Landlord on demand for all reasonable legal, engineering,
and other professional services expenses incurred by Landlord in connection with
all requests by Tenant or any lender of Tenant for consent, waiver or approval
of any kind.

         16.14 Landlord's Access; Showing Premises; Repairs, Landlord and
Landlord's agents shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times upon reasonable notice
for the purpose of showing the same to prospective purchasers, lenders, or
tenants, and making such alterations, repairs, improvements, or additions to the
Premises or to the'Building, as Landlord may reasonably deem necessary. Landlord
may at any time place on or about the Premises or Building any ordinary "For
Sale" signs, and Landlord may at any time during the last 180 days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Landlord shall be without abatement of rent or liability to
Tenant.

         16.15 Signs. Tenant shall not place any signs at or upon the exterior
of the Premises or the Building, except that Tenant may, with Landlord's prior
written consent, install (but not on the roof) such signs as are reasonably
required to advertise Tenant's own business so long as such signs are in a
location designated by Landlord and comply with sign ordinances and the signage
criteria established for the Industrial Center by Landlord.

         16.16 Termination; Merger. Unless specifically stated otherwise in
writing by Landlord, the voluntary or other surrender of thus Lease by Tenant,
the mutual termination or cancellation hereof, or a termination hereof by
Landlord for Default by Tenant, shall automatically terminate any sublease or
lesser estate in the Premises; provided, however, Landlord shall, in the event
of any such surrender, termination, or cancellation; have the option to continue
any one or all of any existing subtenancies. Landlord's failure within 10 days
following any such event to make a written election to the contrary by written
notice to the holder of any 'such lesser interest shall constitute Landlord's
election to leave such event constitute the termination of such interest.

         16.17 Quiet Possession. Upon payment by Tenant of the Base Rent and
Additional Rent for the Premises and the performance of all of the covenants,
conditions,* and provisions on Tenant's part to be observed and performed tinder
this Lease, Tenant shall have quiet possession of the Premises for the entire
term hereof, subject to all of the provisions of this Lease.

         16.18 Subordination; Attornment; Non-Disturbance.

                  (a) Subordination. This Lease shall be subject and subordinate
to any ground lease, mortgage, deed of trust, or other hypothecation or mortgage
(collectively, "Mortgage") now or hereafter placed by Landlord upon the real
property of which the Premises are a part, to any and all advances made on the
security thereof, and to all renewals, modifications, consolidations,
replacements, and extensions thereof Tenant agrees that any person holding any
Mortgage shall have, no duty, liability, or obligation to perform' any of the
obligations of Landlord under this Lease. In the event of Landlord's default
with respect to any such obligation, Tenant will give any Lender, whose name and
address have previously been furnished in writing to Tenant, notice of a default
by Landlord. Tenant may not exercise any remedies for default by Landlord unless
and until Landlord and the Lender shall have received written notice of such
default and a reasonable time (not less than 30 days) shall thereafter have
elapsed without the default having been cured. If any Lender shall elect to have
this Lease superior to the lien of its Mortgage and shall give written notice
thereof to Tenant, this Lease shall be deemed prior to


                                      -15-
<PAGE>

such Mortgage. The provisions of a Mortgage relating to the disposition of
condemnation and insurance proceeds shall prevail over any contrary provisions
contained in this Lease.

                  (b) Attornment. Subject to the nondisturbance provisions of
subparagraph (c) of this Paragraph 16.18, Tenant agrees to attorn to a Lender or
any other party who acquires ownership of the Premises by reason of a
foreclosure of a Mortgage. In the event of such foreclosure, such new owner
shall not: (i) be liable for any act or omission of any prior landlord or with
respect to events occurring prior to acquisition of ownership, (ii) be subject
to any offsets or defenses which Tenant might have against any prior Landlord,
or (iii) be liable for security deposits (except to the extent such security
deposits have been actually received) or be bound by prepayment of more than one
month's rent.

                  (c) Non-Disturbance. With respect to a Mortgage entered into
by Landlord before or after the execution of this Lease, Tenant's subordination
of this Lease shall be subject to receiving assurance (a "nondisturbance
agreement") from the Mortgage holder that Tenant's possession and this Lease
will not be disturbed so long as Tenant is not in default and attorns to the
record owner of the Premises in form acceptable to such Mortgage holder.

                  (d) Self- Executing. The agreements contained in this
Paragraph 16.18 shall be effective without the execution of any further
documents; provided, however, that upon written request from Landlord or a
Lender in connection With a sale, financing, or refinancing,of Premises, or at
Tenant's request at the time of such sale, financing or refinancing, Tenant and
Landlord shall execute such further writings as may be reasonably required to
separately document any such subordination or nonsubordfitation, attornmeut,
and/or nondisturbance agreement, as is provided for herein. Landlord is hereby
irrevocably vested with full power to subordinate this Lease to a Mortgage,
provided that the provisions of subparagraph (c) are observed.

         16.19 Rules and Regulations. Tenant agrees that it will abide by, and
to cause its employees, suppliers, shippers, customers, tenants, contractors,
and invitees to abide by, all reasonable rules and regulations ("Rules and
Regulations") which Landlord may make from time to time for the management,
safety, care, and cleanliness of the Common Areas, the parking and unloading of
vehicles, and the preservation of good order, as well as for the convenience of
other occupants, or tenants of the Building and the Industrial Center and their
invitees. Landlord shall not be responsible to Tenant for the noncompliance with
said Rules and Regulations by other tenants of the Industrial Center, but
nevertheless agrees to enforce the Rules and Regulations against all the tenants
of the Industrial Center equally.

         16.20 Security Measures. Tenant acknowledges that the rental payable to
Landlord hereunder does not include the cost of guard service or other security
measures. Landlord has no obligations to provide same. Tenant assumes all
responsibility for the protection of the Premises:, Tenant, its agents, and
invitees and their property from the acts of third parties.

         16.21 Reservations. Landlord reserves the right to grant such easements
that Landlord deems necessary and to cause the recordation of parcel maps, so
long as such easements and maps do not unreasonably interfere with the use of
the Premises by Tenant. Tenant agrees to sign any documents reasonably requested
by Landlord to effectuate any such easements or maps.

         16.22 Conflict, Any conflict between the printed provisions of this
Lease and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.

         16.23 Offer. Preparation of this Lease by either Landlord Or Tenant or
Landlord's agent or Tenant's agent and submission of same to Tenant or Landlord
shall not be deemed an offer to lease. This Lease is not intended to be binding
until executed and delivered by all parties hereto.

         16.24 Amendments. This Lease may be modified only in writing, signed by
the parties in interest at the time of the modification.

         16.25 Multiple Parties. Except as otherwise expressly provided herein,
if more than one person or entity is named herein as Tenant, the obligations of
such persons shall be the joint and several responsibility of all persons or
entities named herein as such Tenant.

         16.26 Authority. Each person signing on behalf of Landlord or Tenant
warrants and represents that she or the is authorized to execute and deliver
this Lease and to make it a binding obligation of Landlord or Tenant.

                                      -16-
<PAGE>

                         [SIGNATURES ON FOLLOWING PAGE]


                                      -17-
<PAGE>

         The parties hereto have executed this Lease at the place and on the
dates specified below their respective signatures.

Landlord:                                   Tenant:
AMB Properly, L.P.                          The Singing Machine Company, Inc.,
a Delaware limited partnership              a Delaware corporation
By: AMB Property Corporation,
    a Maryland corporation


By: /s/ Martin J. Coyne,                    By: /s/ John Klecha
    ----------------------------               --------------------------------
    Martin J. Coyne,                           John Klecha, President & C.O.O.

Telephone:    (415) 3949000                 Tel zone:         (954) 596-1000

Facsimile:    (415) 394-9001                Facsimile:        (954) 596-2000

Executed at: San Francisco, California      Executed at: Coconut Creek, Florida

on:  3/22/02                                on:      March 13, 2002
    ----------------------------               --------------------------------

ADDRESS                                     ADDRESS

Pier 1, Bay 1                               6601 Lyons Road, Bldg, A-7
San Francisco, CA 94111                     Coconut Creek, Florida 33073

                                            Tax 1D: 95-3795478



                                      -18-
<PAGE>

                                    GLOSSARY

The following terms in the'Lease are defined in the paragraphs opposite the
terms.

                            TERM DEFINED IN PARAGRAPH
                            -------------------------

                    Additional Rent                      4.1
                    Applicable Requirements              6.3
                    Assign                               12.1
                    Base Rent                            1.4
                    Basic Provisions                     1
                    Building                             1.2
                    Building Operating Expenses          4.2(b)
                    Code                                 12.1(a)
                    Commencement Date                    1.3
                    Commencement Date Certificate        3.3
                    Common Areas                         2.2
                    Common Area Operating Expenses       4.2(b)
                    Condemnation                         14
                    Default                              13.1
                    Expiration Date                      1.3
                    PTVAC                                4.2(a)(x)
                    Hazardous Substance                  6.2
                    Indemnity                            8.5
                    Industrial Center                    1.2
                    Landlord                             1.1
                    Landlord Entities                    6.2(e)
                    Lease                                1.1
                    Lenders                              6.4
                    Mortgage                             16.18
                    Operating Experises                  4.2
                    Party/Parties                        1.1
                    Permitted Use                        1.8
                    Premises                             1.2
                    Prevailing Party                     16.13
                    Real Property Taxes                  10.2
                    Rent                                 4.1
                    Reportable Use                       6.2
                    Requesting Party                     15
                    Responding Party                     15
                    Rules and Regulations                2.4, 16.19
                    Security Deposit                     1.7, 5
                    Taxes                                10.2
                    Tenant                               1.1
                    Tenant Acts                          9.2
                    Tenant's Entity                      6.2(c)
                    Tenant's Share                       1.5
                    Term                                 1.3


                                      -19-
<PAGE>

                              AMB PROPERTY, L.P.,
                         A DELAWARE LIMITED PARTNERSHIP
                                INDUSTRIAL LEASE

                           Tenant Improvement Addendum

This Tenant Improvement Addendum is a part of the Lease dated March 1, 2002, by
and between AMB PROPERTY, L.P. ("Landlord") and Singing Machine Company, Inc.
("Tenant") for the premises commonly known as 303 West Artesia Boulevard,
Compton, CA 90220.

Subject to, the provisions hereinafter set forth, Tenant may construct at its
sole cost and expense the improvements ("Alterations") described on Exhibit 1,
if attached hereto, or which Tenant has otherwise obtained Landlord's prior
written consent. Prior to commencement of construction, Tenant shall obtain and
deliver to Landlord -any building permit required by applicable law and a copy
of the executed construction contract(s). Tenant shall reimburse Landlord widen
10 days after the rendition of a bill for all of Landlord's actual out-of-pocket
costs incurred in connection with the Alterations, including, without
limitation, all management, engineering, outside consulting, and construction
fees incurred by or ors behalf of Landlord for the review and, approval of
Tenant's plans and specifications and for the monitoring of construction of the
Alterations. Tenant shall require its contractor to 'Maintain insurance in the
amounts and in the forms reasonably acceptable to Landlord. The Alterations
shall be constructed by licensed contractors approved by Landlord and in
accordance with rules, such as hours of construction, imposed by Landlord. The
Alterations shall be completed lien free, in accordance with the plans and
specifications approved by Landlord, in a good, workmanlike, and prompt manner,
with new materials of first-class quality and comply with all applicable local,
state, and federal regulations. The competed Alterations shall be the property
of Landlord and shall, subject to the provisions of the next sentence, be
surrendered with the Premises upon the expiration or sooner termination of this
Lease. However, prior to the expiration or, sooner termination of this Lease,
Tenant shall, at Tenant's sole cost and expense, remove the Alterations which
are designated by Landlord to be removed and following such removal, repair and
restore the Premises in a good and workmanlike manner to their original
condition, reasonable wear and tear excepted.

Prior to commencing construction of the Alterations, Tenant shall obtain from
its contractors and deliver to Landlord a waiver and release of any and all
claims against Landlord and liens against the Premises to which such contractor
might at any time be entitled and to provide such payment and performance bonds
as Landlord may require. The delivery of the waiver and release of claims and
liens and such bonds shall be a condition precedent to Tenant's ability to begin
its construction work at the Premises.

Tenant shall pay when due all claims for labor or materials furnished or alleged
to have been furnished to or for Tenant at or for use on the Premises. Tenant
shall give Landlord not less than 10 days' notice prior to the commencement of
any work in, on, or about the Premises, and Landlord shall have the right to
post notices of non-responsibility in or on the ' Premises as provided by law.

Tenant agrees to indemnify, protect, and defend Landlord and hold Landlord
harmless against any loss, liability, or damage resulting from construction of
the Alterations.

Notwithstanding the foregoing provisions, Landlord at its sole cost and expense,
not to exceed $79,000.00 ("TI Allowance") shall complete the following
improvements to all applicable building codes ("Initial Improvements"):

1.       Demolition of portions of the Premises as depicted on Schedule 1
         attached hereto.
2.       Painting and carpeting of remaining ground floor office area as
         depicted on Schedule 1.
3.       Demolition of warehouse office area as depicted on Schedule 1.
4.       Repair of parking lot and yard areas.

The scope of work with respect to the Initial Improvements is more particularly
set forth in that certain letter dated February 4, 2002 prepared by Norm Wilson
& Sons, Inc., the general contractor responsible for the installation of the
Initial Improvements, which letter is attached

<PAGE>

hereto as Schedule 2 (the "Work Letter"). It is understood and agreed that the
TI Allowance shall be sufficient to pay in full the Initial Improvements set
forth in the Work Letter. To the extent the cost of the Initial Improvements
exceeds the TI Allowance, Landlord shall be responsible to pay such excess
without contribution from Tenant. To the extent the eost,of the Initial
Improvements is less than $79,000, such savings shall accrue to Landlord.

<PAGE>



                               AMB PROPERTY, L.P.,
                         A DELAWARE LIMITED PARTNERSHIP
                                INDUSTRIAL LEASE
                            RENT ADJUSTMENT ADDENDUM

This Rent Adjustment Addendum is a part of the Lease dated March 1, 2002, by and
between AMB PROPERTY, L.P. ("Landlord") and The Singing Machine Company, Inc.
("Tenant") for the premises commonly known as 303 West Artesia Boulevard,
Compton, CA 90220.

Monthly Base Rent for the each of the periods designated in thus. Addendum
("Adjustment Periods") shall be the amount calculated in accordance with the
alternative selected below ("Rent Adjustment Alternative"), but in no event
shall the monthly Base Rent for an Adjustment Period be less than the highest
monthly rent payable during the term preceding the Adjustment Period.

  1.      Adjustment Periods:
          Month 3.1 of the Term to Month 60 of the Term ("Period One")
          Month 61 of the Term to End of the Term ("Period Two")

  2.      Rent Adjustment Alternatives

          [ ]       Fixed rent adjustment ("Fixed Rent Adjustment")



          [XX]      Cost of living adjustment ("CPI Adjustment")

                    Monthly Base Rent shall be calculated using the following
CPl index ("Index"):

                             [ ] Urban Wage Earners and Clerical Workers
                             [X] All Urban Consumers
                             [ ]
                                 -----------------------------


                    The Comparison Month is:

                             [X] the first month of the term of thus Lease; or

                             [ ]
                                 -----------------------------

           [ ]      Market rent ("Market Rent Adjustment")

3.       Calculation of Rent Adjustment

         a. Cost of Living Adjustment. The CPI Adjustment shall be based upon
the Consumer Price Index of the Bureau of Labor Statistics of the United States
Department of Labor (1982 - 1984 =100) for Los Angeles-Riverside-Orange County
using the Index selected in Paragraph 2. If the selected Rent Adjustment
Alternative is the CPI Adjustment, the monthly Base Rent payable during each
Adjustment Period shall be the product obtained by multiplying the highest
monthly Base Rent payable by Tenant during the term immediately preceding by a
fraction the numerator of which shall be the Index for the month that is three
(3) months prior to the first month of the Adjustment Period and the denominator
of which shall be the Index for the month that is three (3) months prior to the
Comparison Month selected above. Notwithstanding the foregoing, the CPI
Adjustment shall not be less than 3% nor more than 6% more, on a cumulative and
compounded per annum basis, then the Comparison Month or the prior Adjustment
Period, as the case may be.

         b. Market Rent Adjustment. Four months prior to the commencement of
each Adjustment Period, if the selected Rent Adjustment Alternative is the
Market Rent Adjustment, the Parties shall negotiate in good faith to determine
the Base Rent for the Adjustment Period. If agreement cannot be reached within
thirty days, Landlord and Tenant shall each, no later than 90 days prior to the
commencement of the Adjustment Period, make a reasonable

<PAGE>


determination of the fair market rental for the Premises for the Adjustment
Period and submit such determination, in writing, to arbitration in accordance
with the following provisions:

                  (1) No later than 90 days prior to the commencement of the.
Adjustment Period, Landlord and Tenant shall each select an industrial leasing
broker to act as an arbitrator. The two arbitrators so appointed shall, no later
than 75 days prior to the commencement of the Adjustment Period, select a third
mutually acceptable industrial leasing broker to act as a third arbitrator.

                  (2) The three arbitrators, acting by a majority, shall no
later than 75 days prior to the commencement of the Adjustment Period, determine
the actual fair market rental for the Premises for the Adjustment Period. The
decision of a majority of the arbitrators shall be binding on the Parties. The
fair market rental determination of Landlord or Tenant which is closest to the
fair market rental as determined by the arbitrators shall be the Base Rent for
the Adjustment Period.

                  (3) If either of the Patties fails. to appoint an arbitrator
within the period required by this Addendum, the arbitrator timely appointed
shall determine the Base Rent for the Adjustment Period.

                  (4) The entire cost of such arbitration shall be paid by the
party whose fair market rental submission is not selected.

4. NOTICE: Notice of Rent Adjustments shall be made as specified in paragraph
16.6 of the Lease.

<PAGE>

                               AMB PROPERTY, L.P.,
                         A DELAWARE LIMITED PARTNERSHIP
                                INDUSTRIAL LEASE

               Early Possession and Inducement Recapture Addendum

This Early Possession and Inducement Recapture Addendum is a part of the Lease
dated March 1, 2002, by and between AMl3 PROPERTY, L.P. ("Landlord") and The
Singing Machine Company, Ins. ("Tenant") for the premises commonly known as 303
West Artesia Boulevard, Compton, CA 90220.

1. Early Possession. Tenant may occupy the Premises upon delivery of the
Premises to Tenant by Landlord ("Early Possession Date"), even though the Early
Possession Date is prior to the Commencement Date of the Lease ("Early
Possession"). The obligation to pay Base Rent shall be abated for the Early
Possession Period. All ether terms of this Lease, however, including, but not
limited to, the obligations to pay Tenant's Share of Operating Expenses and to
carry the insurance required by Paragraph 8, sha11 be in effect during the Early
Possession period. Such Early Possession shall not change the Expiration Date of
the Original Term. If possession is not tendered to Tenant on the Early
Possession Date, the Early Possession period shall run from the date of delivery
of possession and continue for a period equal to the period during which the
Tenant would have otherwise enjoyed, under the terms hereof, possession of the
Premises with abated Base Rent, but minus any days of delay caused by the acts,
failure to act, or omissions of Tenant.

2. Inducement Recapture in Event of Breach. Any agreement by Landlord for
possession of the Premises without the payment or reduced payment of rent or
other charges or for the giving or paying by Landlord to or for Tenant of any
cash or other bonus, inducement, or consideration for Tenant's entering into
this Lease, all of which concessions are hereinafter referred to as "Inducement
Provisions," are conditioned upon Tenant's full and faithful performance of all
of the terms, covenants; and conditions of this Lease to be performed or
observed by Tenant during the term of this Lease. Upon the occurrence of n
Default by Tenant, any rent, other charge, bonus, inducement, or consideration
abased, given, or paid by Landlord under such an inducement Provision shall be
immediately due and payable by Tenant to Landlord and recoverable by Landlord as
additional rent due under this Lease, notwithstanding any subsequent cure by
Tenant. Notwithstanding the foregoing, the Inducement Recapture shall be limited
to the one month of rent abatement which Tenant is receiving.


<PAGE>

                               AMB PROPERTY, L.P.,
                         A DELAWARE LIMITED PARTNERSHIP
                                INDUSTRIAL LEASE

                      Existing Tenant Contingency Addendum

This Existing Tenant Contingency Addendum is a part of the Lease dated March 1,
2002, by and between AMB PROPERTY, L.P. ("Landlord") and The Singing Machine
Company, Inc. ("Tenant") for the premises commonly known as 303 West Artesia
Boulevard, Compton, CA 90220.


Landlord and Tenant acknowledge and 'agree that this Lease is contingent upon
Landlord's recovery of possession of the Premises from the existing tenant
("Existing Tenant") and the Existing Tenant's reimbursement to Landlord of
$67,940.00, an amount equal to two (2) month's Base Rent under the Lease
("Abated Rent Reimbursement"). Should Landlord not be able to recover possession
of the Premises from Existing Tenant or should Existing Tenant not pay Landlord
the Abated Rent Reimbursement, this Lease shall be null and void, and any
Security Deposit paid by Tenant to Landlord shall immediately be returned to
Tenant without set-off or deduction. Landlord shall confirm Existing Tenant's
compliance with this Addendum no later than 10 days after execution of the Lease
by both parties thereto.

<PAGE>


                                [GRAPHIC OMITTED]

                                  [EXHIBIT "A"]

                                [MAP OF BUILDING]


<PAGE>


                          COMMENCEMENT DATE MEMORANDUM
                          ----------------------------

                    LANDLORD:                 AME PROPERTY, L.P.

                    TENANT:                   Singing Machine Company, Inc.

                    LEASE DATE:               March 1, 2002

                    PREMISES:                 303 West Art esia Boulevard
                                              Compton, CA 90220


         Tenant hereby accepts the Premises as being in the condition required
         under the Lease.

         The Commencement Date of the Lease is ----------------------

         The Expiration Date of the Lease is ----------------------

Landlord:                                 Tenant:
AND Property, L.P.                        The Singing Machine Company, Inc.
a Delaware limited partnership            a Delaware corporation
By:   AMB Property Corporation,
       a Maryland corporation

By:                                       By:
   ----------------------------              ----------------------------
Its:                                      Its:
    ---------------------------               ---------------------------

Executed at:                              Executed at:
            ------------------------                  ------------------------

on:                                       on:
   ----------------------------              ----------------------------


<PAGE>

                                   EXHIBIT B

<PAGE>

<PAGE>


          TENANT MOVE-IN AND LEASE RENEWAL ENVIRONMENTAL QUE STIONNAIRE
                                       FOR
                      COMMERCIAL AND INDUSTRIAL PROPERTIES


Property Name: Artesia Industrial Center.

Property Address: 303 West Artesia Boulevard, Compton, CA 90220

                   Addendunm to the Lease Dated March 1, 2002
                                     Between
                       The Singing; Machine Company, Inc,
                                   ("Tenant")
                                       and
                               AMB Property, L.P.
                                  ("Landlord")

Instructions: The following questionnaire, is to be completed by the Tenant
Representative with knowledge of the planned/existing operations for the
specified building/location. A copy of the completed form-must be attached to
all mew leases and renewals, and forwarded to the Owner's Risk Management
Department.

1.0 PLANNED USEZOPERATIONS
- --------------------------
1-1.     Describe planned use (new Lease) nor existing operations (lease
         renewal), and include brief description of manufacturing~prvcesses
         employed.

2.0 HAZARDOUS MATERIALS
- -----------------------
2-1.     Are hazardous materials used or stored? If so, continue with the next
         question. If not, go to Section 3.0.

2-2      Are any of the following materials handled on the property? (A material
         is handled if it is used, generated, processed, produced, packaged,
         treated, stored, emitted, discharged, or disposed.) If so, complete
         this section. If this question is not applicable, skip this section and
         go on to Section 5.0.

         o Explosives                o Fuels           o Oils
         o Solvents                  o Oxidizer        o Organics/Inorganics
         o Acids                     o Bases           o Pesticides
         o Gases                     o PCBs            o Radioactive Materials
         o Other (please specify)

2-3.     For the following groups of chemicals, please check the type(s),
         use(s), and quantity of each chemical used or stored on the site.
         Attach either a chemical inventory or list the chemicals in each
         category.

             Solvents                                   Gases

          Type:______________________                Type:_____________________

          Use:_______________________                Use: _____________________

          Quantity:__________________                Quantity;_________________

<PAGE>
             Inorganic                                  Acids

          Type:______________________                Type:_____________________

          Use:_______________________                Use: _____________________

          Quantity:__________________                Quantity;_________________


             Fuels                                      Explosives

          Type:______________________                Type:_____________________

          Use:_______________________                Use: _____________________

          Quantity:__________________                Quantity;_________________


             Oils                                       Bases

          Type:______________________                Type:_____________________

          Use:_______________________                Use: _____________________

          Quantity:__________________                Quantity;_________________


             Oxidizers                                  Pesticides

          Type:______________________                Type:_____________________

          Use:_______________________                Use: _____________________

          Quantity:__________________                Quantity;_________________


             Organic                                    Radioactive Materials

          Type:______________________                Type:_____________________

          Use:_______________________                Use: _____________________

          Quantity:__________________                Quantity;_________________


             Other

          Type:______________________

          Use:_______________________

          Quantity:__________________


2-4.     List and quantify the marerials idea ltified above.

         -----------------------------------------------------------------------
             MATERIAL       PHYSICAL STATE   CONTAINER SIZE      NUMBER OF
                                                                 CONTAINERS
         -----------------------------------------------------------------------

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

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

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


<PAGE>

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

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

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

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

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

2-5.     Describe the storage area locations) for these materials.

3.0      HAZARDOUS WASTES
         ----------------

3-1.     Are hazardous wastes generated? I~so; continue with the next question.
         If not, skip this section and go to,section 4.0. !

3-2.     Are any of the following wastes generated, handled, or disposed of
         (where applicable) on the property?

         o Hazardous wastes                       o Industrial Wastewater
         o Waste oils                             o PCBs
         o Air emissions                          o Sludges
         o Other (please specify)


3-3.     Identify *and describe those wastes generated, handled or disposed of
         (disposition). Specify any wastes known to be regulated under the
         Resource Conselvarion and Recovery Act (RCRA) as "listed characteristic
         or statutory" wastes- Include rotal amounts generated monthly. Please
         include !name, location, and permit number (e.g. EPA ID No.) for
         transporter and disposal facility,!if applicable). Attach separate
         pages as necessary.

3-4.     List and quantify, the materials identified in Question 3-2 of this
         section.

         -----------------------------------------------------------------------
           WASTE     SOURCE     APPROXIMATE          WASTE         DISPOSITION
         GENERATED               MONTHLY        CHARACTERIZATION
                                QUANTITY
         -----------------------------------------------------------------------

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

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

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

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

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

3-5.     Are pollution controls or monitoring employed in the process to prevent
         or minimize the release of wastes into the environment? If so, please
         describe.


<PAGE>


4.0      USTS/ASTS

4-1.     Are underground storage tanks (USTs), aboveground storage tanks (ASTs),
         or associated pipelines present on site (lease renewals) or required
         for planned operations (new tenants)? If not, continue with section
         5.0: If yes, please describe capacity, contents, age, design and
         construction of USTs o; ASTs

4-2.     Is the UST/AST registered and permitted with the appropriate regulatory
         agencies? Please provide a copy of the required pen-nits.

4-3.     Indicate if any of the following leak prevention measures have been
         provided for the USTs/ASTs and their associated piping. Additionally,
         please indicate the number of tanks that are provided with the
         indicated measure. Please provide copies of written test results and
         monitoring documentation.

          Integrity testing                 Inventory reconciliation

          Leak detection system             Overfill spill protection

          Secondary containment             Other (please describe)

          Cathodic protection

4-4.     If this Questionnaire is being completed for a lease renewal, and if
         any of the USTs/ASTs have leaked, please state the substance released,
         the media(s) impacted (e.g., soil, water, asphalt, etc.), the actions
         taken, and all remedial responses to the incident.

4-5.     If this Questionnaire is being completed for a lease renewal, have
         USTs/ASTs been removed from the property? If so, please provide any
         official closure letters or reports and supporting documentation (e.g.,
         analytical test results, remediation report results, etc.).

 4-6.     Far Lease renewals, are there any above or below ground pipelines on
          site used to transfer chemicals or wastes? For new tenants, are
          installations of this type required for the planned operations? If so,
          please describe.

4-7.     If present or planned, have the chemical transfer pipelines been
         inspected or tested for leaks? If not please indicate the results and
         provide a copy of the inspection or test results.

5.0      ASBESTOS CONTAINING BUILDING MATERIALS
         --------------------------------------

5-1.     Please be advised that this property participates in an Asbestos
         Operations and Maintenance Program, and that an asbestos survey may
         have been performed at the

<PAGE>

         Property. If provided, please review ,the information that identifies
         the locations of known asbestos containing material or presumed
         asbestos containing material. All personnel and appropriate
         subcontractors should be notified of the presence of these materials,
         and informed not to disturb these materials. Any activity that involves
         the disturbance or removal of these materials must be done by an
         appropriately trained individual/contractor.

6.0      REGULATORY
         ----------


6-1.     For Lease Renewals, are there any past, current, or pending regulatory
         actions by federal, state, or local environmental agencies alleging
         noncompliance with regulations? If so, please describe.

6-2.     For lease renewals, are there any past, current, or pending lawsuits or
         administrative proceedings for alleged environmental damages involving
         the property, you, or any owner or tenant of the property? If so,
         please describe.

6-3.     Does the operation have or require a National Pollutant Discharge
         Elimination System (NPDFS) or equivalent permit? If so, please provide
         a copy of this permit.

6-4.     For Lease renewals, have there been any complaints from the surrounding
         community regarding facility operations? If so, please describe. Have
         there been any worker complaints or regulatory investigations regarding
         hazardous material exposure at the facility? If so, please describe
         status, and any corrective actions taken.

6-5.     Has a Hazardous Materials Business Plan been developed for the site? If
         so, please provide a copy.

CERTIFICATION
- -------------

         I am familiar with the real property described in this questionnaire.
By signing below, I represent and warrant that the answers to the above
questions are complete and accurate to the best of my knowledge. I also
understand the Owner will rely on the completeness and accuracy of my answers in
assessing any environmental liability risks associated with the property.

                                        Signature:

                                             Name:

                                             Title:

                                             Date:

                                             Telephone:


<PAGE>

                                  Exhibit "D"

                               MOVE OUT STANDARDS

This Move Out Standards Exhibit is dated for the reference purposes as of the
same date as the Lease, and is made between AMB Property, L.P., a Delaware
limited partnership, ("Landlord's and The Singing Machine Company, Inc., a
Delaware corporation ("Tenant") to be a part of that certain Standard Industrial
Lease ("Lease"' concerning the premises located at 303 West Artesia Boulevard,
Compton, CA 90220 ("Premises"). Landlord and Tenant agree that the Lease is
hereby modified and supplemented as follows:


At the expiration or earlier termination of the Lease and in addition to any
other provisions of the Lease regarding surrender of the Premises, Tenant shall
surrender the Premises in the same condition as they were upon delivery of
possession'thereto under the Lease, reasonable wear and tear excepted, and shall
deliver all keys to-Landlord. Before surrendering the Premises, Tenant shall
remove all of its personal property and trade fixtures and such alterations or
addition's to the Premises made by Tenant as may be specified for removal by
Landlord. If Tenant fails to remove its personal property, fixtures or
Alterations or additions upon the expiration or earlier termination of the
Lease, the same shall be deemed abandoned and shall become the property of the
Landlord. Notwithstanding the foregoing, Tenant shall be liable to Landlord for
all costs and damages incurred by Landlord in removing, storing or selling such
property, fixtures, alterations or additions and in restoring the Premises to
the condition required pursuant to the Lease.

Notwithstanding anything to the contrary in the Lease, Tenant shall surrender
the Premises, at the time of the expiration or earlier termination of the Lease,
in a condition that shall includes, but is not limited to, the following:


1. Lights:                          Office and warehouse lights will be fully
                                    operational with all bulbs functioning.


2. Dock Levelers & Roll Up Doors:   Should be in good working condition.


3. Intentionally Deleted


4. Warehouse Floor                  Free of stains created by Tenant or its
                                    Entities and broom swept with no racking
                                    bolts and other protrusions left in floor.
                                    Cracks created by Tenant or its Entities
                                    should be repaired with an epoxy or polymer.


5. Tenant-Installed Equipment       Removed and space turned to original
   Wiring:                          condition when originally leased. (Remove
                                    air lines, junction boxes, conduit, etc.) .

6. Walls:                           Sheetrock (drywall) damage should be patched
                                    and fire taped so that there are no holes in
                                    either office or warehouse.

7. Roof:                            Any tenant-installed equipment must be
                                    removed and roof penetrations properly
                                    repaired by licensed roofing contractor.
                                    Active leaks caused by Tenant installed
                                    equipment or by any other negligent act or
                                    omission of Tenant with regard to the roof
                                    structure or membrane must be fixed and
                                    latest landlord maintenance and repairs
                                    recommendation must have been followed.

8. Signs:                           All exterior signs must be removed and holes
                                    patched and paint touched-up as necessary.
                                    All window signs should likewise be removed.

<PAGE>
 9. Heating & Air Conditioning       A written report from a licensed HVAC
    System:                         contractor within the last three months
                                    stating that all evaporative coolers and/or
                                    heaters within the warehouse are operational
                                    and safe and that office HVAC system is also
                                    in good and safe operating condition.

10. Overall Cleanliness:            Vacuum carpet, and remove any and all debris
                                    from office and, warehouse. Remove all
                                    pallets and debris from exterior of
                                    premises.

11. Upon Completion:                Contact Landlord's property manager to
                                    coordinate date of turning off power,
                                    turning in keys, and obtaining final
                                    Landlord inspection of premises which, in
                                    turn, 'wiill,facilitate refund of security
                                    deposit.

<PAGE>


NORM WILSON & SONS, INC.
GENERAL CONTRACTORS                                    LICENSE #435700
8125 SOMERSET BLVD.                                    562-634-7933
PARAMOUNT, CA 90723                                    562-634-6545 FAX

OVERTON-MOORE PROPERTIES                               FEB. 4, 2002
1125 190TH ST. (SUITE 200)
GARDENA, CA.

ATTN: FLOYD YOUNKIN

RE: 303 E. ARTESIA (PRELIMINARY BUDGET)
as per space plan delivered to OMA office of 1/31/02

                   SCOPE OF WORK                                         TOTAL

 1 DRYWALL                                                             $3,800.00
   A. CONSTRUCT 5 L/FT. OF WALL AT 1ST FLOOR AREA NEAR
      LOBBY
   B. REQUIRED PATCHING AFTER DEMOLITION
   C. PATCH EXISTING WALLS PRIOR TO PAINTING
   D. FILL IN (2) DOORS LEADING TO OFFICE NEAR DEMO
   E. CREATE HALLWAY AT REAR NORTHWEST CORNER OF BUILDING
      WHERE RESTROOMS ARE LOCATED

 2 INSULATION                                                             $23.00
   A. R-11 INSULATION @ NEW WALL

 3 DOOR AND FRAMES
   A. RELOCATE (1) EXISTING DOOR AND FRAME TO NEW WALL
   B. RE-SWING (1) DOOR IN OFFICE RESTROOM

 4 ACOUSTICAL CEILINGS                                                 $2,100.00
   A. REPLACE DAMAGED OR STAINED TILES IN REMAINING OFFICE
      AREA
   B. CREATE T-BAR SOFFIT AT AREA IN OPEN OFFICE WHERE
      CEILING IS TO BE DEMOLISHED

 5 FIRE PROTECTION                                                     $3,500.00
   A. ALLOWANCE FOR REQUIRED DEMOLITION AND RELOCATION OF
      SPRINKLER HEADS TO NEW OFFICE LAYOUT

 6 PAINTING                                                            $4,494.00
   A. PAINTING OF ALL REMAINING OFFICE WALLS AT 1ST
      FLOOR AREA
   B. PAINTING OF OFFICE RESTROOMS AND WAREHOUSE
      RESTROOMS AT NORTHWEST CORNER OF SPACE

 7 CARPET BASE AND RESILIENT FLOORING                                    $306.00
   A. INSTALL NEW 6" TOPSET BASE IN OFFICE RESTROOMS
   SEE EXCLUSIONS

 8 ELECTRICAL                                                          $5,050.00
   A. REQUIRED DEMOLITION

<PAGE>

   B. REWORK ELECTRICAL TO REMAINING OFFICE AREAS
   C. DEMO ELECTRIC TO SHIPPING OFFICE
   D. RELAMP EXISTING OFFICE AREA
   E. REPLACE AND REPAIR EXTERI0R LIGHTING
   F. REHAB WAREHOUSE LIGHTING AS REQUIRED

 9 HVAC                                                                $3,260.00
   A. CAP PLENUMS FROM THREE OFFICE AREA UNITS AND
      ONE WAREHOUSE UNIT
   B. RE-WORK EXISTING DUCT TO SERVE ONLY DESIGNATED
      OCCUPIED AREAS
   C. RELOCATE T-STATS FROM WALLS WHICH ARE TO BE REMOVED
   D. REPLACE (2) EXHAUST FANS IN WAREHOUSE RESTROOMS

10 PLUMBING                                                            $2,485.00
   A. REHAB EXISTING FIXTURES AS NEEDED IN BOTH OFFICE
      AND WAREHOUSE RESTROOMS

11 DEMOLITION                                                         $12,848.00
   A. DEMO WAREHOUSE OFFICE APPROX. 800 SQ. FT.
   B. DEMO TWO STORY MEZZANINE ADDITION (APPROX. 3,248 SQ. FT.)
   C. DEMO 210 L/FT. OF PARTITION WALL
   D. DEMO 1,300 SQ. FT. OF T-BAR CEILING
   E. DEMO 2,800 SQ. FT. OF VCT
   F. REMOVAL OF ALL DEMOLISHED MATERIAL

12 ALLOWANCE TO RE-WORK BOTTOM RUN OF STAIRS AFTER                       $538.00
   COMPLETION OF DEMO

13 ALLOWANCE FOR MISC. ROUGH CARPENTRY AFTER DEMOLITION                $3,000.00
   IS COMPLETE

14 JANITORIAL                                                          $3,024.00
   A. STRIP AND WAX VCT FLOORING
   B. SHAMPOO CARPET
   C. COMPLETE JANITORIAL

15 REMOVE GLUE FROM AREA OF DEMOLITION AND SEAL FLOOR                  $4,482.00

16 ALLOWANCE TO CREATE OPENINGS IN EXISTING WALL AT MAIN
   OFFICE

17 ALLOWANCE TO REPAIR FOIL INSULATION @ WAREHOUSE                     $1,110.00
   AREA WHERE DEMOLITION OCCURS AND EXISTING WAREHOUSE
   AREA
   note: cost does not include foil over remaining office area        ----------

   SUBTOTAL                                                           $55,315.00
   GENERAL CONDITIONS                                                  $2,765.75
   PROFIT/OVERHEAD                                                     $4,546.46
                                                                      ----------
   TOTAL                                                              $62,727.21

<PAGE>

   EXCLUSIONS:
 1 PLAN CHECK PERMIT AND ARCHITECTURAL FEES
 2 REMOVAL OF HAZARDOUS WASTE
 3 FIRE SAFETY SYSTEMS
 4 FIRE EXTINGUISHERS
 5 NEW CARPET AND VCT FLOORING
 6 ALL REHAB WORK AT REMAINING 2ND FLOOR OFFICE EXCEPT
   FOR SHAMPOOING OF CARPET
 7 PAINTING OF WAREHOUSE WALLS
 8 NEW T-BAR, ELECTRICAL AND HVAC AT NORTHWEST WAREHOUSE OFFICE
 9 SEALING OF WAREHOUSE FLOOR

   RESPECTFULLY SUBMITTED,
   NORM WILSON & SONS, INC.

   /s/ RON WILSON
   --------------
   RON WILSON
   VICE PRESIDENT


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>7
<FILENAME>lasalle-first.txt
<DESCRIPTION>LASALLE FIRST AMENDMENT
<TEXT>
                                                                   Exhibit 10.11

LaSalle Business Credit, Inc.
                                                                   LASALLE BANKS

135 South LaSalle Street
Chicago, Illinois 60603
(312) 904-8490


                                                    October 1, 2001







The Singing Machine Company, Inc.
6601 Lyons Road
Suite A-7
Coconut Creek, Florida 33073

         Re: First Amendment (Revised)

Gentlemen:

         The Singing Machine Company, Inc., a Delaware corporation ("Borrower")
and LaSalle Business Credit, Inc., a Delaware corporation ("Lender") have
entered into that certain Loan and Security Agreement dated April 26, 2001 (the
"Security Agreement"). From time to time thereafter, Borrower and Bank may have
executed various amendments (each an "Amendment" and collectively the
"Amendments") to the Security Agreement (the Security Agreement and the
Amendments hereinafter are referred to, collectively, as the "Agreement").
Borrower and Lender now desire to further amend the Agreement as provided
herein, subject to the terms and conditions hereinafter set forth.

         NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:

         1. The Agreement hereby is amended as follows:

         (a) Paragraph 1(a) of the Agreement is hereby amended and restated in
its entirety, as follows:

                  (a)      "Account", "Account Debtor", "Chattel Paper",
                           "Commercial Tort Claims", "Deposit Accounts",
                           "Documents", "Electronic Chattel Paper", "Equipment",
                           "Fixtures'.", "General Intangibles", "Goods",
                           "Instruments", "Inventory", "Investment


<PAGE>

LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS

The Singing Machine Company, Inc.
October 1, 2001
Page 2

                           Property", "Letter-of-Credit Right", "Proceeds" and
                           "Tangible Chattel Paper" shall have the respective
                           meanings assigned to such terms in the Illinois
                           Uniform Commercial Code, as the same may be in effect
                           from time to time.

         (b) Paragraph 4 of the Agreement is hereby amended and restated in its
entirety, as follows:

                  4.       GRANT OF SECURITY INTEREST TO LENDER.

                           As security for the payment of all Loans now or in
                           the future made by Lender to Borrower hereunder and
                           for the payment or other satisfaction of all other
                           Liabilities, Borrower hereby assigns to Lender and
                           grants to Lender a continuing security interest in
                           the following property of Borrower, whether now or
                           hereafter owned, existing, acquired or arising and
                           wherever now or hereafter located: (a) all Accounts
                           (whether or not Eligible Accounts) and all Goods
                           whose sale; lease or other disposition by Borrower
                           has given rise to Accounts and have been returned to,
                           or repossessed or stopped in transit by, Borrower;
                           (b) all Chattel Paper, Instruments,  Documents and
                           General Intangibles (including, without limitation,
                           all patents, patent applications, trademarks,
                           trademark applications, tradenames, trade secrets,
                           goodwill, copyrights, copyright applications,
                           registrations, licenses, software, franchises,
                           customer lists, tax refund claims, claims against
                           carriers and shippers, guarantee claims, contract
                           rights, payment intangibles, security interests,
                           security deposits and rights to indemnification); (c)
                           all Inventory (whether or not Eligible Inventory);
                           (d) all Goods (other than Inventory), including,
                           without limitation, Equipment (other than tooling
                           located in Hong Kong), vehicles and Fixtures; (e) all
                           Investment Property; (f) all Deposit Accounts, bank
                           accounts, deposits and cash; (g) all Letter-of-Credit
                           Rights; (h) Commercial Tort Claims listed on Exhibit
                           D hereto; (i) any other property of Borrower now or
                           hereafter in the possession-, custody or control of
                           Lender or any


<PAGE>

LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS


The Singing Machine Company, Inc.
October 1, 2001
Page 3


                           agent or any parent, affiliate or subsidiary of
                           Lender or any participant with Lender in the Loans,
                           for any purpose (whether for safekeeping, deposit,
                           collection, custody, pledge, transmission or
                           otherwise); and (j) all additions and accessions to,
                           substitutions for, and replacements, products and
                           Proceeds of the foregoing property, including,
                           without limitation, proceeds of all insurance
                           policies insuring the foregoing property, and all of
                           Borrower's books and records relating to any of the
                           foregoing and to Borrower's business.

         (c) Paragraph 5 of the Agreement is hereby amended and restated in its
entirety, as follows:

                  5.       PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY
                           INTEREST THEREIN.

                           Borrower shall, at Lender's request, at any time and
                           from time to time, authenticate, execute and deliver
                           to Lender such financing statements,  documents and
                           other agreements and instruments (and pay the cost of
                           filing or recording the same in all public offices
                           deemed necessary or desirable by Lender) and do such
                           other acts and things or use its best efforts to
                           cause third parties to do such other acts and things
                           as Lender may deem necessary or desirable in its sole
                           discretion in order to establish and maintain a
                           valid, attached and perfected security interest in
                           the Collateral in favor of Lender (free and clear of
                           all other liens, claims, encumbrances and rights of
                           third parties whatsoever, whether voluntarily or
                           involuntarily created, except Permitted Liens) to
                           secure payment of the Liabilities, and in order to
                           facilitate the collection of the Collateral. Borrower
                           irrevocably hereby makes, constitutes and appoints
                           Lender (and all Persons designated by Lender for that
                           purpose) as Borrower's true and lawful attorney and
                           agent-in-fact to execute and file such financing
                           statements,  documents and other agreements and
                           instruments and do such other acts and things as
                           may be necessary to preserve and perfect Lender's
                           security interest in the



<PAGE>

LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS

The Singing Machine Company, Inc.
October 1, 2001
Page 4


                           Collateral. Borrower further agrees, upon the
                           occurrence of an Event of Default, that a carbon,
                           photographic, photostatic or other reproduction of
                           this Agreement or of a financing statement shall be
                           sufficient as a financing statement. Borrower further
                           notifies and confirms the prior filing by Lender of
                           any and all financing statements which identify the
                           Borrower as debtor, Lender as secured party and any
                           or all Collateral as collateral.

         (d) Paragraph 7(e) of the Agreement is hereby amended and restated in
its entirety, as follows:

                  (e)      Promptly upon Borrower's receipt of any portion of
                           the Collateral evidenced by an agreement, instrument
                           or Document, including without limitation, any
                           Tangible Chattel Paper and any Investment Property
                           consisting of certificated securities, Borrower shall
                           deliver the original thereof to Lender together with
                           an appropriate endorsement or other specific evidence
                           of assignment thereof to Lender (in form and
                           substance acceptable to Lender). If an endorsement or
                           assignment of any such items shall not be made for
                           any reason, Lender is hereby irrevocably authorized,
                           as Borrower's attorney and agent-in-fact to endorse
                           or assign the same on Borrower's behalf.

         (e) Paragraph 10(i) of the Agreement is hereby amended and restated in
its entirety, as follows:

                  (i)      (x) there are no actions or proceedings which are
                           pending or to the best of Borrower's knowledge,
                           threatened against Borrower which is, in the
                           determination of Lender made in good faith,
                           reasonably likely to result in any material adverse
                           change in Borrower's business, property, assets,
                           operations or condition, financial or otherwise and
                           Borrower shall, promptly upon becoming aware of any
                           such pending or threatened action or proceeding, give
                           written notice thereof to Lender and (y) Borrower has
                           no Commercial Tort Claims pending other than Tort
                           Claims of Borrower which may arise, which notice
                           shall constitute Borrower's

<PAGE>

LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS

The Singing Machine Company, Inc.
October 1, 2001
Page 5

                           authorization to amend Exhibit D to add such
                           Commercial Tort Claim;

         (f) Paragraph 10(t) of the Agreement is hereby amended and restated in
its entirety, as follows:

                  (t)      if Borrower is a corporation, limited liability
                           company or partnership, Borrower is duly organized,
                           validly existing and in good standing in the State of
                           Delaware, its organizational identification number is
                           2376345 and Borrower is duly qualified and in good
                           standing in all states where the nature and extent of
                           the business transacted by it or the ownership of its
                           assets  makes such qualification necessary or, if
                           Borrower is not so qualified, Borrower may cure any
                           such failure without losing any of its rights,
                           incurring any liens or material penalties, or
                           otherwise affecting Lender's rights;

         (g) Paragraph 11(j) of the Agreement is hereby amended and restated in
its entirety, as follows:

                  (j)      Borrower shall not assume, guarantee or endorse, or
                           otherwise become liable in connection with, the
                           obligations of any Person, except by endorsement of
                           instruments for deposit or collection or similar
                           transactions in the ordinary course of business; and,
                           except that Borrower may guarantee, on a limited
                           basis, obligations of any Subsidiary of Borrower up
                           to $500,000.00 in the aggregate outstanding at any
                           time, and any obligations over that amount shall
                           require prior written consent by Lender. Such consent
                           of Lender shall not be unreasonably withheld and, in
                           any event, Lender shall use its best efforts to grant
                           or deny such consent of Lender in writing within ten
                           (10) business days of 'receipt of a written request
                           from Borrower for such consent.


<PAGE>

LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS

The Singing Machine Company, Inc.
October 1, 2001
Page 6

         (h) Paragraph 11(k) of the Agreement is hereby amended and restated in
its entirety, as follows:

                  (k)      Borrower shall not (i) enter into any merger or
                           consolidation; (ii) change the state of Borrower's,
                           organization or enter into any transaction which has
                           the effect of changing Borrower's state of
                           organization; (iii) sell, lease or otherwise dispose
                           of any of its assets other than in the ordinary
                           course of business; (iv) purchase the stock or all or
                           substantially all of the assets of any Person or
                           division of such Person; or (v) enter into any other
                           transaction outside the ordinary course of Borrower's
                           business, including, without limitation, any
                           purchase, redemption or retirement of any shares of
                           any class of its stock or any other equity interest,
                           and any issuance of any shares of, or warrants or
                           other rights to receive or purchase any shares of,
                           any class of its stock or any other equity interest;
                           provided, that Borrower may (a) issue securities to
                           any Person so long as such issuance of securities
                           does not exceed ten percent (10%) of the Borrower's
                           issued and outstanding capital stock, (b) grant
                           options to employees, (c) adopt a stock option plan,
                           (d) issue securities upon the exercise of outstanding
                           stock options and warrants, and (e) file a
                           registration statement on Form S-8 or Form S-3;
                           provided further, that with respect to each of the
                           foregoing, (x) no Event of Default shall be caused by
                           the issuance of any securities, stock or warrants and
                           (y) no put rights or mandatory dividends are granted
                           in connection with such issuance;

         (i) Paragraph 11 of the Agreement is hereby amended to add a new
subparagraph (s) as follows:

                  (s)      To the extent that Borrower obtains or maintains any
                           Electronic Chattel Paper, Borrower shall create,
                           store and assign the record or records comprising the
                           Electronic Chattel Paper in such a manner that (i) a
                           single authoritative copy of the record or records
                           exists which is unique, identifiable and except as
                           otherwise provided in clauses (iv), (v) and (vi)
                           below, unalterable, (ii) the authoritative copy
                           identifies Lender as the assignee of the record or
                           records, (iii) the

<PAGE>
LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS
The Singing Machine Company, Inc.
October 1, 2001
Page 7

                           authoritative copy is communicated to and maintained
                           by the Lender or its designated custodian, (iv)
                           copies or revisions that add or change an identified
                           assignee of the authoritative copy can only be made
                           with the participation of Lender, (v) each copy of
                           the authoritative copy and any copy of a copy is
                           readily identifiable as a copy that is not the
                           authoritative copy and (vi) any revision of the
                           authoritative copy is readily identifiable as an
                           authorized or unauthorized revision.

         (j) Paragraph 13(b) of the Agreement is hereby amended and restated in
its entirety, as follows:

                  (b)      Upon the occurrence and during the continuance of an
                           Event of Default, Lender may exercise from time to
                           time any rights and remedies available to it under
                           the Uniform Commercial Code and any other applicable
                           law in addition to, and not in lieu of, any rights
                           and remedies expressly granted in this Agreement or
                           in any of the Other Agreements and all of Lender's
                           rights and remedies shall be cumulative and
                           non-exclusive to the extent permitted by law. In
                           particular, but not by way of limitation of the
                           foregoing, Lender may, without notice, demand or
                           legal process of any kind, take possession of any or
                           all of the Collateral (in addition to Collateral of
                           which it already has possession), wherever it may be
                           found, and for that purpose may-pursue the same
                           wherever it may be found, and may enter onto any of
                           Borrower's premises where any of the Collateral may
                           be, and search for, take possession of, remove, keep
                           and store any of the Collateral until the same shall
                           be sold or otherwise disposed of, and Lender shall
                           have the right to store the same at any of Borrower's
                           premises without cost to Lender. At Lender's request,
                           Borrower shall, at Borrower's expense, assemble the
                           Collateral and make it available to Lender at one or
                           more places to be designated by Lender and reasonably
                           convenient to Lender and Borrower. Borrower
                           recognizes that if Borrower fails to perform, observe
                           or discharge



<PAGE>

The Singing Machine Company, Inc.
October 1, 2001
Page 8

                           any of its Liabilities under this Agreement or the
                           Other Agreements, no remedy at law will provide
                           adequate relief to Lender, and agrees that Lender
                           shall be entitled to temporary and permanent
                           injunctive relief in any such case without the
                           necessity of proving actual damages. Any notification
                           of intended disposition of any of the Collateral
                           required by law will- be deemed to be a reasonable
                           authenticated notification of disposition if given at
                           least ten (10) calendar days prior to such
                           disposition and such notice shall (i) describe Lender
                           and Borrower, (ii) describe the Collateral that is
                           the subject of the intended disposition, (iii) state
                           the method of the intended disposition, (iv) state
                           that Borrower is entitled to an accounting of the
                           Liabilities and state the charge, if any, for an
                           accounting and (v) state the time and place of any
                           public disposition or the time after which any
                           private sale is to be made. Lender may disclaim any
                           warranties that might arise in connection with the
                           sale, lease or other disposition of the Collateral
                           and has no obligation to provide any warranties at
                           such time. Any Proceeds. of any disposition by Lender
                           of any of the Collateral may be applied by Lender to
                           the payment of expenses in connection with the
                           Collateral, including, without limitation, legal
                           expenses and reasonable attorneys' fees, and any
                           balance of such Proceeds' may be applied by Lender
                           toward the payment of such of the Liabilities, and in
                           such order of application, as Lender may from time to
                           time elect.

         (k) All references to "fixtures" in the Agreement shall be amended to
read "Fixtures".

         (l) The Agreement is hereby amended to add a new Exhibit D-Commercial
Tort Claims, as set forth on Exhibit D hereto.

         (m) Exhibit B to the Agreement is amended and restated as attached
hereto and made a part hereof.

         2. This Amendment shall not become effective until fully executed by
all parties hereto.


<PAGE>

LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS

The Singing Machine Company, Inc.
October 1, 2001
Page 9

         3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.

                                           LASALLE BUSINESS CREDIT, INC.


                                           By /s/ Casey Orlowski
                                              --------------------------

                                           Title  Vice President
                                               -------------------------

ACKNOWLEDGED AND AGREED TO
this 1st day of October, 2001.

The Singing Machine Company, Inc.

By /s/ John F. Klecha
   -----------------------------
       John F. Klecha

Title President/Secretary


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>8
<FILENAME>lasalle-second.txt
<DESCRIPTION>LASALLE SECOND AMENDMENT
<TEXT>
                                                                   Exhibit 10.12

LaSalle Business Credit, Inc.
                                                                   LASALLE BANKS

135 South LaSalle Street
Chicago, Illinois 60603
(312) 904-8490

                                                               November 20, 2001


The Singing Machine Company, Inc.
6601 Lyons Road
Suite A-7
Coconut Creek, Florida 33073

         Re: Second Amendment


         The Singing Machine Company, Ind., a 'Delaware corporation ("Borrower")
and LaSalle Business Credit, Inc., a Delaward corporation ("Lender") have
entered into that certain Loan and Security Agreement dated April 26, 2001 (the
"Security Agreement'). From time to time thereafter, Borrower and Bank may have
executed various amendments (each an "Amendment" and collectively the
"Amendments") to the Security Agreement (the Security Agreement and the
Amendments hereinafter are referred to, collectively, as the "Agreement").
Borrower and Lender now desire to further amend the Agreement as provided
herein, subject to the terms and conditions hereinafter set forth.

         NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:

         1. The Agreement hereby is amended as follows:

         (a) Paragraph (1) of Exhibit A of the Agreement is deleted in its
entirety and the following is substituted in its place:

                  (1)      LOANS: Subject to the terms and conditions of the
                           Agreement and the Other Agreements, Lender shall,
                           absent the occurrence of an Event of Default, advance
                           an amount up to the sum of the following sublimits
                           (the "Loan Limit"):

                           (a)      Up to seventy-five percent (75%), or such
                                    lesser percentage as determined by Lender in
                                    its sole discretion exercised in good faith,
                                    of the face amount (less maximum discounts,
                                    credits and allowances which may be taken by
                                    or granted to Account Debtors


<PAGE>

LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS

The Singing Machine Company, Inc.
November 9, 2001
Page 2

                                    in connection therewith in the ordinary
                                    course of Borrower's business) of Borrower's
                                    Eligible Accounts; plus

                           (b)      Subject to subparagraph (3)(a) of this
                                    Exhibit A, up to forty percent (40%), or
                                    such lesser percentage as determined by
                                    Lender in its sole discretion exercised in
                                    good faith, of the lower of the cost or
                                    market value of Borrowers Eligible
                                    Inventory; plus

                           (c)      Subject to subparagraph (3)(a) of this
                                    Exhibit A, up to forty percent (40%), or
                                    such lesser percentage as determined by
                                    Lender in its sole discretion exercised in
                                    good faith, against the face amount of
                                    commercial Letters of Credit issued or
                                    guaranteed by Lender for the purpose of
                                    purchasing Eligible Inventory; provided,
                                    that such commercial Letters of Credit are
                                    in form and substance satisfactory to
                                    Lender; minus


                           (d)      Such reserves as Lender elects, in its sole
                                    discretion exercised in good faith, to
                                    establish from time to time, including
                                    without limitation, (i) a seasonal dilution
                                    reserve in the initial amount of One Hundred
                                    Fifty Thousand and No/100 Dollars
                                    ($150,000.00) against Borrower's "Eligible
                                    Accounts" during the period of September 1st
                                    of each calendar year through January 31st
                                    of each following calendar year, which shall
                                    increase by One Hundred Fifty Thousand and
                                    No/100 Dollars ($150,000.00) a week
                                    commencing September 8th and continuing on
                                    the same day of each week thereafter until
                                    said reserve equals One Million Two Hundred
                                    Thousand and No/100 Dollars ($1,200,000.00);
                                    and (ii) to the extent that the ratio of
                                    Free on Board sales to domestic sales
                                    increases, Lender in its sole discretion may
                                    create a reserve to account for the
                                    additional dilution;

                                    provided, that the aggregate amount of
                                    advances made pursuant to subparagraphs (b)
                                    and (c) above shall in no event exceed Two
                                    Million Five Hundred Thousand and No/100
                                    Dollars ($2,500,000.00); provided, that the
                                    availability pursuant to subparagraphs (b)
                                    and (c) above shall reduce to zero during
                                    the period of December 1st of each calendar
                                    year through April 30th of each following
                                    calendar year, and



<PAGE>

LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS

The Singing Machine Company, Inc.
November 9, 2001
Page 3



                                    further provided, that the Loan Limit shall
                                    in no event exceed (i) Ten Million and
                                    No/100 Dollars ($10,000,000.00) during the
                                    period of January 1, 2001 through December
                                    20, 2001; (ii) Seven Million Five Hundred
                                    Thousand and No/100 Dollars ($7,500,000,00)
                                    during the period of December 21, 2001
                                    through January 10, 2002; (iii) Five Million
                                    and No/100 Dollars ($5,000,000.00) during
                                    the period of January 11, 2002 through
                                    January 20, 2002; (iv) Ten Million and
                                    No/100 Dollars ($10,000,000.00) during the
                                    period of January 21, 2002 through October
                                    31, 2002 and during the period of January
                                    1st through October 31st of each calendar
                                    year thereafter; (v) Seven Million Five
                                    Hundred Thousand and No/100 Dollars
                                    ($7,500,000.00) during the month of November
                                    of each calendar year; (vi) Five Million and
                                    No/100 Dollars ($5,000,000.00) during the
                                    month of December of each calendar year; and
                                    (vii) zero ($0) during any consecutive
                                    ninety (90) day period between December 1e
                                    of each year through April 30th of each
                                    following year (the "Clean Up Period") as
                                    determined by Borrower (the "Maximum Loan
                                    Limit"), except as such amount may be
                                    increased or, following the occurrence of an
                                    Event of Default, decreased by Lender, in
                                    its sole discretion, exercised in good
                                    faith, from time to time.

         (b) Paragraph (5) of Exhibit A of the Agreement is amended to add the
following provision:

                  (c)      One-Time Fee: Borrower shall pay to Bank a one-time
                           fee of Two Thousand Five Hundred and No/100 Dollars
                           ($2,500.00), which fee shall be fully earned by Bank
                           on the date of this Amendment and payable on November
                           30, 2001.

         2. This Amendment shall not become effective until fully executed by
all parties hereto.

         3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto


<PAGE>

LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS

The Singing Machine Company, Inc.
November 9, 2001
Page 4


hereby are ratified and confirmed by the parties hereto and remain in full force
and effect in accordance with the terms thereof.



                                           LASALLE BUSINESS CREDIT, INC.


                                           By /s/ Casey Orlowski
                                              --------------------------

                                           Title  Vice President
                                               -------------------------

ACKNOWLEDGED AND AGREED TO
this 20th day of November, 2001.

The Singing Machine Company, Inc.

By /s/ John F. Klecha
   -----------------------------
       John F. Klecha

Title President/Secretary

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>9
<FILENAME>lasalle-third.txt
<DESCRIPTION>LASALLE THIRD AMENDMENT
<TEXT>
                                                                   Exhibit 10.13

LaSalle Business Credit, Inc.
                                                                   LASALLE BANKS

135 South LaSalle Street
Chicago, Illinois 60603
(312) 904-8490

                                                               November 28, 2001


The Singing Machine Company, Inc.
6601 Lyons Road
Suite A-7
Coconut Creek, Florida 33073

         Re: Third Amendment

         Gentlemen: The Singing Machine Company, Inc., a Delaware corporation
("Borrower") and LaSalle Business Credit, Inc., a Delaware corporation
("Lender") have entered into that certain Loan and Security Agreement dated
April 26, 2001 (the "Security Agreement"). From time to time thereafter,
Borrower and Bank may have executed various amendments (each an "Amendment" and
collectively the "Amendments") to the Security Agreement (the Security Agreement
and the Amendments hereinafter are referred to, collectively, as the
"Agreement"). Borrower and Lender now desire to further amend the Agreement as
provided herein, subject to the terms and conditions hereinafter set forth.

         NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:

         1. The Agreement hereby is amended as follows:

         (a) Paragraph (1) of Exhibit A of the Agreement is deleted in its
entirety and the following is substituted in its place:

                  (1)      LOANS: Subject to the terms and conditions of the
                           Agreement and the Other Agreements, Lender shall,
                           absent the occurrence of an Event of Default, advance
                           an amount up to the sum of the following sublimits
                           (the "Loan Limit"):


                           (a)      Up to seventy-five percent (75%), or such
                                    lesser percentage as determined by Lender in
                                    its sole discretion exercised in good faith,


<PAGE>

LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS
The Singing Machine Company, Inc.
November 28, 2001
Page 2

of the face amount (less maximum discounts, credits and allowances which may be
taken by or granted to Account Debtors in connection therewith in the ordinary
course of Borrower's business) of Borrower's Eligible Accounts; plus

                           (b)      Subject to subparagraph (3)(a) of this
                                    Exhibit A, up to forty percent (40%), or
                                    such lesser percentage as determined by
                                    Lender in its sole discretion, exercised in
                                    good faith, of the lower of the cost or
                                    market value of Borrower's Eligible
                                    Inventory; plus

                           (c)      Subject to subparagraph (3)(a) of this
                                    Exhibit A, up to forty percent (40%), or
                                    such lesser percentage as determined by
                                    Lender in its sole discretion exercised in
                                    good faith, against the face amount of
                                    commercial Letters of Credit issued or
                                    guaranteed by Lender for the purpose of
                                    purchasing Eligible Inventory; provided,
                                    that such commercial Letters of Credit are
                                    in form and substance satisfactory to
                                    Lender; minus

                           (d)      Such reserves as Lender elects, in its sole
                                    discretion exercised in good faith, to
                                    establish from time to time, including
                                    without limitation, (i) a seasonal dilution
                                    reserve in the initial amount of One Hundred
                                    Fifty Thousand and No/100 Dollars
                                    ($150,000.00) against Borrower's "Eligible
                                    Accounts" during the period of September 1st
                                    of each calendar year through January 31"
                                    of each following calendar year, which shall
                                    increase by One Hundred Fifty Thousand and
                                    No/100 Dollars ($150,000.00 a week
                                    commencing September 8th and continuing on
                                    the same day of each week thereafter until
                                    said reserve equals One Million Two Hundred
                                    Thousand and No/100 Dollars ($1,200,000.00);
                                    and (ii) to the extent that the ratio of
                                    Free on Board sales to domestic sales
                                    increases, Lender in its sole discretion


<PAGE>
LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS
The Singing Machine Company, Inc.
November 28, 2001
Page 3

                                    may create a reserve to account for the
                                    additional dilution;

                                    provided, that the aggregate amount of
                                    advances made pursuant to subparagraphs (b)
                                    and (c) above shall in no event exceed Two
                                    Million Five Hundred Thousand and No/100
                                    Dollars ($2,500,000.00); provided, that the
                                    availability pursuant to subparagraphs (b)
                                    and (c) above shall reduce to zero during
                                    the period of December 1st of each calendar
                                    year through April 30th of each following
                                    calendar year; and

                                    further provided, that the Loan Limit shall
                                    in no event exceed (i) Eleven Million and
                                    No/100 Dollars ($11,000,000.00) during the
                                    period of January 1, 2001 through December
                                    20, 2001; (ii) Seven Million Five Hundred
                                    Thousand and No/100 Dollars ($7,500,000.00)
                                    during the period of December 21, 2001
                                    through January 10, 2002; (iii) Five Million
                                    and No/100 Dollars ($5,000,000,00) during
                                    the period of January 11, 2002 through
                                    January 20, 2002; (iv) Ten Million and
                                    No/100 Dollars ($10,000,000.00) during the
                                    period of January 21, 2002 through October
                                    31, 2002 and during the period of January
                                    1st through October 31st of each calendar
                                    year thereafter; (v) Seven Million Five
                                    Hundred Thousand and No/100 Dollars
                                    ($7,500,000.00) during the month of November
                                    of each calendar year; (vi) Five Million and
                                    No/100 Dollars ($5,000,000.00) during the
                                    month of December of each calendar year; and
                                    (vii) zero ($0) during any consecutive
                                    ninety (90) day period between December 15th
                                    of each year through April 30th of each
                                    following year (the "Clean Up Period") as
                                    determined by Borrower (the "Maximum Loan
                                    Limit"), except as such amount may be
                                    increased or, following the occurrence of an
                                    Event of Default, decreased by Lender, in
                                    its sole discretion, exercised in good
                                    faith, from time to time.


<PAGE>

LaSalle Business Credit Inc.
- --------------------------------------------------------------------------------
                                                                   LASALLE BANKS
The Singing Machine Company, Inc.
November 28, 2001
Page 4




         (b) Paragraph (5) of Exhibit A of the Agreement is deleted in its
entirety and the following is substituted in its place:

                           (c)      One-Time Amendment Fees: Borrower shall pay
                                    to Bank one-time amendment fees of (i) Two
                                    Thousand Five Hundred and No/100 Dollars
                                    ($2,500.00) for the Second Amendment and
                                    (ii) One Thousand Five Hundred and No/100
                                    Dollars ($1,500.00) for the Third Amendment,
                                    for a total aggregate of Four Thousand and
                                    No/100 Dollars ($4,000.00), which fees shall
                                    be fully earned by Bank on the date of each
                                    such Amendment, respectively, and payable on
                                    November 30, 2001.

         2. This Amendment shall not become effective until fully executed by
all parties hereto.

         3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.


                                           LASALLE BUSINESS CREDIT, INC.


                                           By /s/ Casey Orlowski
                                              --------------------------

                                           Title  Vice President
                                               -------------------------

ACKNOWLEDGED AND AGREED TO
this 28th day of November, 2001.

The Singing Machine Company, Inc.

By /s/ John F. Klecha
   -----------------------------
       John F. Klecha

Title President/Secretary


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>10
<FILENAME>lasalle-fourth.txt
<DESCRIPTION>LASALLE FOURTH AMENDMENT
<TEXT>
                                                                   Exhibit 10.14

LaSalle Business Credit, Inc.
                                                                   LASALLE BANKS

135 South LaSalle Street
Chicago, Illinois 60603
(312) 904-8490

                                                               February 28, 2002


The Singing Machine Company, Inc.
6601 Lyons Road
Suite A-7
Coconut Creek, Florida 33073

         Re: Fourth Amendment

Gentlemen:

         The Singing Machine Company, Inc., a Delaware corporation ("Borrower")
and LaSalle Business Credit, Inc., a Delaware corporation ("Lender") have
entered into that certain Loan and Security Agreement dated April 26, 2001 (the
"Security Agreement"). From time to time thereafter, Borrower and Bank may have
executed various amendments (each an "Amendment" and collectively the
"Amendments") to the Security Agreement (the Security Agreement and the
Amendments hereinafter are referred to, collectively, as the "Agreement").
Borrower and Lender now desire to further amend the Agreement as provided
herein, subject to the terms and conditions hereinafter set forth.

         NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:

         1. The Agreement hereby is amended as follows:

                  (a) Exhibit B to the Agreement is amended and restated as the
Second Amended and Restated Exhibit B as Attached hereto and made a part hereof.

         2. This Amendment shall not become effective until fully executed by
all parties hereto.

         3. Except as expressly amended hereby and by any other supplemental
documents or instruments executed by either party hereto in order to effectuate
the transactions contemplated hereby, the Agreement and exhibit A thereto hereby
are ratified and confirmed by the parties hereto and remain in full force and
effect in accordance with the terms thereof.




<PAGE>



LaSalle Business Credit, Inc.
The Singing Machine Company, Inc.                 LASALLE BANKS
February 28, 2002
Page 2

                                            LASALLE BUSINESS CREDIT, INC.


                                            By /s/ Casey Orlowski
                                               --------------------------

                                            Title  Vice President
                                                -------------------------

ACKNOWLEDGED AND AGREED TO
this 28th day of February, 2002.

The Singing Machine Company, Inc.

By /s/ John F. Klecha
   -----------------------------
       John F. Klecha

Title President/Secretary






<PAGE>


Lyons Corporate Park, LLP                               6601 Lyons Road
                                                            Suite C-1
                                                    Coconut Creek, Florida 33073
- --------------------------------------------------------------------------------
                                                      Telephone (954) 428-6600
                                                         Fax (954) 428-6713

DATE: March 12, 2002

Mr. John Klecha
The Singing Machine Co., Inc.
6601 Lyons Road, Suite A-7
Coconut Creek, FL 33073

RE: 6601 Lyons Road, Suite A-5

Dear Mr. Klecha:

Please be advised that notwithstanding anything in the lease to the contrary,
Landlord and Tenant agree that there shall be no minimum rent pursuant to the
lease for the first month but the Tenant will be responsible for all other items
in the lease during this period. If during the Option Period of the Lease,
Tenant defaults under the terms of the Lease, and the default is not cured
within the time limits specified in the lease, then it is agreed that Tenant
will be liable to Landlord for all of the minimum rent, and maintenance,
insurance and property taxes not paid by Tenant during the free rental period
specified in this letter.

                                           Yours truly,
                                           LYONS CORPORATE PARK, LLLP


                                           /s/ Lee S. Lasser
                                           ------------------------------------
                                           LEE S. LASSER, Trustee, as a General
                                           Partner

                                           /s/ Augustine Ferrera,
                                           ------------------------------------
                                           AUGUSTINE FERRERA, Trustee, as a
                                           General Partner

                                           /s/ Michelle Ferrera
                                           ------------------------------------
                                           MICHELLE FERRERA, Trustee, as a
                                           General Partner

                                           /s/ Michael J. Ferrera
                                           ------------------------------------
                                           Michael J. Ferrera, Trustee, as a
                                           General Partner



THE SINGING MACHINE CO., INC.

By /s/ April J. Green
- ------------------------------------
APRIL J. GREEN


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>11
<FILENAME>listofsubsidiaries.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>
                                  EXHIBIT 21.1
                              LIST OF SUBSIDIARIES


                                        Country of                Percentage
Name                                    Incorporation             Owned
- ----                                    -------------             ----------
International SMC (HK) Limited          Hong Kong                 100%

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>12
<FILENAME>consentsalberg.txt
<DESCRIPTION>CONSENT SALBERG
<TEXT>
                                  EXHIBIT 23.1

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors
The Singing Machine Company, Inc.:


         We hereby consent to the incorporation by reference in the registration
statement of The Singing Machine Company, Inc. on Form S-8 (File No. 333-59684)
filed with the Securities and Exchange Commission ("SEC") on April 27, 2001 and
the registration statement on Form S-3 (File No. 333-70142) filed with the SEC
on October 9, 2001 of our report dated May 23, 2002, with respect to the
consolidated financial statements of The Singing Machine Company, Inc. and
subsidiary, for the years ended March 31, 2002 and 2001, included in this Annual
Report on the Form 10-KSB for the year ended March 31, 2002.



/s/ SALBERG & COMPANY, P.A.
Boca Raton, Florida
June 30,2002

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
