<DOCUMENT>
<TYPE>S-1/A
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<FILENAME>v09594_s1a.txt
<TEXT>


    As filed with the Securities and Exchange Commission on December 3, 2004
                          Registration No. 333-109574


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                 AMENDMENT NO. 3
                                       TO


                                    FORM S-1

             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                       THE SINGING MACHINE COMPANY, INC.
                       ---------------------------------

                 (Name of Small Business Issuer in Its Charter)

<TABLE>
<CAPTION>
<S>                                               <C>                        <C>
             DELAWARE                             5065                       95-3795478
--------------------------------        -------------------------        ------------------
  (State or other jurisdiction              (Primary Standard               (IRS Employer
of incorporation or organization)       Industrial Classification)       Identification No.)
</TABLE>

                 YI PING CHAN, INTERIM CHIEF EXECUTIVE OFFICER,
                      CHIEF OPERATING OFFICER AND SECRETARY
                           6601 LYONS ROAD, BLDG. A-7
                             COCONUT CREEK, FL 33073
                                 (954) 596-1000

    (Address and telephone number of Registrant's principal executive offices
                        and principal place of business)

                             DARRIN M. OCASIO, ESQ.
                       SICHENZIA ROSS FRIEDMAN FERENCE LLP
                           1065 AVENUE OF THE AMERICAS
                               NEW YORK, NY 10018
                                 (212) 930-9700
                           (212)-930-9725 - FACSIMILE

            (Name, address and telephone number of agent for service)

      APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON
AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]

If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the Registration Statement is expected to be made pursuant to
Rule 434, check the following box. [_]
<PAGE>



<TABLE>
<CAPTION>
                                                CALCULATION OF REGISTRATION FEE
==================================================================================================================
    TITLE OF EACH CLASS OF SECURITIES      AMOUNT TO BE     PROPOSED MAXIMUM     PROPOSED MAXIMUM      AMOUNT OF
    TITLE OF EACH CLASS OF SECURITIES      AMOUNT TO BE     OFFERING PRICE       AGGREGATE OFFERING   REGISTRATION
             TO BE REGISTERED               REGISTERED          PER SECURITY          PRICE                FEE
------------------------------------------ -------------    -----------------    -----------------    ------------
<S>                                            <C>          <C>                  <C>                  <C>
Common Stock (1)                               1,838,602    $          0.575(1)  $    1,057,196.15    $     133.95(4)
Common Stock (2)                                  40,151    $            1.21    $       48,582.71    $       4.46(4)
Common Stock (3)                               1,038,962    $            4.25    $    4,405,198.88    $     356.38(4)
Common Stock (5)                                 561,039    $            4.25    $    2,384,157.50    $     192.88(4)
Common Stock (6)                                 207,791    $            4.25    $      883,111.75    $      71.44(4)
Common Stock (7)                                 311,680    $            4.25    $    1,324,640.00    $     107.16(4)
Common Stock (7)                                 635,842    $            4.25    $    2,702,328.50    $     218.67(4)

   Total                                       4,634,067
</TABLE>

(1) Represents 1,797,917 shares of our common stock issuable upon conversion of
outstanding securities, and an additional 40,685 additional shares that we are
required to registered pursuant to registration rights agreement. Estimated
solely for the purpose of determining the registration fee, in accordance with
Rule 457(c), based on the average high and low prices of our common stock as
reported on the American Stock Exchange on September 27, 2004 ($0.575).

(2) Represents shares of common stock issued to A.G. Edwards & Sons, Inc.

(3) Represents shares of common stock issuable upon exercise of outstanding
convertible debentures held by certain selling stockholders. Pursuant to Rule
416, there are also being registered such additional number of shares of common
stock as may become issuable pursuant to the anti-dilution provisions of the
debentures.

(4) Previously paid.

(5) Represents shares of common stock being issuable upon exercise of
outstanding common stock purchase warrants held by certain selling stockholders.
Pursuant to Rule 416, there are also being registered such additional number of
shares of common stock as may become issuable pursuant to the anti-dilution
provisions of the common stock purchase warrants.

(6) Represents a good faith estimate of the anticipated maximum number of shares
of common stock which the Registrant may issued to the holders of the debentures
in payment of interest accruing thereon.

(7) Represents additional shares that the Registrant's required to register
pursuant to a registration rights agreement. The Registrant has registered an
additional 40,685 shares (described in footnote 1). Under the registration
rights agreement, the Registrant is required to register an additional 30% of
the aggregate amount of shares issuable upon (a) conversion of the convertible
debentures, (b) exercise of the warrants; (c) interest payments on the
debentures and (d) pursuant to the anti-dilution provision in the debenture.

The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THOSE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS PROHIBITED.


                                       2
<PAGE>


                 SUBJECT TO COMPLETION, DATED DECEMBER ___, 2004


                                   PROSPECTUS

                        4,634,067 SHARES OF COMMON STOCK

                                [GRAPHIC OMITTED]

                        THE SINGING MACHINE COMPANY, INC.

We are registering for resale an aggregate of 4,634,067 shares of common stock
of The Singing Company, Inc. that have been issued or may be issued to certain
of our stockholders named in this Prospectus and their transferees.

We will not receive any proceeds from the sale of the shares, but we will
receive proceeds from the selling stockholders if they exercise their warrants.
Our common stock is quoted on the American Stock Exchange under the symbol "SMD.
" On November 22, 2004, the closing sales price of our common stock, as reported
on AMEX was $0.67 per share. We are registering approximately 45.90% of our
common stock for resale as determined on a fully diluted basis.

The shares of common stock may be sold from time to time by the selling
stockholders in one or more transactions at fixed prices, at market prices at
the time of sale, at varying prices determined at the time of sale or at
negotiated prices. The selling stockholders and any broker-dealer who may
participate in the sale of the shares may use this Prospectus. See "Plan of
Distribution."

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 1.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.


                THE DATE OF THIS PROSPECTUS IS DECEMBER __, 2004



                                       3
<PAGE>

                                TABLE OF CONTENTS


Prospectus Summary...........................................................  4
Risk Factors.................................................................  6
Special Note regarding Forward-Looking Statements............................ 12
Use of Proceeds.............................................................. 13
Selling Stockholders......................................................... 13
Plan of Distribution......................................................... 16
Market Price of Common Stock................................................. 18
Dividend Policy.............................................................. 18
Selected Financial Information and Other Data................................ 18
Management's Discussion and Analysis of Financial Condition and
   Results of Operations..................................................... 21
Changes in and Disagreements with Accountants on Accounting and
   Financial Disclosure...................................................... 31
Business..................................................................... 33
Management................................................................... 40
Executive Compensation....................................................... 41
Certain Transactions......................................................... 45
Principal Stockholders....................................................... 46
Description of Securities.................................................... 47
Shares Eligible for Future Sale.............................................. 49
Legal Matters................................................................ 49
Experts...................................................................... 49
Where You Can Find Additional Information.................................... 49
Index to Consolidated Financial Statements...................................F-1




                               PROSPECTUS SUMMARY

This Summary highlights information contained elsewhere in this Prospectus. We
encourage you to read the entire Prospectus carefully, including the section
entitled "Risk Factors" and the financial statements and the notes to those
financial statements.

COMPANY OVERVIEW

We are engaged in the production and distribution of karaoke audio software and
electronic recording equipment. Our electronic karaoke machines and audio
software products are marketed under the Singing Machine(R), MTV(R),
Nickelodeon(R), Care Bears(R) and Motown(R) brand names. Our corporate offices
are located at 6601 Lyons Road, Building A-7, Coconut Creek, Florida 33073, and
our telephone number is (954) 596- 1000.


                                       4
<PAGE>

                                  THE OFFERING

Common Stock offered by the Selling Stockholders         4,634,067
Common Stock Outstanding Prior to the Offering(1)        9,202,318
Common Stock Outstanding after the Offering(2)          13,836,385

Use of Proceeds                                         We will not
                                                        receive any proceeds
                                                        from the sale of common
                                                        stock by the selling
                                                        stockholders.
----------


(1) Based on the number of shares actually outstanding as of November 22, 2004.
Does not include (a) options to purchase 1,101,490 shares of our common stock
which are currently outstanding under our 1994 Amended and Restated Stock Option
Plan and our Year 2000 Stock Option Plan, and (b) an aggregate of 4,634,067
shares which are being registered in this registration statement, which includes
2,836,879 shares issuable upon conversion of our outstanding convertible
debentures, 591,039 shares issuable upon exercise of outstanding warrants,
207,791 shares which may be issued as interest payments on the debentures,
988,307 shares as a good faith estimate of additional shares that may be issued
pursuant to our obligations under a registration rights agreement and 40,151
shares issued to AG Edwards.


(2) Assumes the issuance of 4,634,067 shares of our common stock which are being
registered in this registration. Does not include options to purchase 1,101,490
shares of our common stock which are currently outstanding under our 1994 and
2000 Year Stock Option Plans.


                                       5
<PAGE>

                                  RISK FACTORS

You should carefully consider the following factors and other information in
this Prospectus before deciding to purchase our common stock.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

RISKS ASSOCIATED WITH OUR BUSINESS

WE HAVE SIGNIFICANT WORKING CAPITAL NEEDS AND IF WE ARE UNABLE TO OBTAIN
ADDITIONAL FINANCING, WHEN NEEDED, WE MAY NOT HAVE SUFFICIENT CASH FLOW TO RUN
OUR BUSINESS


As of September 30, 2004, our cash on hand is limited. We need approximately
$1.8 million in working capital in order to finance our operations over the next
three months. We plan on financing our working capital needs from the collection
of accounts receivable, and sales of existing inventory. As of September 30,
2004, our inventory was valued at $3.4 million. We have entered into a factoring
agreement with Crestmark Financing. The agreement allows us to receive up to 70%
of our eligible account receivables by pledging these accounts as collateral.
The maximum amount we may receive is $2,500,00. The account receivable is with
recourse. The interest rate on the advance is 2% plus prime rate currently 6.5%.
The maintenance fee is 1% of the invoice face value, which will be posted to the
account when the cash is collected. The minimum fee per month is $9000. However,
See "Liquidity" section. If we are not able to obtain adequate financing, when
needed, it will have a material adverse effect on our cash flow and our ability
to run our business. If we have a severe shortage of working capital, we may not
be able to continue our business operations and may be required to file a
petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code or enter
into some other form of liquidation or reorganization proceeding.


WE MAY BE DEEMED TO INSOLVENT AND WE MAY GO OUT OF BUSINESS


As of September 30, 2004, our cash position is limited. We are not able to pay
all of our creditors on a timely basis. We are past due on approximately 24% of
our accounts payable, which totaled $1.7 million as of September 30, 2004. If we
are not able to pay our current debts as they become due, we may be deemed to be
insolvent. We may be required to file a petition for bankruptcy under Chapter 11
of the U.S. Bankruptcy Code or enter into some other form of liquidation or
reorganization proceedings.

OUR FORMER INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRM RAISED SUBSTANTIAL
DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN AS OF MARCH 31, 2004 AND
2003

We received a report dated June 16, 2004 (except for the last paragraph of note
7 as to which the date is July 14, 2004) from our former independent registered
public accounting firm covering the consolidated financial statements for our
fiscal year ended March 31, 2004 that included an explanatory paragraph which
stated that the financial statements were prepared assuming the Singing Machine
would continue as a going concern. This report stated that our operating
performance in fiscal 2004 and our minimal liquidity raised substantial doubt
about our ability to continue as a going concern. If we are not able to raise
additional capital, we may need to curtail or stop our business operations. We
may be required to file a petition for bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code or enter into some other form of liquidation or reorganization
proceedings.

We have identified a number of deficiencies which constitute material weaknesses
in our internal controls and procedures in connection with the audit of our
consolidated financial statements for fiscal 2004. The deficiencies in our
internal controls relate to:


o     weaknesses in our financial reporting processes as a result of a lack of
      adequate staffing in the accounting department,


o     accounting for consigned inventory and inventor costing.


We are implementing a number of procedures to correct these weaknesses in our
internal controls. However, no assurances can be given that we will be able to
successfully implement our revised internal controls and procedures or that our
revised controls and procedures will be effective in remedying all of the
identified material weaknesses in our controls and procedures. In addition, we
may be required to hire additional employees, and may experience higher than
anticipated capital expenditures and operating expenses, during our
implementation of these changes. If we are unable to implement these changes
effectively or efficiently there could be a material adverse effect on our
operations or financial results.

A SMALL NUMBER OF OUR CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR
REVENUES, AND THE LOSS OF ONE OR MORE OF THESE KEY CUSTOMERS COULD SIGNIFICANTLY
REDUCE OUR REVENUES AND CASH FLOW

We rely on a few large customers to provide a substantial portion of our
revenues. As a percentage of total revenues, our net sales to our five largest
customers during the fiscal period ended March 31, 2004, 2003 and 2002 were
approximately 53%, 67% and 87%, respectively. In fiscal 2004, three customers
accounted for 20%, 12% and 8% of our net sales. The customers are Arbiter,
Giochi and Best Buy, respectively. We do not have long-term contractual
arrangements with any of our customers and they can cancel their orders at any
time prior to delivery. A substantial reduction in or termination of orders from
any of our largest customers would decrease our revenues and cash flow.


                                       6
<PAGE>

WE ARE RELYING ON SIX FACTORIES TO MANUFACTURE AND PRODUCE THE MAJORITY OF OUR
KARAOKE MACHINES FOR FISCAL 2005, AND IF THE RELATIONSHIP WITH THESE FACTORIES
IS DAMAGED OR INJURED IN ANY WAY, IT WOULD REDUCES OUR REVENUES AND
PROFITABILITY


We have worked out a verbal agreement with six factories in China to produce
approximately 95% of our karaoke machines in fiscal 2005. We owe one of these
factories approximately $1.4 million as of October 30, 2004 and have worked out
a payment plan with it. See the "Liquidity" Section. If the factory is unwilling
or unable to deliver our karaoke machines to us, our business will be adversely
affected. Because our cash on hand is minimal, we are relying on revenues
received from the sale of our ordered karaoke machines to provide cash flow for
our operations. If we do not receive cash from these sales, we may not be able
to continue our business operations.


WE ARE SUBJECT TO THE RISK THAT SOME OF OUR LARGE CUSTOMERS MAY RETURN KARAOKE
PRODUCTS THAT THEY HAVE PURCHASED FROM US AND IF THIS HAPPENS, IT WOULD REDUCE
OUR REVENUES AND PROFITABILITY

In fiscal 2004 and 2003, a number of our customers and distributors returned
karaoke products that they purchased from us. Our total returns represented 9.4%
and 10.4% of our net sales in fiscal 2004 and fiscal 2003, respectively. In the
fourth quarter of fiscal 2004, our customers returned goods valued at $1.8
million, or 2.5% of our net sales.


Because we are dependent upon a few large customers, we are subject to the risk
that any of these customers may elect to return unsold karaoke products to us in
the future. If any of our customers were to return karaoke products to us, it
would reduce our revenues and profitability.


WE ARE SUBJECT TO PRESSURE FROM OUR CUSTOMERS RELATING TO PRICE REDUCTION AND
FINANCIAL INCENTIVES AND IF WE ARE PRESSURED TO MAKE THESE CONCESSIONS TO OUR
CUSTOMERS, IT WILL REDUCE OUR REVENUES AND PROFITABILITY

Because there is intense competition in the karaoke industry, we are subject to
pricing pressure from our customers. Many of our customers have demanded that we
lower our prices or they will buy our competitor's products. If we do not meet
our customer's demands for lower prices, we will experience lower sales volume.
In our fiscal year ended March 31, 2004, our sales to customers in the United
States decreased because of increased price competition. During fiscal 2004, we
sold 20.2% of our karaoke machines at prices that were equal to or below cost.
We will not be able to stay in business if we continue to sell our karaoke
machines at prices that are at or below cost. We are also subject to pressure
from our customers regarding certain financial incentives, such as return
credits or large advertising or cooperative advertising allowances, which
effectively reduce our selling prices. In fiscal 2004, we gave our customers
$2.1 million of credits on these accounts because the sell-through of our
products was not as strong as we had expected. We also provided our customers
with advertising allowances in the amount of $2.3 million during fiscal 2004 and
$4.1 million during fiscal 2003. We have historically offered advertising
allowances to our customers because it is standard practice in the retail
industry.

WE EXPERIENCE DIFFICULTY FORECASTING THE DEMAND FOR OUR KARAOKE PRODUCTS AND IF
WE DO NOT ACCURATELY FORECAST DEMAND, OUR REVENUES, NET INCOME AND CASH FLOW MAY
BE AFFECTED

Because of our reliance on manufacturers in Asia for our machine production, our
production lead times range from one to four months. Therefore, we must commit
to production in advance of customers orders. It is difficult to forecast
customer demand because we do not have any scientific or quantitative method to
predict this demand. Our forecasting is based on management's general
expectations about customer demand, the general strength of the retail market
and management's historical experiences. We overestimated demand for our
products in fiscal 2003 and had $25.2 million in inventory as of March 31, 2003.
Because of this excess inventory, we had liquidity problems in fiscal 2004 and
our revenues, net income and cash flow were adversely affected. We had a net
loss of $22.7 million in fiscal 2004, which limited our cash flow.

WE ARE SUBJECT TO THE COSTS AND RISKS OF CARRYING INVENTORY FOR OUR CUSTOMERS
AND IF WE HAVE TOO MUCH INVENTORY, IT WILL AFFECT OUR REVENUES AND NET INCOME


Many of our customers place orders with us several months prior to the holiday
season, but they schedule delivery two or three weeks before the holiday season
begins. As such, we are subject to the risks and costs of carrying inventory
during the time period between the placement or the order and the delivery date,
which reduces our cash flow. As of March 31, 2003, we had $25.2 million in
inventory on hand, which impacted our cash flow and liquidity from operations in
fiscal 2004. As of September 30, 2004, our inventory was valued at $3.4 million.
It is important that we sell this inventory during fiscal 2005, so we have
sufficient cash flow for operations.

OUR SENIOR CORPORATE MANAGEMENT TEAM IS NEW TO THE SINGING MACHINE AND IS
REQUIRED TO DEVOTE SIGNIFICANT ATTENTION TO OUR FINANCING AGREEMENTS

Beginning on May 2, 2003, through the present date, four of our executive
officers have resigned. We hired a new Chief Operating Officer, Yi Ping Chan on
April 1, 2003, and a new Chief Financial Officer, Jeff Barocas, on April 9,
2004. Four new directors have joined our Board since October 31, 2003 and one of
them has resigned since that date. Bernard Appel joined our Board effective as
of October 31, 2003, Harvey Judkowitz joined on March 29, 2004 and Joseph Testa
joined on September 8, 2004 and resigned on October 22, 2004. Richard Ekstract
joined our Board on October 31, 2003 and resigned for personal reasons on June
2, 2004. We are in the process of searching for a new Chief Executive Officer
and new directors. It will take some time for our new management and our new
board of directors to learn about our business and to develop strong working
relationships with each other and our employees. Our new senior corporate
management's ability to complete this process has been and continues to be
hindered by the time that it needs to devote to other pressing business matters.
New management needs to spend significant time on overseeing our liquidity
situation and overseeing other matters. We cannot assure you that this major
restructuring of our board of directors and senior management and the
accompanying distractions, in this environment, will not adversely affect our
results of operations. See the "Legal Proceeding" section for information on a
class action law suit against management and the Singing Machine.



                                       7
<PAGE>

OUR LICENSING AGREEMENT WITH MTV NETWORKS IS IMPORTANT TO OUR BUSINESS AND IF WE
WERE TO LOSE OUT MTV LICENSE IT COULD AFFECT OUR REVENUES AND PROFITABILITY

Our license with MTV Networks is important to our business. We generated 11.8%
and 32.3% of our consolidated net sales from products sold under the MTV license
in fiscal 2004 and 2003, respectively. Our MTV license was extended through
December 31, 2004. If we were to lose our MTV license, it would have an adverse
effect on our revenues and net income.

OUR BUSINESS IS SEASONAL AND THEREFORE OUR ANNUAL OPERATING RESULTS WILL DEPEND,
IN LARGE PART, ON OUR SALES DURING THE RELATIVELY BRIEF HOLIDAY SEASON

Sales of consumer electronics and toy products in the retail channel are highly
seasonal, with a majority of retail sales occurring during the period from
September through December in anticipation of the holiday season, which includes
Christmas. A substantial amount of our sales occur during the second quarter
ended September 30 and the third quarter ended December 31. Sales in our second
and third quarter, combined, accounted for approximately 86% of net sales in
fiscal 2004 and 2003 and 81% of net sales in fiscal 2002.

IF WE ARE UNABLE TO COMPETE IN THE KARAOKE PRODUCTS CATEGORY, OUR REVENUES AND
NET PROFITABILITY WILL BE REDUCED

Our major competitors for karaoke machines and related products are Craig and
Memorex. 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 Compass, Pocket Songs,
Sybersound, UAV and Sound Choice. We believe that competition for karaoke music
is based primarily on popularity of song titles, price, reputation, and delivery
times. To the extent that we lower prices to attempt to enhance or retain market
share, we may adversely impact our operating margins. Conversely, if we opt not
to match competitor's price reductions we may lose market share, resulting in
decreased volume and revenue. To the extent our leading competitors reduce
prices on their karaoke machines and music, we must remain flexible to reduce
our prices. If we are forced to reduce our prices, it will result in lower
margins and reduced profitability. Because of intense competition in the karaoke
industry in the United States during fiscal 2004, we expect that the intense
pricing pressure in the low end of the market will continue in the karaoke
market in the United States in fiscal 2005. 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.


IF WE ARE UNABLE TO DEVELOP NEW KARAOKE PRODUCTS, OUR REVENUES MAY NOT CONTINUE
TO GROW

The karaoke industry is characterized by rapid technological change, frequent
new product introductions and enhancements and ongoing customer demands for
greater performance. In addition, the average selling price of any karaoke
machine has historically decreased over its life, and we expect that trend to
continue. As a result, our products may not be competitive if we fail to
introduce new products or product enhancements that meet evolving customer
demands. The development of new products is complex, and we may not be able to
complete development in a timely manner, or at all. To introduce products on a
timely basis, we must:


o     accurately define and design new products to meet market needs;

o     design features that continue to differentiate our products from those of
      our competitors;

o     transition our products to new manufacturing process technologies;

o     identify emerging technological trends in our target markets;

o     anticipate changes in end-user preferences wit respect to our customers'
      products;

o     bring products to market on a timely basis at competitive prices; and

o     respond effectively to technological changes or product announcements by
      others.

We believe that we will need to continue to enhance our karaoke machines and
develop new machines to keep pace with competitive and technological
developments and to achieve market acceptance for our products.


                                       8
<PAGE>

OUR PRODUCTS ARE SHIPPED FROM CHINA AND ANY DISRUPTION OF SHIPPING COULD PREVENT
OR DELAY OUR CUSTOMERS' RECEIPT OF INVENTORY

We rely principally on four contract ocean carriers to ship virtually all of the
products that we import to our warehouse facility in Compton, California.
Retailers that take delivery of our products in China rely on a variety of
carriers to import those products. Any disruptions in shipping, whether in
California or China, caused by labor strikes, other labor disputes, terrorism,
and international incidents or otherwise prevent or delay our customers' receipt
of inventory. If our customers do not receive their inventory on a timely basis,
they may cancel their orders or return products to us. Consequently, our
revenues and net income would be reduced.

THE FACTORIES THAT MANUFACTURE OUR KARAOKE PRODUCTS ARE LOCATED IN THE PEOPLE'S
REPUBLIC OF CHINA, SUBJECTING US TO RISKS COMMON IN INTERNATIONAL OPERATIONS. IF
THERE IS ANY PROBLEM WITH THE MANUFACTURING PROCESS, OUR REVENUES AND NET
PROFITABILITY MAY BE REDUCED.

We are dependent upon six factories in the People's Republic of China to
manufacture the majority of our karaoke machines. One of these factories will be
producing approximately 68% of our karaoke products in fiscal 2005. Our
arrangements with these factories are subject to the risks of doing business
abroad, such as import duties, trade restrictions, work stoppages, and foreign
currency fluctuations, limitations on the repatriation of earnings and political
instability, 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 our 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 revenues, profitability and
cash flow. Also, since we do not have written agreements with any of these
factories, we are subject to additional uncertainty if the factories do not
deliver products to us on a timely basis.


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 that our
factories use to produce our karaoke products. If our suppliers are unable to
provide our factories with the parts and supplies, the factories 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 are used in our
karaoke machines. If we are unable to anticipate any shortages of parts and
materials in the future, the factories may experience severe production
problems, which would impact our sales.

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. Additionally, other extraordinary events such as
terrorist attacks or military engagements, which adversely affect the retail
environment may restrict consumer spending and thereby adversely affect our
sales growth and profitability.

WE MAY HAVE INFRINGED THE COPYRIGHTS OF CERTAIN MUSIC PUBLISHERS AND IF WE
VIOLATE FEDERAL COPYRIGHT LAWS, WE WILL BE SUBJECT TO MONETARY PENALTIES

Over the past several years, we have received notices from several music
publishers who have alleged that we did not have the proper copyright licenses
to sell certain songs included in our compact discs with graphics discs
("CDG"s). CDG's are compact discs which contain the musical recordings of the
karaoke songs and graphics which contain the lyrics of the songs. We have
settled or are in the process of settling all of these copyright infringement
issues with these publishers. We have spent approximately $70,000 to settle
these copyright infringement suits in fiscal year 2003 and 2004. These copyright
infringement claims may have a negative effect on our ability to sell our music
products to our customers. If we do not have the proper copyright licenses for
any other songs that are included in our CDG's and cassettes, we will be subject
to additional liability under the federal copyright laws, which could include
settlements with the music publishers and payment of monetary damages.

WE MAY BE SUBJECT TO CLAIMS FROM THIRD PARTIES FOR UNAUTHORIZED USE OF THEIR
PROPRIETARY TECHNOLOGY, COPYRIGHTS OR TRADE SECRETS AND ANY CLAIMS ASSERTED
AGAINST US COULD AFFECT OUR NET PROFITABILITY

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. During
fiscal 2000, Tanashin Denki, Ltd., a Japanese company that holds a patent on a
cassette tape drive mechanism alleged that some of our karaoke machines violated
their patents. We settled the matters with Tanashin in December 1999.
Subsequently in December 2002, Tanashin again alleged that some of our karaoke
machines violated their patents. We entered into another settlement agreement
with them in May 2003. In addition to Tanashin, we could receive infringement
claims from other third parties. Any infringement claims may have a negative
effect on our profitability and financial condition.


                                       9
<PAGE>

WE ARE EXPOSED TO THE CREDIT RISK OF OUR CUSTOMERS, WHO ARE EXPERIENCING
FINANCIAL DIFFICULTIES, AND IF THESE CUSTOMERS ARE UNABLE TO PAY US, OUR
REVENUES AND PROFITABILITY WILL BE REDUCED

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. Some of these retailers, such as K-Mart,
FAO Schwarz and KB Toys, have engaged in leveraged buyouts or transactions in
which they incurred a significant amount of debt, and operated under the
protection of bankruptcy laws. As of October 31, 2004, we are aware of only two
customers, FAO Schwarz and KB Toys, which are operating under the protection of
bankruptcy laws. Deterioration in the financial condition of our customers could
result in bad debt expense to us and have a material adverse effect on our
revenues and future profitability.

A DISRUPTION IN THE OPERATION OF OUR WAREHOUSE CENTERS IN CALIFORNIA OR FLORIDA
COULD IMPACT OUR ABILITY TO DELIVER MERCHANDISE TO OUR STORES, WHICH COULD
ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY

A significant amount of our merchandise is shipped to our customers from one of
our two warehouses, which are located in Compton, California, and Coconut Creek,
Florida. Events such as fire or other catastrophic events, any malfunction or
disruption of our centralized information systems or shipping problems may
result in delays or disruptions in the timely distribution of merchandise to our
customers, which could substantially decrease our revenues and profitability.

OUR BUSINESS OPERATIONS COULD BE DISRUPTED IF THERE ARE LABOR PROBLEMS ON THE
WEST COAST

During fiscal 2004, approximately 39% of our sales were domestic warehouse
sales, which were made from our warehouses in California and Florida. During the
third quarter of fiscal 2003, the dock strike on the West Coast affected sales
of two of our karaoke products and we estimate that we lost between $3 and $5
million in orders because we couldn't get the containers of these products off
the pier. If another strike or work slow-down occurs and we do not have a
sufficient level of inventory, a strike or work slow-down would result in
increased costs to us and may reduce our profitability.

THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE WHICH MAY CAUSE INVESTORS
TO LOSE ALL OR A PORTION OF THEIR INVESTMENT

From June 1, 2003 through October 31, 2004, our common stock has traded between
a high of $6.55 and a low of $0.30. During this period, we have restated our
earnings, lost senior executives and Board members, had liquidity problems, and
incurred a net loss of $22.7 million in fiscal 2004. Our stock price may
continue to be volatile based on similar or other adverse developments in our
business. In addition, the stock market periodically experiences significant
adverse price and volume fluctuations which may be unrelated to the operating
performance of particular companies.


OUR OBLIGATION TO MAKE SEVERANCE PAYMENTS COULD PREVENT OR DELAY TAKEOVERS

Our employment agreement with Yi Ping Chan and Edward Steele requires us, under
certain conditions, to make substantial severance payments upon resignation and
after a change of control. Mr. Chan is entitled to a severance payment of
$250,000 if he resigns after a change in control. Mr. Steele is entitled to a
severance payment of $125,000 upon resignation or change of control. These
provisions could delay or impede a merger, tender offer or other transaction
resulting in a change in control of the Singing Machine, even if such a
transaction would have significant benefits to our shareholders. 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.


RISKS ASSOCIATED WITH OUR CAPITAL STRUCTURE

OUR COMMON STOCK MAY BE DELISTED FROM THE AMERICAN STOCK EXCHANGE, WHICH MAY
HAVE A MATERIAL ADVERSE IMPACT ON THE PRICING AND TRADING OF OUR COMMON STOCK

Our common stock is quoted on the American Stock Exchange ("Amex"). The Amex, as
a matter of policy, will consider the suspension of trading in, or removal from
listing of, any stock when, in the opinion of Amex, (i) the financial condition
and/or operating results of an issuer appear to be unsatisfactory; (ii) it
appears that the extent of public distribution or the aggregate market value of
the stock has become so reduced as to make further dealings on the Amex
inadvisable; (iii) the issuer has sold or otherwise disposed of its principal
operating assets; or (iv) the issuer has sustained losses which are so
substantial in relation to its overall operations or its existing financial
condition has become so impaired that it appears questionable, in the opinion of
Amex, whether the issuer will be able to continue operations and/or meet its
obligations as they mature.


                                       10
<PAGE>


As of October 30, 2004, we have not received any notices from AMEX notifying us
that they will delist us. However, we cannot assure you that Amex will not take
any actions in the near future to delist our common stock. If our common stock
were delisted from the Amex, we would trade on the Over-the-Counter Bulletin
Board and the market price for shares or our common stock could decline.
Further, if our common stock is removed from listing on Amex, it may become more
difficult for us to raise funds through the sale of our common stock or
securities convertible into our common stock.

IF WE SELL ANY OF OUR SECURITIES AT A PRICE LOWER THAN $0.60 PER SHARE, THE
CONVERSION PRICE OF OUR DEBENTURES AT $1.41 PER SHARE WILL BE REDUCED AND THERE
WILL BE ADDITIONAL DILUTION TO OUR SHAREHOLDERS

We already had to reset the conversion price from $3.85 per share to $1.41 per
share. Given that the closing price for our common stock was $0.575 per share on
September 27, 2004 it is possible that we may again need to sell additional
securities for capital at a price lower than $0.60 per share. If we sell any
securities at a price lower than $0.60 per share, the conversion price of our
debentures currently set at $0.60 per share will be reduced and there will be
more dilution to our shareholders if and when the debentures are converted into
shares of our common stock. If we issue or sell any securities at a price less
than $0.60 per share, the set price will be reduced by an amount equal to 50% of
the difference between the set price and effective purchase price of such
shares.

We have prepared a table, which show the adjustments that will be made to (i)
the conversion price of our convertible debentures and (ii) the number of shares
issued to the debenture holders, if we issue or sell our securities at the (a)
closing price on September 27, 2004, which was $0.575 per share, (b) 50% of the
closing price on September 27, 2004, which is $0.2875 per share and (c) 25% of
the closing price on September 27, 2004, which is $0.1438 per share.


 PRICE OF SINGING MACHINE  ADJUSTED CONVERSION  NUMBER OF SHARES ISSUABLE UPON
       COMMON STOCK         PRICE OF DEBENTURE     CONVERSION OF DEBENTURE
-------------------------  -------------------  ------------------------------
$                   0.575  $              1.40                       2,857,142
$                  0.2875  $               .85                       4,705,882
$                  0.1438  $              0.78                       5,128,205


If the price of our securities continues to decrease, and we continue to issue
or sell our securities at price below $0.60 per share, our obligation to issue
shares upon conversion of the debentures is essentially limitless.

When the conversion price reset occurs, the effective conversion price will
decrease, the value of beneficial conversion will increase. The additional value
of beneficial conversion would be recognized as discount on the convertible
debentures.


IF OUR OUTSTANDING DERIVATIVE SECURITIES ARE EXERCISED OR CONVERTED, OUR
EXISTING SHAREHOLDERS WILL SUFFER DILUTION


As of November 22, 2004, there were outstanding stock options to purchase an
aggregate of 1,101,490 shares of common stock at exercise prices ranging from
$1.30 to $14.30 per share, not all of which are immediately exercisable. The
weighted average exercise price of the outstanding stock options is
approximately $3.95 per share. As of October 31, 2004, there were outstanding
immediately exercisable option to purchase an aggregate of 521,815 shares of our
common stock. There were outstanding stock warrants to purchase 591,040 shares
of common stock at exercise prices ranging from $1.46 to $1.52 per share, all of
which are exercisable. The weighted average exercise price of the outstanding
stock warrants is approximately $1.46 per share. In addition, we have issued
$4,000,000 of convertible debentures, which are convertible into an aggregate of
2,836,879 shares of common stock. To the extent that the aforementioned
convertible securities are exercised or converted, dilution to our stockholders
will occur.


THE $4 MILLION PRIVATE PLACEMENT THAT WE CLOSED IN SEPTEMBER 2003 WILL AFFECT
OUR ABILITY TO RAISE CAPITAL IN THE FUTURE

On September 8, 2003, we closed a private offering in which we issued $4 million
of convertible debentures and stock purchase warrants to six institutional
investors. As part of this investment, we agreed to several limitations on our
corporate actions, some of which limit our ability to raise financing in the
future. If we enter into any financing transactions during the one year period
prior to September 8, 2004, we need to offer the institutional investors the
right to participate in such offering in an amount equal to the greater of (a)
the principal amount of the debentures currently outstanding or (b) 50% of the
financing offered to the outside investment group. For example, if we offer to
sell $10 million worth of our securities to an outside investment group, the
institutional investors will have the right to purchase up to $5 million of the
offering. This right may affect our ability to attract other investors if we
require external financing to remain in operations. Furthermore, for a period of
90 days after the effective date of the registration statement registering
shares of common stock issuable upon conversion of the convertible debentures
and the warrants, we cannot sell any securities.

Additionally, we cannot:


                                       11
<PAGE>

o     sell any of our securities in any transactions where the exercise price is
      adjusted based on the trading price of our common stock at any time after
      the initial issuance of such securities; and

o     sell any securities which grant investors the right to receive additional
      shares based on any future transaction on terms more favorable than those
      granted to the investor in the initial offering.

These limitations are in place until the earlier of February 20, 2006 or the
date on which all the debentures are converted into shares of our common stock.


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

As of October 31, 2004, there were 9,202,318 shares of our common stock
outstanding. Of these shares, approximately 5,954,796 shares are eligible for
sale under Rule 144. We have filed two registration statements registering an
aggregate 3,794,250 of shares of our common stock (a registration statement on
Form S-8 to register the sale of 1,844,250 shares underlying options granted
under our 1994 Stock Option Plan and 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). An additional registration statement on Form
S-1, of which this Prospectus is a part, was filed in October 2003, registering
an aggregate of 4,634,067shares of our common stock. 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.


OUR STOCK PRICE MAY DECREASE IF WE ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK


Our Certificate of Incorporation authorizes the issuance of 18,900,000 shares of
common stock. As of November 22, 2004, we had 9,202,318 shares of common stock
issued. We have an obligation to issue up to:

o     1,692,533 shares issuable under outstanding options and warrants; and


o     2,836,879 shares upon conversion of the convertible debentures.

We have also reserved up to 207,791 additional shares for interest payment on
the debentures and 988,207 additional shares that we may issue pursuant to the
anti-dilution provisions contained in the convertible debentures which relate to
price protection protections for the convertible debenture holders. As such, our
Board of Directors has the power, without stockholder approval, to issue up to
5,117,503 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 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.



THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Any statements about our expectations,
beliefs, plans, objectives, assumptions or future events or performance are not
historical facts and may be forward-looking. These statements are often, but not
always, made through the use of words or phrases such as "anticipate,"
"estimate," "plans," "projects," "continuing," "ongoing," "expects," "management
believes," "we believe," "we intend" and similar words or phrases. Accordingly,
these statements involve estimates, assumptions and uncertainties, which could
cause actual results to differ materially from those expressed in them. Any
forward-looking statements are qualified in their entirety by reference to the
"Risk Factors" contained on pages 2 through 8 of this Prospectus.

Because the factors discussed in this Prospectus could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us or on behalf of our company, you should not place undue
reliance on any such forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which it is made, and we undertake no
obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. New factors emerge from time to
time, and it is not possible for us to predict which will arise. In addition, we
cannot assess the impact of each factor on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward- looking statements.


                                       12
<PAGE>

                                 USE OF PROCEEDS

We will not receive any proceeds from the sale of shares by the selling
stockholders. Although we may receive proceeds if the warrants are exercised,
these proceeds, if any, will be used for working capital purposes or any other
purpose approved by the Board of Directors.

                              SELLING STOCKHOLDERS

The following table sets forth information as of August 27, 2004 with respect to
the beneficial ownership of our common stock both before and immediately
following the offering by each of the selling stockholders.

Calculation of the percent of outstanding shares owned is based on shares of our
common stock issued and outstanding as of August 27, 2004. Beneficial ownership
is determined in accordance with Rule 13d-3 promulgated by the Securities and
Exchange Commission, and generally includes voting or investment power with
respect to securities. Except as indicated in the footnotes to the table, we
believe each holder possesses sole voting and investment power with respect to
all of the shares of common stock owned by that holder, subject to community
property laws where applicable. In computing the number of shares beneficially
owned by a holder and the percentage ownership of that holder, shares of common
stock underlying options, warrants, debentures or preferred stock by that holder
that are currently exercisable or convertible or are exercisable or convertible
within 60 days after the date of the table are deemed outstanding. Those shares,
however, are not deemed outstanding for the purpose of computing the percentage
ownership of any other person or group.

The terms of the debentures and warrants owned by Omicron Master Trust, SF
Capital Partners, Ltd, Bristol Investment Fund, Ltd., Ascend Offshore Fund,
Ltd., Ascend Partners, LP and Ascend Partners Sapient LP (collectively, the
"Institutional Investors") prohibit conversion of those debentures or exercise
of those warrants to the extent that a conversion of those debentures would
result in the holder, together with its affiliates, beneficially owning in
excess of 4.99% of our outstanding shares of common stock, and to the extent
that exercise of the warrants would result in the holder, together with its
affiliates, beneficially owning in excess of 4.99% of our outstanding shares of
common stock. A holder may waive the 4.99% limitation upon 60 days prior written
notice to us. However, we have registered for resale all of the shares that can
be resold by each selling shareholder, without regard to the conversion or
exercise limitations described herein. After each selling shareholder sells
shares, we will file a prospectus supplement which indicates the number of
shares that each selling shareholder is eligible to sell.


Because the 4.99% conversation limitation only affects one of our investors,
Omicron Master Trust, we have prepared the beneficial ownership table without
regard to any exercise or conversion limitations.


<TABLE>
<CAPTION>
                                  SECURITIES OWNED
                                  PRIOR TO OFFERING                            SHARES OF          SECURITIES AFTER OFFERING(11)
                              -------------------------                      COMMON STOCK         ----------------------------
                                                        SHARES OF STOCK      BEING OFFERED          NUMBER OF     PERCENT OF
                                SHARES       PERCENT     AMT. DILUTION         UNDER THIS           SHARES OF       COMMON
NAME OF SELLING STOCKHOLDER    OF STOCK      OF STOCK      ADJUSTED           PROSPECTUS(3)       COMMON STOCK       STOCK
-----------------------------  --------      --------   ---------------      --------------       ------------    ------------
<S>                           <C>               <C>             <C>               <C>                        <C>             <C>
Omicron Master Trust          2,058,764(1)      22.37           617,629(2)        2,806,262(4)               0               *
SF Capital Partners, Ltd.       411,753(1)       4.47           123,526(2)          561,252(5)               0               *
Bristol Investment Fund, Ltd.   247,052(1)       2.68            74,116(2)          336,751(6)               0               *
Ascend Offshore Fund, Ltd.      393,636(1)       4.28           118,091(2)          536,557(7)               0               *
Ascend Partners, LP              47,928(1)          *            14,378(2)           65,330(8)               0               *
Ascend Partners Sapient, LP     134,890(1)       1.47            40,467(2)          183,866(9)               0               *
Roth Capital Partners, LLC      103,896(10)      1.13           103,896             103,896(10)              0               *
AG Edwards & Sons, Inc.          40,151             *            40,151              40,151(11)              0               *
</TABLE>

* Less than 1%.


(1) Represents shares of common stock issuable upon conversion of the debentures
and exercise of the warrants, which the Institutional Investors have the right
to acquire within sixty (60) days of November 22, 2004.


(2) Represents shares of common stock issuable upon conversion of the
debentures, exercise of the warrants and shares which may be issued pursuant to
the anti-dilution provision of the debentures to the selling stockholder.

(3) Represents 130% of the shares issuable upon conversion on the debentures and
exercise of the warrants, shares as well as shares underlying interest payments
on the debentures (collectively, the "Registrable Securities"). Also includes
shares issued to Roth and AG Edwards.


                                       13
<PAGE>


(4) Shares offered pursuant to this Prospectus consist of 1,773,050 shares
issuable upon conversion of the debentures; 285,714 shares issuable upon
exercise of warrants; up to 129,870 shares which we may issued as interest
payable on the debentures; and 617,629 shares, an additional 30% of the
registrable securities. Omicron Capital, L.P., a Delaware limited partnership
("Omicron Capital") serves as investment manager to Omicron Master Trust, a
trust formed under the laws of Bermuda ("Omicron"). Omicron Capital, Inc., a
Delaware corporation ("OCI") serves as general partner of Omicron Capital and
Winchester Global Trust Company Limited ("Winchester") serves as the trustee of
Omicron. By reason of such relationships, Omicron Capital and OCI may be deemed
to share dispositive power of the shares of our common stock owned by Omicron
and Winchester may be deemed to share voting and dispositive power over the
shares of our common stock owned by Omicron. Omicron Capital, OCI and Winchester
Capital has delegated authority from the board of directors of Winchester
regarding the portfolio management decisions with respect to the shares of
common stock owned by Omnicron and as of November 22, 2004, Mr. Oliver H. Morali
and Mr. Bruce T. Bernstein, officers of OCI, have delegated authority from the
board of directors of OCI regarding the portfolio management decisions of
Omicron Capital with respect to the shares of common stock owned by Omicron. By
reason of such delegated authority, Messrs. Morali and Bernstein disclaim
beneficial ownership of such shares of our common stock and neither of such
persons has any legal right to maintain such power with respect to shares of our
common stock offered by Omicron, as those terms as used for purposes of the
Securities Exchange Act of 1934, as amended.


(5) Shares offered pursuant to this Prospectus consist of 354,610 shares
issuable upon conversion of the debentures; 57,143 shares issuable upon exercise
of warrants, up to 25,974 shares which we may issued as interest payable on the
debentures, and 123,526, an additional 30% of the Registrable Securities.
Michael A. Roth and Brian J. Stark are the founding members and director the
management of Staro Asset Management, L.L.C., a Wisconsin limited liability
company ("Staro") which acts as investment manager and has sole power to direct
the management of SF Capital Partners, Ltd. Through Staro, Messrs. Roth and
Stark possess sole voting and dispositive power over all of the shares owned by
SF Capital Partners, Ltd.


(6) Shares offered pursuant to this Prospectus consist of 212,766 shares
issuable upon conversion of the debentures; 34,286 shares issuable upon exercise
of warrants, up to 15,584 shares which we may issued as interest payable on the
debentures, and 74,116 shares, an additional 30% of the Registrable Securities.
Paul Kessler and Diana Derycz-Kessler are the managing members of Bristol
Capital Advisors, LLC, a Delaware limited liability company ("BCA") which acts
as investment manager and has sole power to direct the management of Bristol
Investment Fund, Ltd. Through BCA, Mr. Kessler and Mrs. Diana Derycz -Kessler
possess voting and dispositive power over the shares owned by Bristol Investment
Fund, Ltd.


(7) Shares offered pursuant to this Prospectus consist of 339,007 shares
issuable upon conversion of the debentures; 54,629 shares issuable upon exercise
of warrants, up to 24,831 shares which we may issued as interest payable on the
debentures, and 118,091 shares, an additional 30% of the Registrable Securities.
Ascend Capital, LLC, a Delaware limited liability company ("Ascend") serves as
the investment advisor to Ascend Offshore Fund, Ltd. ("Ascend Offshore") Malcolm
Fairbain serves as the founder and sole managing member of Ascend Offshore and
has the sole power to direct the management of Ascend Offshore. Through Ascend,
Mr. Fairbain possesses sole voting and dispositive power over all of the shares
owned by Ascend Offshore.

(8) Shares offered pursuant to this Prospectus consist of 41,277 shares issuable
upon conversion of the debentures; 6,651 shares issuable upon exercise of
warrants, up to 3,023 shares which we may issued as interest payable on the
debentures, and 14,378 shares, an additional 30% of the Registrable Securities.
Ascend serves as the investment advisor to Ascend Partners, LP ("Ascend LP").
Malcolm Fairbain serves as the founder and sole managing member of Ascend LP and
has the sole power to direct the management of Ascend LP. Through Ascend, Mr.
Fairbain possesses sole voting and dispositive power over all of the shares
owned by Ascend LP.

(9) Shares offered pursuant to this Prospectus consist of 116,170 shares
issuable upon conversion of the debentures; 18,720 shares issuable upon exercise
of warrants, up to 8,509 shares which we may issued as interest payable on the
debentures, and 40.467 shares, an additional 30% of the Registrable Securities.
Ascend Capital, LLC, a Delaware limited liability company ("Ascend") serves as
the investment advisor to Ascend Partners Sapient, LLP, Ltd. ("Ascend Partners).
Malcolm Fairbain serves as the founder and sole managing member of Ascend
Partners and has the sole power to direct the management of Ascend Partners.
Through Ascend, Mr. Fairbain possesses sole voting and dispositive power over
all of the shares owned by Ascend Partners.

(10) Shares offered pursuant to this Prospectus consist of 103,896 shares
issuable upon exercise of warrants. Gordon and Byron Roth share voting and
dispositive power with respect to the share held by Roth Capital.

(11) AG Edwards & Sons, Inc. is a publicly traded company. The current officers
and directors of AG Edwards may be deemed to possess the sole voting and
dispositive power over all the shares owned by AG Edwards & Sons, Inc.

(12) Because the selling stockholders may sell all or some portion of the shares
of common stock beneficially owned by them, only an estimate (assuming the
selling stockholders sell all of the shares offered hereby) can be given as to
the number of shares of common stock that will be beneficially owned by the
selling stockholders after this offering. In addition, any selling stockholder
may have sold, transferred or otherwise disposed or, or may sell, transfer or
otherwise dispose of, at any time or from time to time since the dates on which
they provided the information regarding the shares beneficially owned by them,
all or a portion of the shares beneficially owned by them in transactions exempt
from the registration requirements of the Securities Act of 1933.


CIRCUMSTANCES UNDER WHICH SELLING STOCKHOLDERS ACQUIRED SECURITIES


Set forth below is a summary of the circumstances that led to the issuance to
the selling stockholders of shares of our common stock and the securities, which
are exercisable or convertible into shares of our common stock.


                                       14
<PAGE>


On August 20, 2003, we entered into a Securities Purchase Agreement ("Purchase
Agreement") with Omicron Master Trust, SF Capital Partners Ltd., Bristol
Investment Fund, Ltd., Ascend Offshore Fund, Ltd., Ascend Sapient Partners, Ltd.
and Ascend Partners, LP., for the sale to these investors of 8% debentures,
convertible into shares of our common stock at a conversion price equal to $3.85
per share, for an aggregate amount of $4 million. We closed this offering on
September 8, 2003. As of November 22, 2004, due to a reduction in the conversion
price the debentures were convertible into 2,836,879 shares of common stock. The
investors also received warrants to purchase up to, in the aggregate 457,143
shares of our common stock with an exercise price equal to $4.025 per share. We
also agreed to register the resale of the shares issued to the investors in a
registration rights agreements. The debentures, the warrant agreements, the
registration rights agreement and any other e documents relating to the
securities issued to the investors shall sometimes be collectively referred to
as the "transaction documents."

The debentures mature on February 20, 2006 and they provide for interest only
payments on a quarterly basis, on March 1, June 1, September 1 and December 1.
The interest rate was 8% per annum from September 8, 2003 through February 9,
2004, however, in connection with an amendment to the transaction documents we
agreed to increase the interest rate to 8.5% per annum effective as of February
9, 2004, 9% per annum effective as of December 1, 2004. We must make these
interest payments in cash. However, if we meet certain requirements specified in
the debentures, we can make the interest payments by using shares of our common
stock. These requirements are that (1) a registration statement registering the
resale of the investor's shares is effective, (2) our common stock is listed for
trading on a principal market, such as the American Stock Exchange or the NASDAQ
National Market (3) there is a sufficient number of authorized but unissued
shares of our common stock available so that all shares of our common stock
could be issued to the investors under the transaction documents, (4) we are not
in default of any of the terms of the transaction documents and (5) the issuance
of the shares to an investor will not result in the investor owning more than
4.99% of our issued and outstanding common stock (unless the investor has waived
the 4.99% conversion limitation).


If certain conditions are met after the registration statement is declared
effective, we have the right, but not the obligation to redeem the debentures at
100% of their face value, plus accrued interest. The first condition is that the
closing price of our common stock must exceed the set price of the debentures by
200% for more than 15 consecutive trading days. The set price of the convertible
debentures is $1.41, so the trading price for 15 consecutive trading days must
exceed $2.82 per share. The other conditions are (1) we must have honored all
conversions made by the investors prior to the redemption date, (2) our
registration statement registering the resale of shares is effective, (3) our
common stock is listed for trading on a principal market, such as AMEX or
NASDAQ, (4) we have paid all liquidated damages that are due under the
transaction documents, (5) there is a sufficient number of authorized but
unissued shares of our common stock available to issue to the investors all
shares of our common stock that could be issued to the investors under the
debentures, (6) we are not in default of any of the terms of the transaction
documents, (7) the issuance of the shares to an investor will not result in an
investor owning more than 4.99% of our issued and outstanding common stock
(unless the investor has waived the 4.99% conversion limitation) and (8) we had
not made any public announcements about a pending or proposed change of control
or a fundamental transaction, such as a merger or acquisition, has not occurred
and not been consummated.


The warrants are exercisable for a period of three years from the date of
issuance until September 7, 2006 and the initial exercise price is $4.025 per
share. The conversion price of the debentures and the exercise price of the
warrants are subject to adjustment in the event we issue additional shares of
our common stock or securities convertible into shares of our common stock at a
price per share of common stock less than the conversion price or exercise price
on the basis of a weighted average formula. In addition, the conversion price of
the debentures and exercise price of the warrants are subject to adjustment at
any time as the result of any subdivision, stock split, combination of shares or
capitalization. For example, if we were to declare a 2-for-1 stock split, the
conversion price of the debentures would be reduced by half from $3.85 to $1.93
per share and the exercise price of the warrants would be reduced from $4.025 to
$2.0125 per share. The exercise price has been adjusted to $1.46 based on July
31, 2004 based antidilution adjustment.

The Institutional Investors and Roth Capital Partners, LLC ("Roth Capital"), the
placement agent in this transaction ("Roth Capital"), were also given certain
registration rights in a registration rights agreement with Singing Machine. We
agreed to register:


o     an aggregate of 2,836,879 shares issuable upon conversion of the
      convertible debentures;

o     an aggregate of 591,039 shares issuable upon exercise of warrants;

o     an aggregate of 207,791 shares issuable as interest payments on the
      debentures; and

All of these shares are collectively referred to as the "Registrable
Securities." In addition, we agreed that we would register 130% of the
Registrable Securities. As such, we are registering an additional 988,207
shares.

We granted the investors a right of first refusal to participate in our future
offerings of our common stock or equivalent securities for a period of one year
after the effective date of the registration statement. If we enter into any
financing transactions during the one year period after the registration
statement is effective, of which this Prospectus is a part, we need to offer the
institutional investors the right to participate in such offering in an amount
equal to the greater of (a) the principal amount of the debentures currently
outstanding or (b) 50% of the financing offered to the outside investment group.
For example, if we offer to sell $10 million worth of our securities to an
outside investment group, the institutional investors will have the right to
purchase up to $5 million of this offering.

Additionally, we cannot:

o     sell any of our securities in any transactions which are based on the
      trading price of our common stock at any time after the initial issuance
      of such securities; or


                                       15
<PAGE>

o     sell any securities which grant investors the right to receive additional
      shares based on future transaction of our company on terms more favorable
      than those granted to the investor in the initial offering.

These limitations are in place until the earlier of February 20, 2006 or the
date on which all the debentures are converted into equity. Furthermore, we
agreed not to sell any capital stock or capital stock equivalents for a period
of 90 days after the effective date of this registration statement.

We are obligated to pay liquidated damages to the investors if an event of
default occurs under the registration rights agreement. An event of default
occurs if:

o     we do not give the debenture holders the opportunity to review and comment
      on the registration statement prior to filing an amendment to the
      registration statement with the SEC;

o     if we fail to file a request for acceleration within 5 trading days after
      the date that the SEC has notified us that the registration statement is
      not subject to further review;

o     if we fail to file a pre-effective amendment to the registration statement
      within 10 trading days after the receipt of comments by the SEC; or

o     a registration statement ceases to be effective for any reason after the
      effectiveness date or the holders are not permitted to utilize the
      prospectus for 20 consecutive trading days or an aggregate of 30
      consecutive dates during any 12-month period.


During each month that we have an event of default, we are obligated to pay each
holder liquidated damages in an amount equal to 2% per month, pro rata on a
daily basis, of (i) the subscription amount paid by such holder pursuant to the
purchase agreement, which was $4 million in the aggregate, and (ii) if the
warrants are "in the money" and then held by the holder, the value of the
outstanding warrants (valued at the difference between the average volume weight
average price during the applicable month and the exercise price multiplied by
the number of shares of common stock the warrants are exercisable into). As of
November the debentures holders have waived all liquidated damage until January
7, 2004, the liquidated damages are $80,000 per month.

We amended the convertible debenture agreements to increase the interest rate to
8.5% effective as of February 9, 2004 and granted warrants to purchase an
aggregate of 30,000 shares of the Singing Machine's common stock to the
debenture holders on a pro-rata basis. These concessions were in consideration
of the debenture holder's agreements to (i) enter into new subordination
agreements with Milberg Factors, (ii) to waive all liquidated damages due under
the transaction documents through July 1, 2004 and (iii) to extend the effective
date of the Form S-1 registration statement until July 1, 2004. The new warrants
have an exercise price equal to $1.52 per share, the fair market value of
Singing Machine's common stock on February 9, 2004, the date of the grant. The
fair value of these warrants as calculated pursuant to Statement No. 123 is
$30,981 and has been expensed as other operating expenses in the accompanying
statements of operations.

On November 8, 2004, Singing Machine executed a letter agreement with the
debenture holders, whereby Singing Machine agreed to change the interest rate on
the debenture to 9% in exchange for the debenture holders agreeing to (i)
execute a subordination agreement with Crestmark Bank, (ii) waive all liquidated
damages due under the transaction documents through January 7, 2005, and (iii)
withdraw any demand for repayment under the debenture.


In connection with this financing, we paid Roth, as placement agent, cash
compensation of 5.5% of the proceeds raised in this offering and granted it a
warrant to purchase 103,896 shares of our common stock at an exercise price of
$4.025 per share. We agreed to register the resale of the 103,896 shares
underlying the warrant issued to Roth.

We have agreed to register the resale of 40,151 shares issued to AG Edwards &
Sons, Inc. in connection with a settlement agreement that we entered into with
them, effective as of November 17, 2003. AG Edwards served as our investment
advisor from October 8, 2002 through October 8, 2003. See the "Legal
Proceedings" Section.

                              PLAN OF DISTRIBUTION

The selling stockholders and any of their pledgees, assignees, transferees,
donees and successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:

o     ordinary brokerage transactions and transactions in which the
      broker-dealer solicits purchasers;

o     block trades in which the broker-deal will attempt to sell the shares as
      agent but may position and resell a portion of the block as principal to
      facilitate the transaction;

o     purchases by a broker-dealer as principal and resale by the broker-dealer
      for its account;


                                       16
<PAGE>

o     an exchange distribution in accordance with the rules of the applicable
      exchange;

o     privately negotiated transactions;

o     settlement of short sales;

o     broker-dealers may agree with the selling stockholders to sell a specified
      number of such shares at a stipulated price per share;

o     a combination of any such methods of sale; and

o     any other method permitted pursuant to applicable law.


If any of the selling stockholders sell or engage in short sales of our common
stock, it could have a negative effect on our stock price. Each of the selling
stockholders will prior to the effectiveness of the registration statement
advise in writing that they have not since the purchase of the debentures and
will not prior to the effectiveness of the registration statement make a short
sale of our common stock.

Roth Capital Partners, LLC and SF Capital Partners, Ltd., are affiliates of
broker dealers that are registered with the National Association of Securities
Dealers. Roth Capital Partners, LLC and SF Capital Partners represented that it
was purchasing these securities in the ordinary course of business and at that
at the time of the purchase it did not have any agreements directly or
indirectly with any persons to distribute those securities. Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved. Broker-dealers may
agree to sell a specified number of such shares at a stipulated price per share,
and, to the extent such broker-dealer is unable to do so acting as agent for us
or a selling shareholder, to purchase as principal any unsold shares at the
price required to fulfill the broker-dealer commitment. Broker-dealers who
acquire shares as principal may thereafter resell such shares from time to time
in transactions, which may involve block transactions and sales to and through
other broker-dealers, including transactions of the nature described above, in
the over-the-counter markets or otherwise at pries and on terms then prevailing
at the time of sale, at prices than related to the then-current market price or
in negotiated transactions. In connection with such resales, broker-dealers may
pay to or receive from the purchasers such shares commissions as described
above.


The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this Prospectus The selling
stockholder may from time to time pledge or grant a security interest in some or
all of the shares of common stock owned by them and, if they default in the
performance of their secured obligations, we will file a supplement to this
Prospectus to list the pledgees and/or secured parties as selling stockholders.
Furthermore, if the selling stockholders assign or transfer their shares of our
common stock, we will file a supplement to this Prospectus to list the pledgees,
transferees and other successors-in interest as selling stockholders.

The selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. The selling stockholders have informed us
that none of them have any agreement or understanding, directly or indirectly,
with any person to distribute the common stock.

The selling stockholders, their affiliates and any other persons participating
in the sale or distribution of the shares offered under this Prospectus will be
subject to applicable provisions of the Securities Exchange Act of 1934, and the
rules and regulation under that act, including without limitation, Regulation M.
Regulation M applies to activities of the selling stockholders and their
affiliates that may be considered a "distribution," which is an offering of
securities, whether or not subject to a registration under the Securities Act of
1933, what is distinguished from ordinary trading transactions by the magnitude
of the offering and the presence of special selling efforts and selling methods
by the selling security holders of their affiliates may cause the shares offered
by those selling stockholders to be considered a distribution under Regulation
M.

If the selling stockholders or their affiliates are considered to be involved in
a "distribution" with respect to shares of our common stock they will be
prohibited from directly or indirectly bidding for, purchasing or attempting to
induce any person to bid for or purchases shares of common stock offered under
this Prospectus during the applicable restricted period, which is the period
beginning on the later of five business day prior to the determination of the
offering price of the shares of common stock offered under this Prospectus or
such time that a person becomes a distribution participant, and ending upon such
person's completion of participation in the distribution.

The provisions described above may restrict certain activities including
stabilizing activities by the selling stockholders and their affiliates or any
other person participating in the sale or distribution of shares offered under
this Prospectus, and may limit the timing of purchases and sales of any of the
shares by the selling stockholders, their affiliates or any other such person.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the shares
of common stock offered under this Prospectus.


                                       17
<PAGE>


We will make copies of this Prospectus available to the selling stockholders and
have informed them of the need for delivery of copies of this Prospectus to
purchasers at or prior to the time of any sale of the shares. We are required to
pay all fees and expenses incurred by our company incident to the registration
of the shares. We have agreed to indemnify the selling stockholders against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act.


                          MARKET PRICES OF COMMON STOCK

Our common stock currently trades on the American Stock Exchange under the
symbol "SMD." Set forth below is the range of high and low information for our
common stock as traded on the American Stock Exchange during fiscal 2004 and
fiscal 2003. This information regarding trading on AMEX represents prices
between dealers and does not reflect retail mark-up or markdown or commissions,
and may not necessarily represent actual market transactions.


               FISCAL PERIOD                                    HIGH       LOW
---------------------------------------------                 -------     ------
2005:
First quarter (April - June 30, 2004)                         $ 1.27      $ 0.50
Second quarter (July 1 - September 30, 2004)                  $ 0.68      $ 0.55


2004:
First quarter (April 1 - June 30, 2003)                       $ 7.94      $ 2.85
Second quarter (July 1 - September 30, 2003)                    5.03        2.70
Third quarter (October 1 - December 31, 2003)                   4.43        1.80
Fourth quarter (January 1 - March 31, 2004)                     2.43        1.14

2003:
First quarter (April 1 - June 30, 2002)                       $16.89      $12.06
Second quarter (July 1 - September 30, 2002                    12.74        8.05
Third quarter (October 1 - December 31, 2002)                  13.49        8.50
Fourth quarter (January 1 - March 31, 2003)                     9.19        5.30


As of October, 2004, there were approximately 311 record holders of our
outstanding common stock.


COMMON STOCK

We have never declared or paid cash dividends on our common stock and our Board
of Directors intends to continue its policy for the foreseeable future. Future
dividend policy will depend upon our earnings, financial condition, contractual
restrictions and other factors considered relevant by our Board of Directors and
will be subject to limitations imposed under Delaware law.

On March 14, 2002, we affected a 3-for-2 stock split for all shareholders on
record as of March 4, 2002.

                                 DIVIDEND POLICY

We do not anticipate the declaration or payment of any dividends in the
foreseeable future. We have never declared or paid cash dividends on our common
stock and our Board of Directors intends to continue its policy for the
foreseeable future. Also, we will consider our earnings, financial condition,
contractual restrictions and other factors in deciding whether to issue
dividends in the future. Under Delaware law, we are prohibited from declaring
dividends unless we have legally available surplus, as such term is defined
under Delaware law. Alternatively, if we do not have legally available surplus,
we can pay dividends out of our net profits in the fiscal year in which the
dividend is declared.

                  SELECTED FINANCIAL INFORMATION AND OTHER DATA

The selected financial information set forth below is derived from, and should
be read in conjunction with, the more detailed financial statements (including
the notes thereto) appearing elsewhere in this Prospectus. See "Consolidated
Financial Statements."


                                       18
<PAGE>


<TABLE>
<CAPTION>
INCOME STATEMENT ITEMS
                                                                 YEAR ENDED MARCH 31,
                                               ---------------------------------------------------
                                                2004       2003       2002*      2001*       2000
                                               -------   --------   --------    -------    -------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                           <C>        <C>        <C>        <C>        <C>
Net Sales                                     $ 70,541   $ 95,614   $ 62,476   $ 34,875   $ 19,032
Cost of Sales                                   68,722     72,329     40,853     22,159     13,727
Total Operating Expenses                        22,013     21,671     13,388      7,689      3,779
Earnings (Loss) From Operations                (20,195)     1,614      8,235      5,028      1,526
Net Other (Expenses) Income                     (1,730)      (198)       (51)      (840)       948
Income Tax (Benefit) Expense                      (758)       199      1,895        492        160
Net Earnings (Loss)                            (22,683)     1,218      6,289      3,696        738
Net Earnings (Loss) per common share basic       (2.65)      0.15       0.88       0.59       0.23
Net Earnings (Loss) per common share diluted     (2.65)      0.14       0.79       0.50       0.19
Shares used in computing net earnings (loss)
   per common share - basic                      8,556      8,114      7,159      6,292      2,726
Shares used in computing net earnings (loss)
   per common share - diluted                    8,556      8,931      7,943      7,457      3,342
</TABLE>

<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED            SIX MONTHS ENDED
                                            JUNE 30,                   SEPTEMBER 30,
                                  ---------------------------  ---------------------------
                                      2003          2002*         2003          2002*
                                  -------------  ------------  ------------  -------------
<S>                                    <C>           <C>           <C>            <C>
Net Sales                              $ 7,628       $ 4,152       $39,364        $37,129
Cost of Sales                            5,902         3,092        34,166         26,652
Gross Profit                             1,726         1,060         5,198         10,476
Total Operating Expenses                 3,860         2,393         8,584          6,849
Earnings (Loss) From Operations         (2,134)       (1,333)       (3,386)         3,627
Net Other (Expenses) Income               (181)           24          (590)            52
Income Tax (Expense) Benefit                (2)          118         1,003           (993)

Net Earnings (Loss)                     (2,317)       (1,191)       (2,973)         2,686
Net Earnings (Loss) per common
share basic                              (0.28)        (0.15)        (0.35)          0.33
Net Earnings (Loss) per common
share diluted                            (0.28)        (0.15)        (0.35)          0.30
Shares used in computing net
earnings (loss) per common
share - basic                            8,278         8,061         8,389          8,090
Shares used in computing net
Earnings (loss) per common
share - diluted                          8,278         8,061         8,387          8,889

<CAPTION>
                                         NINE MONTHS ENDED               YEAR ENDED
                                            DECEMBER 31,                 MARCH 31,
                                   ---------------------------- ---------------------------
                                       2003          2002*         2004           2003
                                   -------------  ------------- ------------  -------------
<S>                                     <C>            <C>         <C>             <C>
Net Sales                               $68,054        $85,998     $ 70,541        $95,614
Cost of Sales                            65,457         62,091       68,722         72,329
Gross Profit                              2,597         23,907        1,819         23,285
Total Operating Expenses                 13,615         15,256       22,014         21,671
Earnings (Loss) From Operations         (11,018)         8,651      (20,195)         1,614
Net Other (Expenses) Income              (1,245)           (20)      (1,730)          (198)
Income Tax (Expense) Benefit             (1,161)        (2,675)        (759)          (199)

Net Earnings (Loss)                     (13,424)         5,956      (22,684)         1,217
Net Earnings (Loss) per common
share basic                               (1.58)          0.74        (2.65)          0.15
Net Earnings (Loss) per common
share diluted                             (1.58)          0.67        (2.65)          0.14
Shares used in computing net
earnings (loss) per common
share - basic                             8,503          8,101        8,566          8,114
Shares used in computing net
Earnings (loss) per common
share - diluted                           8,503          8,948        8,566          8,931

<CAPTION>
                                           THREE MONTHS ENDED           SIX MONTHS ENDED
                                                 JUNE 30,                 SEPTEMBER 30,
                                      ---------------------------  ---------------------------
                                          2004          2003          2004           2003
                                      -------------  ------------  ------------  -------------
<S>                                        <C>           <C>           <C>            <C>
Net Sales                                  $ 3,857       $ 7,628       $22,610        $40,479
Cost of Sales                                3,087         5,902        17,580         33,333
Gross Profit                                   770         1,726         5,030          7,146
Total Operating Expenses                     1,854         3,860         4,958         10,533
Earnings (Loss) From Operations             (1,084)       (2,134)           72         (3,387)
Net Other (Expenses) Income                   (435)         (181)         (870)          (590)
Income Tax (Expense) Benefit                    --            (2)           --          1,003

Net Earnings (Loss)                         (1,519)       (2,317)         (798)        (2,974)
Net Earnings (Loss) per common
share basic                                  (0.17)        (0.28)        (0.09)         (0.35)
Net Earnings (Loss) per common
share diluted                                (0.17)        (0.28)        (0.09)         (0.35)
Shares used in computing net
earnings (loss) per common
share - basic                                8,787         8,278         8,799          8,389
Shares used in computing net
Earnings (loss) per common
share - diluted                              8,787         8,278         8,799          8,389
</TABLE>



                                       19
<PAGE>


* As Restated

BALANCE SHEET AND OTHER ITEMS
*AS RESTATED

<TABLE>
<CAPTION>
                                            September 30,             December 31,               March 31,
                                     ------------------------  ------------------------- -------------------------
                                            2003        2002           2003        2002          2004        2003
                                     (Unaudited) (Unaudited)   (Unaudited)  (Unaudited)
<S>                                     <C>         <C>            <C>         <C>           <C>         <C>
Cash (excluding restricted cash)        $  1,106    $    658       $    236    $    363      $    356    $    268
Total current assets                      46,948      48,764         27,267      53,341        13,162      36,531
Working capital                           17,536      17,248          8,275      20,740        (1,383)     15,281
Total Assets                              49,995      50,581         29,604      54,940        14,762      38,935
Inventory                                 20,563      31,382          8,029      30,017         5,228      25,194
Current liabilities                       29,412      31,516         18,992      32,601        14,545      21,250
Long term obligations                        595           -            954           -             -           -
Total shareholders' equity                19,988      19,065          9,658      22,338           217      12,760

<CAPTION>
                                                June 30,                September 30
                                       -------------------------  -----------------------
                                               2004        2003          2004       2003
                                       (Unaudited)  (Unaudited)   (Unaudited) (Unaudited)
<S>                                        <C>         <C>           <C>        <C>
Cash (excluding restricted cash)           $313,574    $     86      $    928   $  1,106
Total current assets                         11,214      35,075        14,184     46,948
Working capital                              (2,670)     13,085            36     17,536
Total Assets                                 12,635      37,566        16,049     49,995
Inventory                                     4,763      25,960         3,410     20,563
Current liabilities                          13,885      21,990        14,148     29,412
Long term obligations                             -           -         1,502        595
Total shareholders' equity                   (1,250)     15,576       399,640     19,988
</TABLE>

                        SELECTED QUARTERLY FINANCIAL DATA

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

QUARTERLY FISCAL 2005

                                                 Unaudited        Unaudited
                                                 3-Months         3 - Months
                                                   Ended          Ended
                                                 June 30,         September 30,
                                                   2004           2004
                                            -------------------  ---------------
  Net Sales                                 $            3,857   $       18,753
  Gross Profit                              $              770   $        4,260
  (Net Loss)/Income                         $           (1,520)  $          722
   (Net Loss)/Income per share (basic)      $            (0.17)  $         0.08
  (Net Loss)/Income per share (diluted)     $            (0.17)  $         0.06

QUARTERLY FISCAL 2004

<TABLE>
<CAPTION>
                             UNAUDITED       UNAUDITED      UNAUDITED       UNAUDITED
                             3-MONTHS        3-MONTHS        3-MONTHS       3-MONTHS
                               ENDED           ENDED          ENDED           ENDED
                             JUNE 30,     SEPTEMBER 30,    DECEMBER 31,     MARCH 31,
                                2003           2003            2003           2004
                           ------------   -------------   -------------    -----------
<S>                        <C>            <C>             <C>              <C>
Net Sales                  $  7,628       $  31,984       $  28,690        $ 2,239
Gross Profit               $  1,726       $   3,804       $  (2,601)       $(1,110)
Net Loss                   $ (2,317)      $    (657)      $ (10,451)       $(9,259)
Net Loss Per Share         $  (0.28)      $   (0.08)      $   (1.14)         (1.09)
 (basic & diluted)
</TABLE>



                                       20
<PAGE>


QUARTERLY FISCAL 2003

<TABLE>
<CAPTION>
                             UNAUDITED      UNAUDITED       UNAUDITED       UNAUDITED
                             3-MONTHS       3-MONTHS         3-MONTHS       3-MONTHS
                               ENDED          ENDED           ENDED           ENDED
                              JUNE 30,    SEPTEMBER 30,    DECEMBER 31,     MARCH 31,
                                2002*          2002*           2002*           2003
                           ------------   -------------   -------------    -----------
<S>                        <C>            <C>             <C>              <C>
Net Sales                  $  4,152       $  32,977       $  48,870        $ 9,614
Gross Profit               $  1,660       $   9,416       $  13,431        $(1,222)
Net Earnings (loss)        $ (1,191)      $   3,827       $   3,321        $(4,739)

Net Earnings (loss)
   Per Share (basic)       $  (0.15)      $    0.47       $    0.41        $ (0.58)
   Per Share (diluted)     $  (0.15)      $    0.44       $    0.39        $ (0.58)
</TABLE>

QUARTERLY FISCAL 2002

<TABLE>
<CAPTION>
                             UNAUDITED      UNAUDITED       UNAUDITED       UNAUDITED
                             3-MONTHS       3-MONTHS         3-MONTHS       3-MONTHS
                               ENDED          ENDED           ENDED           ENDED
                              JUNE 30,    SEPTEMBER 30,    DECEMBER 31,     MARCH 31,
                                2001*          2001*           2001*          2002
                           ------------   -------------   -------------    -----------
<S>                        <C>            <C>             <C>             <C>
Net Sales                  $     5,523    $  15,749       $  34,159       $   7,044
Gross Profit               $     1,861    $   5,310       $  11,439       $   3,013
Net Earnings (loss)        $      (115)   $   1,825       $   4,690       $    (111)

Net Earnings (loss)
   Per Share (basic)       $     (0.03)   $    0.27       $    0.96          (0.02)
   Per Share (diluted)     $     (0.03)   $    0.23       $    0.82          (0.02)
</TABLE>


*AS RESTATED

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW


FOR FISCAL YEAR ENDED MARCH 31, 2004


We had a challenging year in the twelve month period ended March 31, 2004
("fiscal 2004"). During fiscal 2004, we reported a net loss of $22.7 million, or
$2.65 per share, on sales of $70.5 million which compares to net income of $1.2
million in fiscal 2003 or $.14 per diluted share, on sales of $95.6 million.
Sales decreased primarily from increased competition in the United States and in
international markets. In fiscal 2003, we overestimated the demand for our
products and as result had $25 million of excess inventory at year end. In
addition, both our retail customers and our international distributors carried
excess Singing Machine inventory into fiscal 2004, which impacted our ability to
sell into the trade and distribution channels.

Our gross profit decreased to $1.8 million or 2.6% of total revenues in fiscal
2004 compared to gross profit of $23.3 million or 24.4% of total revenues in
fiscal 2003. Our net loss for fiscal 2004 was $22.7 million, which includes
several unusual operating expenses: litigation expenses severance expenses,
lease termination costs, write off of prepaid royalties, tooling impairment
charges and the settlement will be final if no appeals are filed by the next 30
days, write off of capitalized cost of reorganization intangible.


In July 2003, we made a decision to restate our audited financial statements for
the fiscal years ended March 31, 2002 and 2001 because we revised our position
on the Hong Kong and U.S. taxation of the income of International SMC, our Hong
Kong subsidiary. See "Restatement" on pages 24. As a result of this restatement
we were named as a defendant in several class action lawsuits and a derivative
lawsuit. The shareholder complaints were consolidated into one lawsuit in the
United States District Court for Southern Florida. Settlement was approved by
the court on July 30, 2004. The court entered an order approving our settlement
agreement with the plaintiffs on August 2, 2004. We incurred approximately
$706,000 for the settlement and related expenses, net of reimbursement from our
insurance carrier.



                                       21
<PAGE>

In July 2003, we raised $1 million in subordinated debt financing from an
investment group comprised of an officer, directors and an associate of one of
our directors. On August 19, 2004, LaSalle amended our credit agreement, which
extended the loan until March 31, 2004 and waived the existing condition of
default. On September 8, 2003, we raised $4 million in an offering of 8%
convertible subordinated debentures to six accredited investors. The proceeds of
the debenture were used to pay down our accounts payable, finance operations and
pay down a portion of our loan with LaSalle. On December 31, 2003, we again
violated the tangible net worth requirement and working capital requirements
under our credit agreement with LaSalle. On January 31, 2004, we paid off our
loan with LaSalle and LaSalle released its security interests in our assets and
terminated the credit agreement. We entered into a factoring agreement with
Milberg Factors effective as of February 9, 2004 and terminated this agreement
on July 14, 2004.


Despite the reduction in expenses, we still had minimal liquidity during fiscal
2004. As such, we were forced to sell excess inventory at or below cost. During
fiscal 2004, we sold approximately 20.2% of our inventory at prices at or below
cost. As such, our gross profit percentage decreased to 2.6% of our net sales.
As of March 31, 2004, we did not have any advances outstanding under our
factoring agreement with Milberg; however, we were in violation of the covenants
relating to working capital and tangible net worth. We terminated this factoring
agreement, effective as of July 14, 2004. Because of our limited liquidity, we
received a going concern uncertainty paragraph on our audited financial
statements for fiscal 2004. Although our cash on hand as of July 1, 2004 is
limited, we believe that we will have sufficient cash from operations to fund
our operating requirements for the next three months. After three months, we
expect to begin collecting accounts receivable from the sales of our karaoke
products in the second and third quarters. If there is a need for additional
funds, short term loans will be obtained. We will continue to sell older
inventory models at discounted prices to generate cash as well as continuing to
reduce operating expenses.

RESULTS OF OPERATIONS

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


                                        2004      2003      2002*
                                       -----     -----     -----
Total revenues                         100.0%    100.0%    100.0%
Cost of sales                           97.4%     75.6%     65.4%
Operating expenses                      31.2%     22.7%     21.4%
Operating (loss) income                (28.6%)     1.7%     13.2%
Other (expenses), income, net           (2.5%)    (0.2%)    (0.1%)
(Loss) Income before taxes             (31.1%)     1.5%     13.1%
Provision (benefit) for income taxes     1.1%       .2%      3.0%
(Loss) income                          (32.2%)     1.3%     10.1%

----------

* AS RESTATED.

RESTATEMENT OF FINANCIAL STATEMENTS

In June 2003, management revised its position on taxation of its subsidiary's
income by the United States and by the Hong Kong tax authorities.

With regard to taxation in Hong Kong, our subsidiary had previously applied for
a Hong Kong offshore claim income tax exemption based on the locality of profits
of the Hong Kong subsidiary. Management previously believed that the exemption
would be approved because the source of all profits of the Hong Kong subsidiary
is from exporting to customers outside of Hong Kong. Accordingly, no provision
for income taxes was provided in the consolidated financial statements as of
March 31, 2002 and 2001. However, full disclosure was previously reflected in
the audited financial statements for years ended March 31, 2002 and 2001 of the
estimated amount that would be due to the Hong Kong tax authority should the
exemption be denied. Management is continuing its exemption application process.
However, due to the extended period of time that the application has been
outstanding, as well as management's reassessment of the probability that the
application will be approved, management determined to restate the 2002 and 2001
consolidated financial statements to provide for such taxes. The effect of such
restatement was to increase income tax expense by $748,672 and $468,424 in
fiscal 2002 and 2001, respectively. However, we can claim United States foreign
tax credits in 2002 for these Hong Kong taxes, which is reflected in the final
restated amounts.


                                       22
<PAGE>

With regard to United States taxation of foreign income, we had originally taken
the position that the foreign income of the Hong Kong subsidiary qualified for a
deferral under the Internal Revenue Code allowing for such income to be
indefinitely deferred and not taxed in the United States until such income is
repatriated. Full disclosure of the amount and nature of the indefinite deferral
for fiscal year 2002 was reflected in the income tax footnote of the
consolidated financial statements for that year. The Internal Revenue Code,
regulations and case law regarding international income taxation is quite
complex and subject to interpretation. Each case is determined based on the
individual facts and circumstances. Due to certain inter-company loans made in
2002 and 2003, the profits previously considered to be indefinitely deferred
became partially taxable as "deemed dividends" under section 956 of the Internal
Revenue Code. Although certain arguments against the imposition of a "deemed
dividend" may be asserted, management determined to restate the fiscal year 2002
consolidated financial statements based on its reassessment of its original
position. The effect of such restatement was to increase income tax expense by
$1,027,545 in fiscal year 2002, which includes the utilization of the foreign
tax credits referred to above.

The net effect of the above two adjustments was to decrease net income by
$1,776,217 and $468,424 in fiscal 2002 and 2001. The net effect on net income
per share was to decrease net income per share basic and diluted by $0.25 and
$0.23, respectively in fiscal 2002 and decrease net income per share basic and
diluted by $0.07 and $0.06, respectively in fiscal 2001.


SIX MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER
30, 2003

NET SALES

Net sales for the six months ended September 30, 2004 were $22,610,161, compared
to net sales of $40,479,551 for the comparative period of 2003. Sales decreased
$ 17,869,390 or 44% from the comparative period. . The decrease in sales is a
combination of four primary reasons:

      1)    Management has made a decision not to pursue lower margin business
            which tied up cash flow but not providing enough profit margin.

      2)    The number of variation of Karaoke machines offered to the trade has
            been scaled back from prior years. This has helped us manage our
            working capital more effectively with an improved control over
            inventories and accounts payables to our vendors.

      3)    SMC liquidity concerns discourages some major customers from
            purchasing from us

      4)    In addition our major distributors in Europe ordered less Karaoke
            machines due high levels of inventories on hand from last year.

GROSS PROFIT

Gross profit for the six months ended September 30, 2004 was $5,030,484 or 22%
of sales as compared to $7,146,140 or 17% of sales for the six months ended
September 30, 2003. The year to date gross margins 84% were generated in the
second quarter, therefore see the variance explanation for the three-months
comparative periods.

OPERATING EXPENSES

Total operating expenses were $4,957,941 for the six months ended September 30,
2004, compared to $10,532,916 for the comparative period of 2003. Operating
expenses decreased compared to prior period by 52% or $5,574,975. This decrease
of expenses is a result of two primary factors:

      o     In fiscal years 2004 and 2005, one of managements primary objectives
            was to continually reduce our operating expenses. Total controllable
            operating expenses for six months ending September 30, 2004
            decreased 51% from the comparative period last year or $3,788,268.
            Controllable expenses include selling, general and administrative
            expenses and compensation expense. Selling, general and
            administrative expense was reduced by $2,668,657 or 53%, to
            $2,178,226, from $4,846,883. Compensation expense on a comparative
            basis was reduced by $1,119,611 or 45% to $1,335,780 from
            $2,455,391.

      o     In addition, variable selling related expenses -advertising,
            commissions, freight & handling and royalty, decreased as a percent
            of sales from 7.9% to 6.3% of sales. In total, variable expenses
            decreased $1,796,707, from $3,230,642 in the six months ended
            September 30, 2003 to $1,433,935 in the quarter ended September 30,
            2004.

OTHER INCOME/EXPENSES

      Net other expenses were $870,354 for the six months ended September 30,
2004, compared to other expense of $590,343 for the six months ended September
30, 2003. The increase over prior year is the result of amortization of the
discount on the convertible debentures totaling $743,921 compared to $56,801 for
the comparative period of last year. Singing Machine did not close on the
convertible debenture until September 8, 2003. Interest expense decreased for
the six months ended September 30, 2004 vs. the six months ended September 30,
2003. For the six months ended September 30, 2004 interest expense decreased to
$243,704 from $450,562. The decrease is a result of reduced borrowings, compared
to the prior year.

INCOME TAXES

      Singing Machine has not recorded a benefit for the current period's losses
because its realizability is unlikely.



                                       23
<PAGE>


FISCAL YEAR ENDED MARCH 31, 2004 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 2003


NET SALES

Net sales for the fiscal year ended March 31, 2004 decreased to $70.5 million
compared to revenues of $95.6 million in the fiscal year ended March 31, 2003.
The decrease in net sales was due to both decreases in unit volume as well as
pricing, due to increases in competition in the United States and international
markets. In fiscal year 2004, 61% of our sales were direct sales, which
represent sales made by International SMC, and 39% were domestic sales, which
represent sales made from our warehouse in the United States.

The following is the summary of the sales by region and by product:

                                                                    Change
                                                             -------------------
(In thousand)                      2004          2003           $            %

Foreign                          $ 27,497      $ 17,917      $  9,580        53%
Domestic and Canada              $ 43,044      $ 77,969      $(34,925)      -45%
                                 --------      --------      --------       ----
Total sales                      $ 70,541      $ 95,886      $(25,345)      -26%
                                 ========      ========      ========       ====

Hardware                         $ 40,244      $ 68,596      $(28,352)      -41%
Music                            $  2,800      $  9,100      $ (6,300)      -69%
                                 --------      --------      --------       ----
US sales                         $ 43,044      $ 77,696      $(34,652)      -45%
                                 ========      ========      ========       ====


The sales in North America decreased 44.6% or $34,652,000 which was partiality
offset by an increase in sales in our international markets by $9,580,000, for a
net decrease of $25,072,000. Within the US, Our Karaoke hardware sales decreased
44.6% or $28,352,000. This decrease is a result of additional competition
(Memorex and Craig) in the United States. This put pricing pressure on our
product line which resulted in decreased selling prices and gross margin
percents

In addition in FY2004 we did substantially less business with Target, Toys R Us,
Transworld and Bestbuy, and no business with Sears, which accounted for a
significant amount of sales in FY 2003.

In addition our music (CDG's) decreased from $9,100,000 to $2,800,000 a decrease
of 69.2% or $6,300,000. This decrease is a result of increased competition and
certain accounts we did not do or reduce the business with in FY2004 (Target,
Toys R Us, Transworld and Sears).


The sales decreases occurred in all segments of our business. Our total hardware
sales decreased to $67.7 million, in fiscal 2004 compared to total hardware
sales of $87 million in fiscal 2003. The total decrease of hardware sales of
$19.3 million from the previous year sales level is the primary due to the
increasing market competition. Also we had to lower our price in order to move
the overstocked inventory from fiscal year 2003.

In addition, there was a significant decrease in our music sales. Music sales
decreased to $2.8 million, or 4% of net sales, in fiscal 2004, compared to $9.1
million, or 9.5% of net sales, in fiscal 2003. The decrease in music sales is
also a result of increased competition in this category, both domestically as
well as internationally.

GROSS PROFIT

Gross profit for fiscal 2004 was $1.8 million or 2.6% of total revenues compared
to $23.3 million or 24.4% of sales for fiscal 2003. The decrease in gross margin
compared to the prior year is primarily due to the following factors: (i)
write-down of inventories, (ii) sales made at lower prices to generate cash from
operation, (iii) increased sales by International SMC, which sales have lower
gross profit margins than sales from the U.S. parent company and (iv) tooling
impairment cost of $443,000.

At the end of fiscal 2004, our inventory levels were higher than we expected. We
determined that due to liquidation sales, inventory would be sold at a loss;
therefore, a decrease in the value of specific inventory items was made to
reverse the value of the inventory on hand to its net realizable value. The
total amount of the provision for inventory was $6.6 million in fiscal 2004
compared to a provision of $3.7 million in fiscal 2003.

In addition to the write-down of inventories, due to competitive price pressure,
a significant amount of sales shipped in fiscal 2004 were made at lower margins
than in previous years. In the fourth quarter, we sold $1 million of inventory
with a negative margin of $366,751.

Our product line did not sell as well as our retailers and mass merchants had
expected. As a result, we agreed to give our customers pricing concessions and
allowed them to return inventory to us. We issued over $1 million in customer
credits during the fourth quarter, which reduced our sales and gross profit
margins equally. Our gross margins were also negatively affected by the return
of $1.8 million of additional inventory.


                                       24
<PAGE>

Our decrease in our gross margin percentage in fiscal 2004 compared to fiscal
2003 was also reduced by the mix of our sales. The percentage of sales made by
our Hong Kong subsidiary increased from 52% of the total sales in fiscal 2003 to
61% in fiscal 2004. Historically, sales made by International SMC maintain a
lower gross profit margin. We reduced the sales price of our products sold by
International SMC because its customers are required to pay for the shipping,
duty and the warranty costs.

Our gross profit may not be comparable to those of other entities, since some
entities include the costs of warehousing, inspection, freight charges and other
distribution costs in their cost of sales. We account for the above expenses as
operating expenses and classify them under selling, general and administrative
expenses

OPERATING EXPENSES

Operating expenses were $22 million or 31.2% of net sales in fiscal 2004
compared to $21.67 million or 22.7% of net sales in fiscal 2003. The primary
factors that contributed to the increase in operating expenses are:


o     Increased compensation expenses in the amount of $953,000 in fiscal 2004
      of which approximately $323,000 was for severance payments to four former
      executive officers; and


o     Increased selling, general and administrative expenses of $2,706,000 due
      to:

      -     increased legal fees in the amount of $1,080,00 of which
            approximately $706,000 was for the class action settlement, and
            increased consulting fees in the amount of approximately $370,000
            which was related to consulting work performed by our lender;

      -     increased rent expenses in the amount of $690,000 due to the
            expansion of the warehouse facility in Rancho Dominguez in fiscal
            2003. The increase warehouse space was necessary to stock the
            unanticipated unsold inventories in fiscal year 2004 and expenses of
            $180,000 for early termination of the lease in Rancho Dominguez,
            California;

      -     a write off of the capitalized cost of reorganization of $185,000;

      -     increased accounting expenses in the amount of $426,000, which was
            due to the additional work needed to restate our financial
            statements for the fiscal years ended March 31, 2001 and 2002 and
            work required on the filing of certain registration statements; and

      -     increased bank fees and loan cost in the amount of $271,000, which
            was related to the loan agreement with LaSalle bank.

This increase in expenses was offset by decreases in our advertising expenses
and our freight and handling charges in the amount of $2,692,000 and $689,000,
respectively. Advertising expense consists of two components: co-operative
advertising and direct advertising expense. Co-operative advertising is paid
directly to the customer and the allowances are based on the amount of sales.
The customer provides copies of advertising on which these funds are spent, but
has complete discretion as to the use of these funds. As we believe that there
is a separate and identifiable benefit associated with the co-operative
advertising, such amounts are recorded as a component of operating expenses.
Co-operative advertising expenses decreased to $2,340,439 in fiscal 2004
compared to $5,032,367 in fiscal 2003 because our sales decreased. Our royalty
expenses were $2,294,727 in fiscal 2004 compared to $2,257,653 in fiscal 2003.
Our royalty expenses in fiscal 2004 included a write-off of $980,000 in pre-
paid royalties under our licensing agreement with MTV.

DEPRECIATION AND AMORTIZATION

Our depreciation and amortization expenses were $750,359 for fiscal 2004
compared to $622,298 for fiscal 2003. This increase in depreciation and
amortization expenses can be attributed to our investment in tooling and dies
for the new models, in addition to the acceleration in the depreciation method
used to depreciate tools and dies.

NET OTHER EXPENSES


Net other expenses were $1.73 million in fiscal 2004 compared to $197,646 in
fiscal 2003. Net other expenses increased because our interest expense increased
to $1.75 million in fiscal 2004 compared to $406,000 in fiscal 2003. Our
interest expense increased because we recorded $757,815 for the amortization of
the discount and related deferred financing fees on our convertible debentures
and approximately $800,000 relates to interest expense on the LaSalle loan,
interest on the convertible debentures, interest on the insiders loan, and
interest expense incurred at our Hong Kong subsidiary. We expect interest
expense to increase further in fiscal 2005, as we will have a full year's worth
of amortization of the discount on the convertible debentures and related
deferred financing fees.


INCOME BEFORE TAXES

We had a net loss before taxes of $21.9 million in fiscal 2004 compared to net
income of $1.42 million in fiscal 2003.


INCOME TAX EXPENSE



                                       25
<PAGE>

Significant management judgment is required in developing our provision for
income taxes, including the determination of foreign tax liabilities, deferred
tax assets and liabilities and any valuation allowances that might be required
against the deferred tax assets. Management evaluates its ability to realize its
deferred tax assets on a quarterly basis and adjusts its valuation allowance
when it believes that it is more likely than not that the asset will not be
realized. At December 31, 2003 and March 31, 2004, we concluded that a valuation
allowance was needed against all of our deferred tax assets, as it was not more
likely than not that the deferred taxes would be realized. At March 31, 2004 and
2003, we had gross deferred tax assets of $8.2 million and $1.9 million, against
which we recorded valuation allowances totaling $8.2 million and $0,
respectively.

For the fiscal year ended March 31, 2004, we recorded a tax provision of
$758,505. This occurred because the valuation allowance established against our
deferred tax assets exceeded the amount of the benefit created from carrying
back a portion of the current year's losses. The carry-back of the losses from
the current year resulted in an income tax receivable of $1.1 million, which is
included in refundable tax in the accompanying balance sheets. We have now
exhausted our ability to carry back any further losses and therefore will only
be able to recognize tax benefits to the extent that we has future taxable
income.

Our subsidiary has applied for an exemption of income tax in Hong Kong.
Therefore, no taxes have been expensed or provided for at the subsidiary level.
Although no decision has been reached by the governing body, the parent company
has reached the decision to provide for the possibility that the exemption could
be denied and accordingly has recorded a provision for Hong Kong taxes in fiscal
2003 and 2002. There was no provision for Hong Kong income taxes in fiscal 2004
due to the subsidiary's net operating loss for the year. Hong Kong income taxes
payable totaled $2.4 million at March 31, 2004 and 2003 and is included in the
accompanying balance sheets as income taxes payable.

We effectively repatriated approximately $2.0 million, $5.6 million and $5.7
million from our foreign operations in 2004, 2003 and 2002, respectively.
Accordingly, these earnings were taxed as a deemed dividend based on U.S.
statutory rates. We have no remaining undistributed earnings of our foreign
subsidiary.

We operate within multiple taxing jurisdictions and are subject to audit in
those jurisdictions. Because of the complex issues involved, any claims can
require an extended period to resolve. In management's opinion, adequate
provisions for income taxes have been made.

NET LOSS/NET INCOME

As a result of the foregoing, we had a net loss of $22.7 million in 2004
compared to net income of $1.2 million in fiscal 2003.



FISCAL YEAR ENDED MARCH 31, 2003 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 2002

NET SALES

Net sales for the fiscal year ended March 31, 2003 increased 53.0% to $95.6
million compared to $62.5 million for the fiscal year ended March 31, 2002. Our
growth was driven in large part by the addition of international sales in
Europe, Asia, and Australia. We also generated $30.9 million or 32.3% of our net
sales from products sold under the MTV license in fiscal 2003.

Strong sales of our music titles were also driving forces in our revenue growth
for fiscal 2003. In fiscal 2003, our sales of music increased to $8.9 million or
9.3% of sales as compared to $6.3 million or 10.1% of net sales in fiscal 2002.
In fiscal 2004, 52% of our sales were direct sales, which represent sales made
by International SMC, and 48% were domestic sales, which represent sales made
from our warehouse in the U.S.


GROSS PROFIT


Gross profit for the fiscal year ended March 31, 2003 was $23.3 million or 24.4%
of sales as compared to $21.6 million or 34.6% of sales for the fiscal year
ended March 31, 2002. The decrease in gross margin compared to the prior year is
due primarily to the following factors: (i) increased sales from International
SMC both to domestic and international customers; (ii) a write down of the value
of inventory and (iii) a reduction of sales due to a guaranteed gross profit
agreement with Transworld.

International sales were primarily in Europe, Canada and Australia. Sales to
international customers historically maintain lower selling prices, and thus, a
lower gross profit margin. The main reason for this is that the sales are made
to distributors in those countries and there are no additional variable
expenses. Other variable expenses that are seen in conjunction with U.S. sales
are advertising allowances, handling charges, returns and commissions.

In fiscal 2003, we entered into a guaranteed gross profit agreement with
Transworld, a specialty music retailer. We guaranteed Transworld that it would
earn a minimum gross profit of $3,573,000 from the sale of our karaoke products
during the period between September 1, 2002 through January 15, 2003. Under this
agreement, we agreed to pay Transworld for the difference between the gross
profit earned on its sales of our karaoke products and the minimum guarantee. As
of the settlement date of the contract, Transworld had not realized the minimum
guarantee of gross profit. As such, we had to provide them with a check in the
amount of $2.5 million, which was recorded in the fourth quarter of fiscal 2003
as a reduction to revenue.


                                       26
<PAGE>

At the end of fiscal 2003, our inventory level was much higher than we had
expected. As of March 31, 2003, we had inventory on hand of $25 million. We
determined that due to liquidation sales, inventory would be sold at a loss;
therefore, a decrease in the value of specific inventory items was made to
reduce inventory on hand to its realizable value. The total amount of the
provision for inventory was $3.7 million at March 31, 2003.

Gross profit may not be comparable to those of other entities, since some
entities include the costs of warehousing, inspection, freight charges and other
distribution costs in their cost of sales. We account for the above expenses as
operating expenses and classify them under selling, general and administrative
expenses.

OPERATING EXPENSES

Operating expenses were $21.7 million or 22.7% of total revenues in fiscal 2003
up from $13.4 million or 21.4% of total revenues, in fiscal 2002. The primary
factors that contributed to the increase of approximately $8.3 million in
operating expenses for the fiscal year 2003 are:

o     increased advertising expenses of $2.7 million due to increased use of our
      outside advertising agency to oversee more advertising projects for us,
      the production of a television commercial, as well as cooperative
      advertising with customers, which is variable based on the level of sales
      ;

o     the increase in depreciation in the amount of $240,000 due to the addition
      of molds for new product additions for fiscal year 2003;

o     compensation expense in the amount of 1.2 million due to the addition of
      key personnel in Florida, at our California facility and at International
      SMC, which include the executive vice-president of sales, sales
      administration, music licensing coordinator, and music production
      personnel, as well as warehouse employees and repair personnel;

o     increased freight and handling charges to customers in the amount of
      $870,000;

o     expansion of the California warehouse and its associated expenses in the
      amount of $874,000;

o     expansion of International SMC's operations and its related expenses, in
      the amount of $581,000; and

o     increases in product development fees for the development of future
      product in the amount of $571,000.

Other increases in operating expenses were to selling expenses, which are
considered variable. These expenses are based directly on the level of sales and
include royalty expenses and commissions. We also incurred $79,000 of expenses
for catalogue expenses and show expenses. These expenses are not variable and do
not change based on the level of sales. Show expenses are costs that are
associated with the Consumer Electronics Show and Toy Fair, such as promotional
materials, show space and mock up samples.


Our advertising expense increased $2.7 million for the fiscal year ended March
31, 2003 as compared to fiscal 2002. Advertising expense consists of two
components: co-operative advertising and direct advertising expense.
Co-operative advertising is paid directly to the customer and the allowances are
based on the amount of sales. The customer provides copies of advertising on
which these funds are spent, for it does not have complete discretion as to the
use of these funds. As we believe that there is a separate and identifiable
benefit associated with the co- operative advertising, such amounts are recorded
as a component of operating expenses. Co-operative advertising expenses
accounted for $2.3 million of the increase in advertising expenses. In fiscal
2002, we embarked on our first television advertising and continued with the use
of print advertising, radio spots, sponsorships, promotions and other media.
This is considered direct advertising, whereby we actually contract for
advertising of the product. The increased costs for our advertising firm were
$334,024 over the prior year. The expense for direct advertising is at our
discretion and is not variable based on the level of sales attained. Both of
these types of advertising are direct expenses of Singing Machine.


DEPRECIATION AND AMORTIZATION


Our depreciation and amortization expenses were $622,298 for the fiscal year
ended March 31, 2003 as compared to $394,456 for the fiscal year ended March 31,
2002. The increase in depreciation and amortization expenses can be attributed
to Singing Machine's acquisition of new molds and tooling for our expanded
product line, as well as additional costs for additional computer equipment and
furniture for additional personnel.


OTHER EXPENSES


Net other expenses were $197,646 for the fiscal year ended March 31, 2003 as
compared with net other expenses of $50,821 for the fiscal year ended March 31,
2002. Our interest expense increased during the fiscal year ended March 31, 2003
compared to the same period of the prior year primarily due to our increased
borrowings under our credit facility with LaSalle during this period. Prior to
August 2002, we had cash reserves to fund operations and did not need to borrow
under our revolving credit facility. However, in August 2002, we began borrowing
our credit facility with LaSalle. Our interest income decreased from $16,934
during the fiscal year 2002 to $11,943 during the fiscal year 2003 due to our
interest earning's cash balance is lower than previous year. We expect interest
expense to increase in fiscal 2004 as compared to prior years due to the credit
facility accruing interest at a higher rate, effective as of August 19, 2003
when we entered into the Fourteenth Amendment to our credit facility. As of
December 31, 2003, our credit facility accrued interest at 6.5%, which is prime
plus 2.5%, our former default rate. Since interest is calculated based on the
average monthly balance of the credit facility, we can not reasonably estimate
the degree to which this year's expense will exceed last years. We do know,
however, that the interest spread is 1.75% higher than in the same period last
year.



                                       27
<PAGE>

INCOME TAX EXPENSE

Our tax expense is based on an aggregation of the taxes on earnings of
International SMC and our domestic operations. Income tax rates in Hong Kong are
approximately 16%, while the statutory income tax rate in the U.S. is 34%. Our
effective tax rate in fiscal 2003 was 14% as compared to 23% in fiscal 2002.
This decrease in the effective tax rate is a result of our company generating a
pretax loss in the United States in fiscal 2003, resulting in a tax benefit, as
compared to pretax income in the U.S. in fiscal 2002. Our future effective
income tax rate will fluctuate based on the level of earnings of International
SMC and our domestic operations.


NET INCOME


As a result of the foregoing, our net income was $1,217,812 for the fiscal year
ended March 31, 2003 compared to net income of $6,289,065 for fiscal 2002.


LIQUIDITY AND CAPITAL RESOURCES


      At September 30, 2004, Singing Machine had cash on hand of $928,096 in
addition to $1,544,302 of restricted cash and no bank overdrafts, for a total of
$2,472,398 compared to cash on hand of $356,342 and restricted cash of $874,283
and a bank overdraft of $62,282 at March 31, 2004, for a net balance of
$1,168,343. From March 31,2004 to September 30, 2004 the cash balances increased
$1,304,055. Our current liabilities increased to $14,148,459 from $13,755,092 as
of March 31, 2004, an increase of $393,367. We had net working capital of
$35,702 as of September 30, 2004.

      As of September 30, 2004, our current liabilities consist of accounts
payable of $7.2 million, accrued expenses of $1.4 million, customer credits on
account of $1.6 million and income taxes payable of $2,6 million. We are not
current with our primary vendor in China, in the amount of $1.6 million at
September 30, 2004. We have paid down approximately $700,000 that is past due to
the China vendor in the quarter ending September 30, 2004. We have verbally
agreed to a payment plan that will continue through March 2005 without paying
interest and penalty for the past due amounts.

      As of September 30, 2004, we have been advanced $474,968 by Crestmark
bank. Singing Machine could borrow up to the lesser of the $2.5 million or 70%
of the eligible accounts receivable. As of September 30, 2004, the funds
available to borrow from Crestmark bank are approximately $35,000.

      On November 8, 2004, Singing Machine executed a letter agreement with the
debenture holders, whereby Singing Machine agreed to change the interest rate on
the debenture to 9% in exchange for the debenture holders agreeing to (i)
execute a subordination agreement with Crestmark Bank, (ii) waive all liquidated
damages due under the transaction documents through January 7, 2005, and (iii)
withdraw any demand for repayment under the debenture.

      We have received a federal tax refund in the amount of $1,122,093 in the
quarter ending September 30, 2004. The funds were used to pay down loans from
related party in the amount of $240,000, make a fixed deposit in HSBC in the
amount of $400,000, to obtain additional credit facility of $1.2 million to
finance purchases of new Karaoke machines and pay down old accounts payable
balances of approximately $400,000 to Singing Machine's Chinese vendor.

      Our Hong Kong subsidiary, International SMC, has credit facilities at HSBC
and Fortis Bank. The primary purpose of these facilities is to provide
International SMC with access to letters of credit so that it can purchase
inventory for direct shipment of goods into the United States and international
markets. These facilities are secured by a corporate guarantee from the U.S.
parent company and restricted cash on deposit with the lender. The maximum
credit under the facilities is $2.0 million. International SMC has increased the
fixed deposit in the amount of $640,000 with HSBC. The fixed deposit was used as
collateral for additional credit facility of $1.9 million. International SMC has
utilized the additional facility to open the letter of credit to the factories
for the new shipment. The balance at September 30, 2004 and March 31, 2004 was
$0 and $62,282, respectively. The interest rate is approximately 4% per annum.
As of September 30, 2004 there was no availability under these facilities. If we
need to use the facilities, we would use the available cash to retire the letter
of credit or to increase our fixed deposit as collateral to increase our
facilities.

      As of September 30, 2004, our available or unrestricted cash on hand has
increased by $571,754 to $928,096 from $356,342. Our average monthly fixed
operating costs are approximately $600,000, which includes the compensation and
the selling, general & administration expenses. We expect that we will need
approximately $1.8 million for working capital during the next three-month
period. Our primary expenses are normal operating costs including salaries,
lease payments for our warehouse space in Compton, California and other
operating costs.

      On July 14, 2004, a director, Jay Bauer, advanced us a short-term loan of
$200,000, to be used to meet working capital obligations. The loan bears
interest at 8.75% per annum and has been repaid on August 26, 2004.



                                       28
<PAGE>


      Cash flows provided by operating activities were $1,404,583 for the six
months ended September 30, 2004. Cash provided by operating activities primarily
related to a decrease in inventory, increase in accounts payable and receipt of
the tax refund in the amount of $1.1 million. This compares to a negative cash
flow from operations of $4,380,280 for the comparative six month period of
fiscal 2004 a improvement of $5,784,863. The significant changes were a result
of managements focus and control of working capital items, specifically
inventory and accounts receivable.

      Cash used in investing activities for the six months ended September 30,
2004 was $1,245,515. Cash used in investing activities resulted from the
purchase of fixed assets in the amount of $575,495, which consists of the
tooling and molds required for production of new machines for this fiscal year,
and the increase of fixed deposit in the bank, which is used as collateral for
the additional credit facility.

      Cash flows provided by financing activities were $412,686 for the six
months ended September 30, 2004. This cash inflow was primarily advances from
Crestmark Bank pursuant to the new factoring financial institution.


      During the three-month period between October and December 2004, we plan
on financing our working capital needs from


o     Borrowing from our factoring agreement;

o     Sales of existing inventory;

o     Continued support from factories in China in financing our purchases of
      karaoke machines for fiscal 2005; and

o     Utilizing credit facilities that are available to International SMC to
      finance all direct shipments.

      Our sources of cash for working capital in the long term, are the same as
our sources during the short term. If we need additional financing, we intend to
approach other financing companies for financing. If we need to obtain
additional financing and fail to do so, it may have a material adverse effect on
our ability to meet our financial obligations and to continue our operations.


      During fiscal 2005, we will strive to keep our operating costs at a
minimum. In order to reduce the need to maintain inventory in our warehouses in
California and Florida, we intend to generate a larger share of our total sales
through sales directly from International SMC. Sales originating from
International SMC are shipped directly to our customers from the ports in China
and are primarily backed by customer letters of credit. Our customers take title
to the merchandise at their consolidators in China and are responsible for their
shipment, duty, clearance and freight charges to their locations. We will also
assist our customers in the forecasting and management of their inventories of
our product to reduce the amount of required warehouse inventory.


      We are also planning to finance a significant amount of our working
capital needs with customer-issued letters of credit, using International SMC's
credit facility with the Hong Kong Bank and relying on financing from one of our
factories in China.

      Customer orders can be cancelled at any time prior to delivery and we
cannot assure you that our customers will complete these purchases. In the event
that we do not sell sufficient products in our second and third quarter, we will
consider other sources of financing, such as trying to secure an additional
credit facility, private offerings and/or a venture capital investment. We
expect that our profit margin for sales of our karaoke products will continue to
be under price pressure. During fiscal 2005, we plan on introducing three new
karaoke machines, which will command higher prices and a higher profit margin.
We also will continue to cut operating expenses.


Our commitments for debt and other contractual arrangements are summarized as
follows:

<TABLE>
<CAPTION>
                                                                 Years ending March 31,
                                                 --------------------------------------------------------------
                                      Total         2005         2006         2007         2008         2009
                                                 --------------------------------------------------------------
<S>                                 <C>          <C>          <C>          <C>          <C>          <C>
Merchandise License Guarantee       $  525,000   $  375,000   $  150,000   $       --   $       --   $       --
Property Leases                     $2,285,847   $  838,792   $  579,851   $  495,545   $  371,659   $       --
Equipment Leases                    $   71,746   $   31,197   $   19,502   $   13,044   $    6,310   $    1,692
Subordinated Debt - Related Party   $1,000,000   $       --   $1,000,000   $       --   $       --   $       --
Convertible Debentures              $4,000,000   $       --   $4,000,000   $       --   $       --   $       --
Interest payments                   $  896,667   $  441,667   $  455,000   $       --   $       --   $       --
</TABLE>


Each of the contractual agreements (except the equipment leases) provides that
all amounts due under that agreement can be accelerated if we default under the
terms of the agreement. For example, if we fail to make a minimum guaranteed
royalty payment that is required under a Merchandise License Agreement on a
timely basis, the licensor can declare us in default and require that all
amounts due under the Merchandise License Agreement are immediately due and
payable.


Merchandise license guarantee reflects amounts that we are obligated to pay as
guaranteed royalties under our various license agreements. In fiscal 2005, we
have guaranteed minimum royalty payments under our license agreements with Care
Bears, MTV, Nickelodeon and Motown (Universal Music).


                                       29
<PAGE>

Property leases represents leases for office and warehouse space in California,
Florida and Hong Kong. Equipment leases represent leases for forklifts and copy
machines.


On September 8, 2003, we issued an aggregate of $4,000,000 of 8% convertible
debentures in a private offering to six accredited investors. The debentures
initially are convertible into 1,038,962 shares of our common stock at $3.85 per
share, subject to adjustment in certain situations. The conversion price has
been reset to $1.41 on July 30, 2004 pursuant to the antidilutions provisions
and the debentures are now convertible into 2,836,879 shares of common stock. It
may have significant impact on Singing Machine's results of operaton. We also
issued an aggregate of 457,143 warrants to the investors. The initial exercise
price of the warrants is $4.025 per share and the warrants expire on September
7, 2006. The exercise price has been adjusted to $1.46 on July 30, 2004 based on
the antidilution adjustment. We have an obligation to register the shares of
common stock underlying the debentures and warrants.


On February 9, 2004 we amended our convertible debenture agreements to increase
the interest rate to 8.5% and to grant warrants to purchase an aggregate of
30,000 shares of our common stock to the debenture holders on a pro-rata basis.
These concessions are in consideration of the debenture holder's agreements to
(i) enter into new subordination agreements with Milberg, (ii) to waive all
liquidated damages due under the transaction documents through July 1, 2004 and
(iii) to extend the effective date of the Form S-1 registration statement until
July 1, 2004. The new warrants have an exercise price equal to $1.52 per share
and the fair value of these warrants was estimated by using the Black-Scholes
Option-Pricing Model and totaled $30,981. This amount was expensed as a
component of selling, general and administrative expenses. Pursuant to the
convertible debenture agreements, we were required to register the shares of
common stock underlying the debentures and detachable stock purchase warrants
issued in connection with the debentures. The registration of the common shares
was required to be effective by July 1, 2004.

Because we did not have the registration statement declared effective by July
14, 2004, we are in technical default of the convertible debenture agreements.
As such, we are accruing liquidated damages in the amount of $80,000 per month.
Additionally, the convertible debenture holders could declare us in default of
the convertible debentures and accelerate all payments due under the convertible
debentures, which is the principal amount of $4 million plus any liquidated
damages and other fees that are assessed. We are working to cure our event of
default by filing the registration statement as soon as possible. Additionally,
we are trying to enter into another amendment of the convertible debentures and
transaction documents with the convertible debenture holders which would extend
the filing date for the registration statement and eliminate all liquidated
damages. There can be no assurances that we will be able to enter into an
amendment of the convertible debenture agreements.

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, our operations have been seasonal, with the highest net sales
occurring in our fiscal 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 our
fiscal second and third quarter, combined, accounted for approximately 86% of
net sales in fiscal 2004 and 2003, and 81% of net sales in fiscal 2002.

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

INFLATION


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


CRITICAL ACCOUNTING POLICIES

We prepared our consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. As such,
management is required to make certain estimates, judgments and assumptions that
it believes are reasonable based on the information available. These estimates
and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses for the periods presented. The significant accounting policies which
management believes are the most critical to aid in fully understanding and
evaluating our reported financial results included accounts receivable -
allowance for doubtful accounts, reserves on inventory, deferred tax assets and
our Hong Kong income tax exemption.


                                       30
<PAGE>


Collectibility Of Accounts Receivable. The Singing Machine's allowance for
doubtful accounts is based on management's estimates of the creditworthiness of
its customers, current economic conditions and historical information, and, in
the opinion of management, is believed to be an amount sufficient to respond to
normal business conditions. Management sets 100% reserves for customers in
bankruptcy and other reserves based upon historical collection experience.
Should business conditions deteriorate or any major customer default on its
obligations to Singing Machine, this allowance may need to be significantly
increased, which would have a negative impact on operations.

Inventory. The Singing Machine reduces inventory on hand to its net realizable
value based on the expected on an item by item basis when it is apparent that
the expected realizable value of an inventory item falls below its original
cost. A charge to cost of sales results when the estimated net realizable value
of specific inventory items declines below cost. Management regularly reviews
Singing Machine's investment in inventories for such declines in value.


Income Taxes. Significant management judgment is required in developing our
provision for income taxes, including the determination of foreign tax
liabilities, deferred tax assets and liabilities and any valuation allowances
that might be required against the deferred tax assets. Management evaluates its
ability to realize its deferred tax assets on a quarterly basis and adjusts its
valuation allowance when it believes that it is more likely than not that the
asset will not be realized. At December 31, 2003 and March 31, 2004, we
concluded that a valuation allowance was needed against all of our deferred tax
assets, as it was not more likely than not that the deferred taxes would be
realized. At March 31, 2004 and 2003, we had gross deferred tax assets of $8.2
million and $1.9 million, against which we recorded valuation allowances
totaling $8.2 million and $0, respectively.

For the fiscal year ended March 31, 2004, we recorded a tax provision of
$758,505. This occurred because the valuation allowance established against our
deferred tax assets exceeded the amount of the benefit created from carrying
back a portion of the current year's losses. The carry-back of the losses from
the current year resulted in an income tax receivable of $1.1 million, which is
included in refundable tax in the accompanying balance sheets. We have received
the tax fund of $1.1 million on August 24, 2004, which has been used to pay the
related parties' loan and the vendors. we have now exhausted our ability to
carry back any further losses and therefore will only be able to recognize tax
benefits to the extent that it has future taxable income.


Our subsidiary has applied for an exemption of income tax in Hong Kong.
Therefore, no taxes have been expensed or provided for at the subsidiary level.
Although no decision has been reached by the governing body, the parent company
has reached the decision to provide for the possibility that the exemption could
be denied and accordingly has recorded a provision for Hong Kong taxes in fiscal
2003 and 2002. There was no provision for Hong Kong income taxes in fiscal 2004
due to the subsidiary's net operating loss for the year. Hong Kong income taxes
payable totaled $2.4 million at March 31, 2004 and 2003 and is included in the
accompanying balance sheets as income taxes payable.

We effectively repatriated approximately $2.0 million, $5.6 million and $5.7
from its foreign operations in 2004, 2003 and 2002, respectively. Accordingly,
these earnings were taxed as a deemed dividend based on U.S. statutory rates. We
have no remaining undistributed earnings of Singing Machine's foreign
subsidiary.


We operate within multiple taxing jurisdictions and are subject to audit in
those jurisdictions. Because of the complex issues involved, any claims can
require an extended period to resolve. In management's opinion, adequate
provisions for income taxes have been made.

Other Estimates. We makes other estimates in the ordinary course of business
relating to sales returns and allowances, warranty reserves, and reserves for
promotional incentives. Historically, past changes to these estimates have not
had a material impact on our financial condition. However, circumstances could
change which may alter future expectations.

Set forth below and elsewhere in this Prospectus 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.

                  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE


CHANGE OF ACCOUNTANTS IN OCTOBER 2004

      On October 15, 2004, Grant Thornton LLP (the "Former Accountant") resigned
as the auditors for The Singing Machine Company, Inc. (the "Company"). On
October 15, 2004, the Company engaged Berkovits, Largo & Company, LLP (the "New
Accountant"), as its independent certified public accountant. The Company's
decision to engaged the New Accountant was approved by its Audit Committee on
October 15, 2004.

      The report of the Former Accountant on the financial statements of the
Company for the two most recent fiscal years and the interim period ending June
30, 2004, did not contain an adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting
principles for the two most recent fiscal years and all subsequent interim
periods, except that the Former Accountant's opinion in its report on the
Company's financial statements expressed substantial doubt with respect to the
Company's ability to continue as a going concern for the last two fiscal years.



                                       31
<PAGE>


      During the Company's two most recent fiscal years and the subsequent
interim period through the date of resignation, there were no reportable events
as the term described in Item 304(a)(1)(v) of Regulation S-K, except for the
following:

Management and the Former Accountant, have advised our Audit Committee that
during the course of the audit, they noted deficiencies in internal controls
relating to:

      -     weakness in our financial reporting process as a result of a lack of
            adequate staffing in the accounting department, and

      -     accounting for consigned inventory and inventory costing.

      The Former Accountant has advised the Audit Committee that each of these
internal control deficiencies constitute a material weakness as defined in
Statement of Auditing Standards No. 60. Certain of these internal control
weaknesses may also constitute material weaknesses in our disclosure controls.

      During the Company's two most recent fiscal years and the subsequent
interim period through the date of resignation, there were no disagreements with
the Former Accountant on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or 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 disagreements in connection with its
reports on these financial statements for those periods.

      The Company did not consult with the New Accountant regarding the
application of accounting principles to a specific transaction, either completed
or proposed, or the type of audit opinion that might be rendered on the
Company's financial statements, and no written or oral advice was provided by
the New Accountant that was a factor considered by the Company in reaching a
decision as to the accounting, auditing or financial reporting issues.


CHANGE OF ACCOUNTANTS IN MARCH 2003

On March 24, 2003, we dismissed Salberg & Company, P.A. ("Salberg & Company"),
as our independent certified public accountant. On March 27, 2003, we engaged
Grant Thornton, LLP ("Grant Thornton"), as our independent registered public
accounting firm. Our decision to change accountants was approved by our Audit
Committee on March 24, 2003.

The report of Salberg & Company on our consolidated financial statements for
fiscal 2002, fiscal 2001 did not contain an adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles. Furthermore, Salberg & Company did not advise us that:

1) internal controls necessary to develop reliable consolidated financial
statements did not exist, or

2) information had come to the attention of Salberg & Company which made in
unwilling to rely upon management's representations or made it unwilling to be
associated with the consolidated financial statements prepared by management, or

3) the scope of the audit should be expanded significantly, or information had
come to the attention of Salberg & Company that it has concluded will, or if
further investigated might, materially impact the fairness or reliability of a
previously issued audit report or the underlying consolidated financial
statements, or the consolidated financial statements issued or to be issued
covering the fiscal periods subsequent to March 31, 2002 (including information
that may prevent it from rendering an unqualified audit report on those
consolidated financial statements) or made in unwilling to rely on management's
representations or to be associated with the consolidated financial statements
prepared by management or,

4) information has come to the attention of Salber & Company that it has
concluded will, or if further investigated might, materially impact the fairness
or reliability of a previously issued audit report or the underlying
consolidated financial statements or the consolidated financial statements
issued or to be issued covering the fiscal periods subsequent to March 31, 2002
through March 28, 2003, the date of the Form 8-K filing reporting our change in
accountants, that had not been resolved to the satisfaction of Salberg & Company
or which would have prevented Salberg & Company from rendering an unqualified
audit report on such consolidated financial statements.


During our two most recent fiscal years and all subsequent interim periods
through March 24, 2003, there were no disagreements with Salberg & Company on
any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which, if not resolved to the
satisfaction of Salberg & Company would have caused it to make reference to the
subject matter of the disagreements in connection with its reports on these
financial statements for those periods.


We did not consult with Grant Thornton regarding the application of accounting
principles to a specific transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our financial statements, and no
written or oral advice was provided by Grant Thornton that was a factor
considered by us in reaching a decision as to the accounting, auditing or
financial reporting issues.

RESTATEMENT

In July 2003, we revised our position on the taxation of the income of our Hong
Kong subsidiary by the United States and Hong Kong tax authorities, which was
contained in our audited financial statements for fiscal 2002. We discussed
these issues with Salberg & Company and it agreed to opine on the restated
financial statements. See the "Restatement of Financial Statements" section.


                                       32
<PAGE>

                                    BUSINESS

OVERVIEW

We are engaged in the development, 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 Asia. We also
produce and market karaoke music, including compact disks plus graphics
("CDG's"), and audiocassette tapes containing music and lyrics of popular songs
for use with karaoke recording equipment. All of our recordings include two
versions of each song; one track 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 CDG'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. 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" or "Hong
Kong subsidiary"), to coordinate our production and finance in Asia.

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. Our common
stock currently trades on the American Stock Exchange under the symbol "SMD." We
were listed on the AMEX on March 8, 2001. Our principal executive offices are
located in Coconut Creek, Florida.


PRODUCT LINES


We currently have a product line of 40 different models of karaoke machines plus
seven accessories such as microphones, incorporating such features as CD plus
graphics player, sound enhancement, echo, tape record/playback features, and
multiple inputs and outputs for connection to compact disc players, video
cassette recorders, and home theater systems. Ten of these karaoke machines are
models that we plan on discontinuing after we sell our excess inventory in
fiscal 2005. Our machines sell at retail prices ranging from $30 for basic units
to $300 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 3,500 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, Christian, Latin music and rap. We even have backing tracks for opera and
certain foreign language recordings.

MARKETING, SALES AND DISTRIBUTION

Our karaoke machines and music are sold nationally and internationally to a
broad spectrum of customers, primarily through mass merchandisers, department
stores, 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, Circuit City, Costco, JC
Penney, Kohl's, Radio Shack, and Sam's Club.


In fiscal 2004, approximately 61% of our sales were domestic sales and 39% were
international sales. Domestic sales are sales that are made in the United States
and international sales are sales that are made outside of the United States.
Our domestic sales are primarily made by our in-house sales team and our
independent sales representatives. Our independent sales representatives are
paid a commission based upon sales in their respective territories. We utilize
some of our outside independent sales representatives to help us provide service
to our mass merchandisers and other retailers. 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. At
September 30, 2004, we worked with 16 independent sales representatives in the
United States. Our international sales are primarily made by our in-house sales
representatives and our eight independent distributors.


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.

Our licensing agreements with MTV Networks, Inc., a division of Viacom
International, Inc., Hard Rock Academy, Inc. and Universal Music Entertainment,
Inc. have also helped us to expand our product name.

LICENSE AGREEMENTS


                                       33
<PAGE>


We entered into our licensing agreement with MTV in November 2000 and have
amended the agreement five times since that date. Our license covers the sale of
MTV products in the United States, Canada and Australia. During fiscal 2004, our
line consisted of nine MTV branded machines and a wide assortment of MTV branded
music. Our license agreement as amended with MTV, expired on August 31, 2004,
however MTV chose to extend the agreement until December 31, 2004. We are
currently negotiating a new agreement to replace this agreement. In the event a
new agreement is not reached, we do not believe this event will have a negative
impact on our results of operations for fiscal 2005. The license period contains
a minimum guaranteed royalty payment of $100,000, which is recoupable against
sales throughout the calendar year, unless the license agreement is cancelled.


We entered into our licensing agreement with Hard Rock Academy, a division of
Hard Rock Cafe in December 2001. This license agreement allows us to produce and
market a line of karaoke machines and complimentary music that are co-branded
with the Singing Machine and Hard Rock Academy name. The first co- branded
machine was produced during the fourth quarter of fiscal 2003. The agreement
originally contained a minimum guaranteed royalty payment, but in September 2003
Hard Rock agreed to release us from our minimum guaranteed payment obligations
during the remaining term of the license agreement. This agreement expires on
December 31, 2005 and does not contain any automatic renewal provisions.

In February 2003, we entered into a multi-year license agreement with Universal
Music Entertainment to market a line of Motown Karaoke machines and music. This
agreement and its subsidiary agreement signed in March 2003, allow us to be the
first to use original artist recordings for our CD+G formatted karaoke music.
Over the term of the license agreement, we are obligated to make guaranteed
minimum royalty payments in the amount of $300,000. The Universal Music
Entertainment license expires on March 31, 2006 and does not contain any
automatic renewal provisions.


We entered into a license agreement with Care Bears in September 2003. Under
this agreement, we are marketing a line of Care Bears branded karaoke machines
and music. Over the term of the license, we are obligated to make guaranteed
minimum royalty payments in the amount of $200,000. This license originally
expires on January 1, 2006 and does not contain any automatic renewal
provisions. In October 2004. We have signed a termination agreement to cease the
license by December 31, 2004. We are obligated to pay minimum royalty payments
in the amount of $200,000, which has been paid in full as of November 20, 2004.


We entered into a license agreement with Nickelodeon, Inc., a division of Viacom
International, Inc. in December 2002. Under this agreement, we licensed
Nickelodeon branded machines and a wide assortment of music. This license will
expire on December 31, 2004 and will not be renewed.

We distribute all of our licensed products through our established distribution
channels, including Best Buy, Circuit City, Costco, JC Penney, Kohl's, Radio
Shack and Sam's Club. Our distribution network also includes the online versions
of these retail customers.

The following table sets forth the percentage of total sales that have been
generated under the MTV License, our Nickelodeon License and our other licenses
(Care Bears, Hard Rock Academy and Universal Music).

                            FOR THE FISCAL YEAR ENDED
                                  DECEMBER 31,

                                               2004           2003
                                          -------------   -------------
MTV                                                11.8%           32.3%
Nickelodeon                                         5.5%              0%
Other Licenses                                      3.9%              0%
                                          -------------   -------------
Total Licensed Sales                               21.2%           32.3%
                                          =============   =============

DISTRIBUTORSHIP AGREEMENTS

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, 2004, subject to an automatic renewal provision. If
either party does not give notice on or before December 1 of year during the
term of the agreement, the agreement will automatically be renewed for another
year on the same terms.

In March 2003, we signed an international distributorship agreement with Top-Toy
(Hong Kong) Ltd. Top- Toy is the exclusive distributor of Singing Machine(R)
karaoke machines and music products in Denmark, Norway, Sweden, Iceland and
Faeroe Islands. The agreement is for three years, from April 1, 2003 through
March 31, 2006. The agreement contains an automatic renewal provision whereby if
either party does not give notice at least three months before March 31, 2006,
the agreement will automatically be renewed for another year on the same terms.

We also have verbal agreements with six other independent distributors who sell
our products throughout Europe


                                       34
<PAGE>

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, 2004, 2003, and 2002,
respectively, were approximately 53%, 67% and 87%, respectively. In fiscal 2004,
three major customers accounted for 20%, 12% and 10% of our net revenues.

In fiscal 2004, Arbiter, Giochi and Best Buy accounted for more than 10% of our
net revenues. Arbiter and Giochi are independent distributors of our products.
In fiscal 2003 and 2002, Best Buy and Toys "R" Us Inc. each accounted for more
than 10% of our revenues. In fiscal 2003 Target and in fiscal 2002 Costco also
accounted for more than 10% of our revenues. Although we have long-established
relationships with all of our customers, we do not have 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.


During the last three years, our revenues from foreign operations have
increased. Sales by customer geographic regions were as follows:

                       FOR THE FISCAL YEAR ENDED MARCH 31,

                               2004            2003           2002
                           ------------   -------------   -------------
NORTH AMERICA              $ 43,044,496   $  77,696,780   $  62,381,366
LATIN AMERICA                   753,399       1,366,496          45,073
EUROPE                       25,783,789      15,714,846              --
ASIA/AUSTRALIA                  959,444         835,644          49,314
                           ------------   -------------   -------------
                           $ 70,541,128   $  95,613,766   $  62,475,753
                           ============   =============   =============

                   FOR THE THREE MONTHS        FOR THE SIX MONTHS
                      ENDING SEPT 30             ENDING SEPT 30

                   2004           2003         2004           2003
North America   $15,657,623   $17,690,952   $18,079,845   $21,553,954
Europe            2,857,421    14,467,066     4,262,903    17,809,897
Australia           238,245       310,579       238,245       310,579
Others                   --       382,979        29,168       805,121
                -----------   -----------   -----------   -----------
                $18,753,289   $32,851,576   $22,610,161   $40,479,551
                ===========   ===========   ===========   ===========


RETURNS

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 total returns
represented 9.4% and 10.4% of our net sales in fiscal 2004 and 2003,
respectively.

DISTRIBUTION

We distribute hardware products to retailers and wholesale distributors through
two methods: shipment of products from inventory held at our warehouse
facilities in Florida and California (domestic sales), and shipments directly
through our Hong Kong subsidiary and manufacturers in Asia 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 the fiscal year ended March 31, 2004,
approximately 39% of our sales were sales from our domestic warehouses
("Domestic Sales") and 61% were sales shipped directly from Asia ("Direct
Sales").

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 karaoke machines overseas from certain factories in
China for our own account, and warehouse the products in leased facilities in
Florida and California. We are responsible for costs of shipping, insurance,
customs clearance, duties, storage and distribution related to such products
and, therefore, warehouse sales command higher sales prices than direct sales.
We generally sell from our own inventory in less than container-sized lots.


                                       35
<PAGE>


Direct Sales. We ship some hardware products sold by us directly to customers
from Asia through International SMC, our subsidiary. 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' world wide,
which pay International SMC pursuant to their own international, irrevocable,
transferable letters of credit or on open account.

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 Guangdong Province of the People's Republic of
China, who assemble our karaoke machines. During fiscal 2005, we expect that 95%
of our karaoke products will be produced by one of these factories, which has
agreed to extend financing to us. We are indebted to this factory in the amount
of $2.4 million and have worked out a payment plan regarding our outstanding
invoice. Additionally, this factory has agreed to provide us with financing for
fiscal year 2005. See "Management's Discussion and Analysis of Financial
Condition - Liquidity" beginning on page 28. We believe that the manufacturing
capacity of our factories is adequate to meet the demands for our products in
fiscal year 2005. However, if our primary factory in China were prevented from
manufacturing and delivering our karaoke products, our operation would be
severely disrupted while alternative sources of supply are located. See "Risk
Factors - We are relying on six factories to manufacture and produce the
majority of our karaoke machines for fiscal 2005" on page 7. In manufacturing
our karaoke related products, these factories use molds and certain other
tooling, most 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
author the CD+G's in our in house studio. We use outside companies to
mass-produce the CD+G's and audiocassettes, once the masters have been
completed.

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, we use a small
number of studios to record our music (including our in house production), we do
not anticipate that the loss of any 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, 2004, 2003 and 2002, warranty claims have not been
material to our results of operations.

COMPETITION

Our business is highly competitive. Our major competitors for karaoke machines
and related products are Craig and Memorex.

We believe that competition for karaoke machines is based primarily on price,
product features, reputation, delivery times, and customer support. We believe
that our brand name is well recognized in the industry and helps us compete in
the karaoke machine category. Our primary competitors for producing karaoke
music are Pocket Songs, UAV, Sybersound and Sound Choice. We believe that
competition for karaoke music is based primarily on popularity of song titles,
price, reputation, and delivery times.

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 obtained registered trademarks for The Singing Machine name and the logo
in which the microphone is used in our name in the United States and in the
European Community. We have also filed trademark applications in Australia and
Hong Kong. In fiscal 2003, we filed an intent to use application for the mark
Karaoke Vision in the United States.


                                       36
<PAGE>

Our trademarks are a significant asset because they provide product recognition.
We believe that our intellectual property is significantly protected, but there
are no assurances that these rights can be successfully asserted in the future
or will not be invalidated, circumvented or challenged.

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 many 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 that is sold. Similarly, the terms of the licenses
vary, but typically are for terms from two years up to five years. 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 certain songs in our song
library which are reproduced on audiocassettes. The Federal Copyright Act
creates a compulsory statutory license for all non-dramatic musical works, which
have been distributed to the public in the United States. Royalties due under
compulsory licenses are payable quarterly and are based on the statutory rate.
We also have written license agreements for substantially all of the printed
lyrics, which are distributed with our audiocassettes, which licenses also
typically provide for quarterly payments of royalties at the statutory rate.

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. ("ULE") or Electronic Testing Laboratories
("ETL"). In Europe and other foreign countries, our products are manufactured to
meet the CE marking requirements. CE marking is a mandatory European product
marking and certification system for certain designated products. When affixed
to a product and product packaging, CE marking indicates that a particular
product complies with all applicable European product safety, health and
environmental requirements within the CE marking system. Products complying with
CE marking are now presumed to be safe in 28 European countries. However, ULE or
ETL certification does not mean that a product complies with the product safety,
health and environmental regulations contained in all fifty states in the U.S.
Therefore, we maintain a quality control program designed to ensure compliance
with all applicable U.S. and federal laws pertaining to the sale of our
products. Our production and sale of music products is subject to federal
copyright laws.

The manufacturing operations of our foreign suppliers in China are subject to
foreign regulation. China has permanent "normal trade relations" ("NTR") status
under U.S. tariff laws, which provides a favorable category of U.S. 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 us.


SEASONALITY AND SEASONAL FINANCING


Our business is highly seasonal, with consumers making a large percentage of
karaoke purchases around the traditional holiday season in our fiscal second and
third quarters. These seasonal purchasing patterns and requisite production lead
times cause risk to our business associated with the underproduction or
overproduction of products that do not match consumer demand. Retailers also
attempt to manage their inventories more tightly, requiring that we ship
products closer to the time that retailers expect to sell the products to
consumers. These factors increase the risk that we may not be able to meet
demand for certain products at peak demand times, or that our own inventory
levels may be adversely impacted by the need to pre-build products before orders
are placed. As of March 31, 2004, we had inventory of $5.2 million compared to
inventory of $25.2 million as of March 31, 2003. In fiscal 2003, we
overestimated the demand for our products and as result had $25 million of
excess inventory at year end.

Our financing of seasonal working capital during fiscal 2004 was different from
prior years because of the excess inventory that we had on hand as of March 31,
2003. During fiscal 2004, we purchased approximately $9.1 million of new
inventory and the remainder of our sales were from the liquidation of the excess
inventory on hand. We financed the purchase of new inventory with our short-term
lines of credit in Hong Kong and through financing, with one of our factories in
China.


During fiscal 2005, we plan on financing our inventory purchases by using credit
that has been extended to us by one of our factories in China, by using our
short term lines of credit in Hong Kong and with letters of credit that are
issued by our customers to be used as collateral for payment to our vendors. As
of October 30, 2004, we expect to order an aggregate of approximately $28
million of inventory during fiscal 2005.


BACKLOG


                                       37
<PAGE>


We ship our products in accordance with delivery schedules specified by our
customers, which usually request delivery within three months of the date of the
order. In the consumer electronics industry, orders are subject to cancellation
or change at any time prior to shipment. We believe that backlog orders at any
given time may not accurately indicate future sales. As of November 22, 2004, we
had backlog of $15.1 million compared to backlog of $20.2 million at the same
period in 2003. We believe that we will be able to fill all of these orders in
fiscal year 2005. However, these orders can be cancelled or modified at any time
prior to delivery.


EMPLOYEES


As of November 22, 2004, we employed 42 persons, all of whom are full-time
employees, including three executive officers. Fifteen of our employees are
located at International SMC's corporate offices in Hong Kong. The remaining 27
employees are based in the United States, including two executive positions; ten
are engaged in warehousing and technical support, and twelve in accounting,
marketing, sales and administrative functions.

PROPERTIES


Our corporate headquarters are located in Coconut Creek, Florida in an 18,000
square foot office and warehouse facility, of which 7600 square feet has been
subleased. Our four leases for this office space expire on August 31, 2005. We
have leased 9,393 square feet of office and showroom space in Hong Kong from
which we oversee 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 warehouse facility in Compton California. The Compton warehouse
facility has 79,000 square feet and the lease expires on February 23, 2008. We
terminated our lease for warehouse space in Rancho Dominguez, California
effective as of May 1, 2004.

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.

LEGAL PROCEEDINGS

CLASS ACTION AND DERIVATIVE LAWSUIT

From July 2, 2003 through October 2, 2003, eight securities class action
lawsuits and two purported shareholders derivative actions were filed against us
and certain of our officers and directors in the United States District Court
("Court") for the Southern District of Florida on behalf of all persons who
purchased our securities during the various class action periods specified in
the complaints. All of these class action lawsuits were consolidated into one
case styled Frank Bielansky, etc. v. Salberg & Company et al., United States
District Court, Southern District of Florida, Case No. 03-80596-CIV-ZLOCH (the
"Class Action") in September 2003.

The complaints allege violations of Section 10(b) and Section 20(a) of the
Securities Exchange Act of 1934 and Rule 10(b)-5 and allege that certain
officers and directors breached their fiduciary duties and the accountant
committed professional malpractice. The complaints seek compensatory damages,
attorney's fees and injunctive relief.

We entered into a settlement agreement with the plaintiffs in the Class Action
in March 2004. The court entered an order approving the settlement agreement on
August 2, 2004. The settlement was declared final by the court.

Pursuant to the terms of the settlement agreement, we are required to make a
cash payment of $800,000 and Salberg & Company, P.A., is required to make a
payment of $475,000. Our cash payment of $800,000 is covered by our liability
insurance and our insurer has placed this payment in an escrow account to be
released. In addition, we issued 400,000 shares of our common stock in September
2004. The settlement will also obligate us to implement certain corporate
governance changes, including an expansion of our Board of Directors to six
members with independent directors comprising at least 2/3 of the total Board
seats.

BANKRUPTCY FILING IN FISCAL YEAR 1997

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.

OTHER MATTERS

We are involved in various other litigation and legal matters, including claims
related to intellectual property, product liability which we are addressing or
defending in the ordinary course of business. Management believes that any
liability that may potentially result upon resolution of such matters will not
have a material adverse effect on our business, financial condition or results
of operation.


                                       38
<PAGE>


In September 2003, we had a disagreement with AG Edwards & Sons, Inc., an
investment banker ("AG Edwards") regarding our investment banking agreement with
it. We believed that AG Edwards had waived its right of first refusal to assist
us in raising capital in a private offering and retained Roth Capital Partners,
LLC to raise $4 million in the convertible debenture offering. However, AG
Edwards did not believe that it had waived its right of first refusal and took
the position that we had breached the terms of our investment banking agreement
with it. Although we believe that our position is correct and AG Edwards had
waived its right of first refusal, for business reasons we decided to settle
this potential claim. We entered into a settlement agreement with AG Edwards on
November 17, 2003 in which we agreed to pay the sum of $181,067 over a six month
period. We were deemed to have paid $94,355 of this amount by issuing 40,151
shares of our common stock to AG Edwards.



                                       39
<PAGE>

                                   MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES


The following table sets forth certain information with respect to our executive
officers, directors and significant employees as of November 22, 2004.


NAME                Age      Position
-----------------   ---      -------------------------------------
Yi Ping Chan        40       Interim CEO, Chief Operating Officer,
                             Director, Secretary


Jeff Barocas        56       Chief Financial Officer


Josef A. Bauer      65       Chairman

Harvey Judkowitz    58       Director

Bernard Appel       72       Director

Yi Ping Chan has served as our Chief Operating Officer from May 2, 2003 and as
our Interim Chief Executive Officer since October 17, 2003. Prior to this
appointment, Mr. Chan was a consultant to Singing Machine. Mr. Chan was a
founder and general partner of MaxValue Capital Ltd., a Hong Kong-based
management consulting and investment firm, and co-founder and director of E
Technologies Ltd., Hong Kong, which specialized in health care technology
transfer from April 1996 to March 2003. Prior to that, he was Chief Strategist
and Interim Chief Financial Officer from January 2000 to June 2002 of a Hong
Kong-based IT and business process consulting firm with operations in Hong Kong,
China and the U.S. He also held a senior management position with a Hong
Kong-based venture capital and technology holding company with operations in
Hong Kong, China and the U.S. Mr. Chan earned an MBA in 1994 and a MSEE in 1990
from Columbia University, and a BSEE with Magna Cum Laude in 1987 from
Polytechnic University, New York.

Jeff Barocas has served as our Chief Financial Officer from April 9, 2004
through the present date. Prior to joining our company, Mr. Barocas was Chief
Financial Officer at Biometrics Security Technology, Inc., a Florida based
security software developer where he was responsible for all administrative
functions, purchasing, financial and SEC reporting and new business development
for Latin America and the Caribbean. From 1996 to 2002, he was Chief Financial
Officer at Quipp, Inc., a Florida based manufacturer of automated capital
equipment for the newspaper industry. From 1986 to 1995, he was Chief Financial
Officer at London International US Holdings, a Sarasota, Florida consumer
products and medical products company where he managed all financial,
information systems and material procurements activities.

Josef A. Bauer has served as a director from October 15, 1999. Mr. Bauer
previously served as a director of the Singing Machine from February 1990 until
September 1991 and from February 1995 until July 1997, when we began our Chapter
11 proceeding. Mr. Bauer presently serves as the Chief Executive Officer of the
following three companies: Banisa Corporation, a privately owned investment
company, since 1975; Trianon, a jewelry manufacturing and retail sales companies
since 1978 and Seamon Schepps, also a jewelry manufacturing and retail sales
company since 1999.).

Bernard S. Appel has served as a director since October 31, 2003. He spent 34
years at Radio Shack, beginning in 1959. At Radio Shack, he held several key
merchandising and marketing positions and was promoted to the positions of
President in 1984 and to Chairman of Radio Shack and Senior Vice President of
Tandy Corporation in 1992. Since 1993 through the present date, Mr. Appel has
operated the private consulting firm of Appel Associates, providing companies
with merchandising, marketing and distribution strategies, creative line
development and domestic and international procurement.

Harvey Judkowitz has served as a director since March 29, 2004 and is the
Chairman of our Audit Committee. He is licensed as a Certified Public Accountant
in New York and Florida. From 1988 to the present date, Mr. Judkowitz has
conducted his own CPA practices. He currently serves as the Chairman and Chief
Executive Officer of UniPro Financial Services, a diversified financial services
company. He also sits on the Board of Directors and serves as the Chair of the
Audit Committee of the following public companies: Global Business Services,
Inc., Pony Express USA, Intelligent Motor Cars, Inc. and Kirshner Entertainment
& Technologies, Inc. He currently serves as the Interim Chief Financial Officer
of Kirshner Entertainment & Technologies, Inc.

BOARD COMMITTEES


We have an audit committee, an executive compensation/stock option committee and
a nominating committee. As of November 22, 2004, the audit committee consists of
Messrs. Judkowitz, Appel and Bauer. The Board has designated Mr. Judkowitz as
the "audit committee financial expert," as defined by Item 401(h) of Regulation
S-K of the Securities Exchange Act of 1934. The Board has determined that Harvey
Judkowitz and Bernard Appel are "independent directors" within the meaning of
the listing standards of the American Stock Exchange. The audit committee
recommends the engagement of independent auditors to the board, initiates and
oversees investigations into matters relating to audit functions, reviews the
plans and results of audits with our independent auditors, reviews our internal
accounting controls, and approves services to be performed by our independent
auditors. The executive compensation/stock option committee consists of Messrs.
Judkowitz, Appel and Bauer.



                                       40
<PAGE>

The executive compensation/stock option committee considers and authorizes
remuneration arrangements for senior management and grants options under, and
administers our employee stock option plan. The entire Board of Directors
operates as a nominating committee. The nominating committee is responsible for
reviewing the qualifications of potential nominees for election to the Board of
Directors and recommending the nominees to the Board of Directors for such
election.

CODE OF ETHICS

We have adopted a Code of Business Conduct and Ethics, which is applicable to
all directors, officers and employees of the Singing Machine, including our
principal executive officer, our principal financial officer, our principal
accounting officer or controller or other persons performing similar functions.
The Code of Ethics is available on our website at www.singingmachine.com and is
filed as Exhibit 14.1 to our Annual Report on Form 10-K for the fiscal year
ended March 31, 2004. We intend to post amendments to our Code of Ethics (to the
extent applicable to our chief executive officer, principal financial officer,
principal accounting officer or controller or other persons performing similar
functions) on our website.

DIRECTOR'S COMPENSATION

During fiscal 2004, our employee directors did not receive any additional or
special compensation for serving as directors. During fiscal 2004, our
compensation package for our non-employee directors consisted of grants of stock
options and reimbursement of costs and expenses associated with attending our
Board meetings. Our three non-employee directors during fiscal 2003 were Josef
A. Bauer, Bernard Appel and Richard Ekstract. Effective as of February 26, 2004,
we granted each of our non-employee directors options under our Year 2001 Stock
Option Plan to purchase 20,000 shares of our common stock. The options have an
exercise price of $1.30 per share and vest over a three year period beginning on
February 26, 2005. These options expire five years after their vesting date.

o     During fiscal 2005, we will implement the following compensation policy
      for our directors.

o     Each non-employee director will receive an annual retainer of $10,000,
      with $7,500 to be paid in cash and $2,500 to be paid in stock, based at
      the closing price of our common stock on the date of the annual
      shareholder's meeting or any other date selected by the Board.


o     Each non-employee director will also receive an initial stock option grant
      for 20,000 shares upon joining our Board of Directors and each continuing
      non-employee director will receive an annual stock option grant for 20,000
      shares for each additional year served on the Board which will be awarded
      on the anniversary date of the Board member's initial grant.


o     Each non-employee director will be reimbursed for all reasonable expenses
      incurred in attending Board meetings and will receive a fee of $500 for
      each Board or committee meeting attended.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT


To our knowledge, based solely on a review of the copies of such reports
furnished to Singing Machine and written representations that no other reports
were required, Singing Machine believes that during the year ended March 31,
2004, its officers, directors and 10% shareholders complied with all Section
16(a) filing requirements except for the following transactions. Mr. Bauer and
Mr. Steele each filed two Form 4's late in which reported on transaction in each
late Form 4. Mr. Steele also filed three amendment to his Form 4 filings to
correct typographical errors. Mr. Ekstract file four Form 4's late in which he
reported 5 transactions late. Mr. Chan filed one Form 4 late in which he failed
to report one transaction. Singing Machine's former officers and a former
director (Jack Dromgold, April Green and Howard Moore) each filed one Form 4
late which reported on transaction in each late Form 4 and Mr. Dahl, a former
officer, filed his Form 3 late.


                             EXECUTIVE COMPENSATION

The following table sets forth certain compensation information for the fiscal
years ended March 31, 2004, 2003 and 2002 with regard to (i) Yi Ping Chan, our
Interim Chief Executive Officer and Chief Operating Officer, from October 17,
2003 through the present date, (ii) Robert Weinberg, our Chief Executive Officer
from July 23, 2003 through October 17, 2003 and (iii) Edward Steele, our Chief
Executive Officer from June 1991 through July 23, 2003, and each of our other
executive officers whose compensation exceeded $100,000 on an annual basis (the
"Named Officers"):


                                       41
<PAGE>

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                    ANNUAL COMPENSATION            LONG TERM  COMPENSATION
                               ------------------------------  --------------------------------
                                                                    OTHER          SECURITIES
NAME OF INDIVIDUAL AND                                             ANNUAL          UNDERLYING      ALL OTHER
PRINCIPAL POSITION             YEAR     SALARY        BONUS    COMPENSATION(1)    OPTIONS/SAR'S  COMPENSATION(2)
-----------------------------  -----  ----------    ---------  ---------------    -------------  --------------
<S>                             <C>   <C>           <C>        <C>                      <C>      <C>
Yi Ping Chan                    2004  $  247,470(4)        --  $         6,000           52,800  $       12,180
Interim Chief Executive
Officer and
Chief Operating Officer(3)

Edward Steele                   2004  $  378,809(4)        --  $         6,000           10,000  $       17,949
Former Chief Executive          2003  $  382,352           --  $         8,671           30,000  $       17,969
Officer (5)                     2002  $  364,145    $ 192,133  $         8,258           15,000  $       17,908

April J. Green                  2004  $  127,642           --  $         3,600            4,380  $        5,094
Chief Financial Officer(6)      2003  $  122,200    $  25,000  $         3,900           20,000  $       13,551
                                2002  $   88,825    $  25,000  $         3,900           30,000  $        7,091

John Dahl                       2004  $   78,834           --  $         1,200           50,000  $          350
Senior Vice President of
Finance(7)

John Klecha                     2004  $   41,480           --  $         1,000                0  $      189,911(9)
Former Chief Operating          2003  $  300,117           --  $         6,555           24,000  $       13,264
Officer (8)                     2002  $  286,111    $ 157,200  $         6,242           15,000  $       11,725

Jack Dromgold                   2004  $  183,266(4)        --  $         4,500           50,000  $      110,622(11)
Former Vice President of        2003  $  210,277    $  50,000  $        51,067          100,000  $      154,072(12)
Sales
and Marketing(10)               2002          --           --               --               --              --

Robert Weinberg                 2004  $   57,692           --            3,000(14)           --              --
Former Chief Executive
Officer(13)
</TABLE>

(1) The amounts disclosed in this column for fiscal 2004, 2003 and 2002 include
automobile expense allowances.

(2) Includes matching contributions under our 401(k) savings plan, medical
insurance pursuant to the executive's employment agreement and other expenses
described herein.

(3) Mr. Chan became our Interim Chief Executive Officer on October 17, 2004.

(4) Effective as of August 1, 2003, Mr. Chan, Mr. Dromgold and Mr. Steele agreed
to take 15% of their annual compensation in the form of stock for a nine month
period until March 31, 2004 (except Mr. Steele's agreement was for an 8 month
period until February 28, 2004 when his employment agreement expired). During
their respective time periods, Mr. Chan, Mr. Dromgold and Mr. Steele received
compensation in the amount of $20,125, $17,535 and $63,136 in shares of the
Singing Machine's common stock. The average trading that was used to calculate
the number of shares that would be issued to each officer was $3.85 per share.

(5) Mr. Steele served as our Chief Executive Officer from September 1991 through
July 23, 2003. He currently serves as our Senior Advisor and Director of Product
Development.

(6) Ms. Green served as our Chief Financial Officer from March 15, 2002 through
April 9, 2004.


(7) Mr. Dahl served as our Senior Vice President of Finance from October 22,
2003 through April 13, 2003.


(8) Mr. Klecha served as our Chief Operating Officer from June 28, 1999 through
May 2, 2003.

(9) Amounts paid to Mr. Klecha pursuant to his separation an release agreement
were $183,703 and $36,204 for medical insurance and matching 401(k)
contributions.

(10) Mr. Dromgold joined us on April 15, 2002 and resigned on December 16, 2003.

(11) Amounts paid to Mr. Dromgold pursuant to his separation and release
agreement were $104,640 and our matching 401(k) contributions and medical
insurance were $4,582.


                                       42
<PAGE>

(12) Includes relocation expenses of $45,529, our matching contribution of
$8,543 under our 401(k) savings plan and medical insurance at a $100,000 value
contributed to option granted to Mr. Dromgold and $60,565 paid to Mr. Dromgold
pursuant to his separation and release agreement.

(13) Mr. Weinberg served as our Chief Executive Officer from July 23, 2003 to
October 12, 2004.

(14) Represents three months of rent paid for Mr. Weinberg's apartment in
Florida.

                          OPTION GRANTS IN FISCAL 2004

The following table sets forth information concerning all options granted to our
officers and directors during the year ended March 31, 2004. No stock
appreciation rights ("SAR's") were granted.

<TABLE>
<CAPTION>
                                                                                         POTENTIAL REALIZABLE VALE AT
                      SHARES      TOTAL OPTIONS                                      ASSUMED ANNUAL RATES OF STOCK PRICE
                    UNDERLYING      GRANTED TO                                          APPRECIATION FOR OPTION TERM
                      OPTIONS     EMPLOYEES IN    EXERCISE PRICE   EXPIRATION        -----------------------------------
                    GRANTED (1)    FISCAL YEAR       PER SHARE        DATE                 5%                  10%
                    ----------    -------------   --------------   -------------     --------------     ----------------
<S>                     <C>                 <C>   <C>                  <C>           <C>                <C>
Yi Ping Chan            52,800              3.3%  $         1.97        12/18/14     $      169,431     $        269,791
Edward Steele           10,000               .6%  $         1.97        12/18/14     $       32,089     $         51,097
April J. Green           4,380               .3%  $         1.97        12/18/14     $       14,055     $         22,380
John Dahl               50,000              3.1%  $         1.97        12/18/14     $      160,446     $        255,484
John Klecha                 --               --               --              --                 --                   --
Jack Dromgold           50,000              3.1%  $         7.60       Cancelled(3)              --                   --
Robert Weinberg             --               --               --              --                 --                   --
</TABLE>

(1) All of these options were granted under a Year 2001 Stoc Option Plan. The
Options granted to Mr. Steele, Ms. Green, Mr. Dahl and Mr. Dromgold vest in five
equal installments over a period of five years, beginning on December 13, 2004
(except Mr. Dromgold's vesting began on April 15, 2004). Mr. Chan's options vest
in (except Mr. Chan's options vest in 3 equal installments over a 3 year
period).

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

(3) Mr. Dromgold received a grant of 50,000 options on April 15, 2003. These
options expired on March 18, 2004, ninety days after Mr. Dromgold resigned from
our company.


AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 2004 AND OPTION
VALUES


The following table sets forth information as to the exercise of stock options
during the fiscal year ended March 31, 2004 by our officers listed in our
Summary Compensation Table and the fiscal year-end value of unexercised options.

<TABLE>
<CAPTION>
                                                             NUMBER OF           VALUE OF UNEXERCISED
                                                        UNEXERCISED OPTIONS    IN-THE-MONEY OPTIONS AT
                                                         AT FISCAL YEAR END      FISCAL YEAR END (2)
                       SHARES ACQUIRED      VALUE           EXERCISABLE/             EXERCISABLE/
NAME OF INDIVIDUAL      UPON EXERCISE    REALIZED (1)      UNEXERCISABLE            UNEXERCISABLE
--------------------   ---------------   ------------   -------------------    -----------------------
<S>                                 <C>            <C>       <C>                                   <C>
Yi Ping Chan                        --             --        50,000/152,800                        0/0
Edward Steele                       --             --        322,500/10,000                        0/0
April Green                         --             --         30,000/19,380                        0/0
John Dahl                           --             --              0/50,000                        0/0
John Klecha                         --             --                   0/0                        0/0
Jack Dromgold                       --             --                   0/0                        0/0
Robert Weinberg                     --             --                   0/0                        0/0
</TABLE>

EMPLOYMENT AGREEMENTS


                                       43
<PAGE>

YI PING CHAN. Effective as of May 2, 2003, we entered into a three year
employment agreement with Yi Ping Chan, our current Chief Operating Officer. Mr.
Chan is entitled to receive an annual salary equal to $250,000 per year, plus
bonuses and increases in his annual salary at the sole discretion of our Board
of Directors. We agreed to grant Mr. Chan options to purchase 150,000 shares of
our common stock of which 50,000 options will vest each year and to reimburse
him for moving expenses of up to $40,000. We granted Mr. Chan options to
purchase 150,000 shares of our common stock, in July 2003. In the event of a
termination of his employment following a change of control, Mr. Chan would be
entitled to a lump sum payment of 100% of the amount of his total compensation
in the twelve months preceding such termination. During the term of his
employment agreement and for a period of two years after his termination for
cause and one year if he is terminated without cause, Mr. Chan cannot directly
or indirectly compete with our company in the karaoke industry in the United
States.

EDWARD STEELE. On February 27, 2004, we extended our employment agreement with
Edward Steele for another year. Mr. Steele will serve as the Director of Product
Development for a one year period to expire on February 28, 2005. Under his
employment agreement, Mr. Steele is entitled to receive annual compensation of
$250,000 per year; however, Mr. Steele has agreed to take a 20% pay cut so his
base salary is $200,000 per year. The agreement also provides for discretionary
bonuses. In the event of a termination of his employment following a change of
control, Ms. Steele would be entitled to a lump sum payment of 50% of the amount
of his total compensation in the twelve months preceding such termination.
During the term of his employment agreement and for a period of one year after
his termination for cause, Mr. Steele cannot directly or indirectly compete with
our company in the karaoke industry in the United States.

SEPARATION AND CONSULTING AGREEMENTS

APRIL J. GREEN. Ms. Green resigned as our Chief Financial Officer effective as
of April 9, 2004. In connection with her resignation, we entered into a
separation and release agreement with Ms. Green. Under this agreement, we agreed
to provide Ms. Green with a severance payment equal to $115,519, which consisted
of (1) salary payments in the amount of $100,000, (ii) a COBRA reimbursement
payment equal to $6,600 and (iii) payments for accrued vacation time equal to
$4,153 over a nine month period. In exchange, Ms. Green agreed to release the
Singing Machine from any liability in connection with the termination of her
employment.

JOHN DAHL. Mr. Dahl resigned as our Senior Vice President of Finance effective
as of April 13, 2004. In connection with his resignation, we entered into a
separation and release agreement with Mr. Dahl. Under this agreement, we agreed
to provide Mr. Dahl with a severance payment equal to $51,050, which consisted
of (i) salary payments in the amount of $39,000, (ii) moving expenses equal to
$11,000 and (iii) COBRA reimbursement payments equal to $1,050 over a five month
period. In exchange, Mr. Dahl agreed to release the Singing Machine from any
liability in connection with the termination of his employment.


JACK DROMGOLD. Mr. Dromgold resigned as our Executive Vice President of Sales,
effective as of December 16, 2003. In connection with his resignation, we
entered into a separation and release agreement with him. Under this agreement,
we agreed to provide Mr. Dromgold with a payment equal to $161,939, which
consisted of (i) $50,000 in cash to be paid on December 16, 2003 (ii) $109,281
to be paid over a six month period and (iii) three months of COBRA reimbursement
payments. In exchange, Mr. Dromgold agreed to release the Singing Machine from
any liability in connection with the termination of his employment. We also
entered into a consulting agreement with Mr. Dromgold on December 16, 2003 to
provide us with consulting relating to our sales and marketing efforts for a
sixty day period. We amended this agreement on April 27, 2004 and issued 50,000
shares of our common stock to Mr. Dromgold.


JOHN KLECHA. Mr. Klecha resigned as our Chief Operating Officer and President,
effective as of May 2, 2003. In connection with his resignation, we entered into
a separation and release agreement. Under this agreement, we agreed to provide
Mr. Klecha with a severance payment equal to $183,707, which consisted of (i)
salary and auto allowance through May 31, 2003, (ii) four weeks of accrued
vacation time, (iii) four months of salary and automobile allowance payments and
(iv) seven months COBRA reimbursement payments. In exchange, Mr. Klecha agreed
to release the Singing Machine from any liability in connection with the
termination of his employment.

EQUITY COMPENSATION PLANS AND 401(K) PLAN


We have two stock option plans: our 1994 Amended and Restated Stock Option Plan
("1994 Plan") and our Year 2001 Stock Option Plan ("Year 2001 Plan"). Both the
1994 Plan and the Year 2001 Plan provide for the granting of incentive stock
options and non-qualified stock options to our employees, officers, directors
and consultants As of November 22, 2004, we had 330,300 options issued and
outstanding under our 1994 Plan and 771,190 options are issued and outstanding
under our Year 2001 Plan.


The following table gives information about equity awards under our 1994 Plan
and the Year 2001 Plan.


<TABLE>
<CAPTION>
                                                                WEIGHTED-AVERAGE          NUMBER OF SECURITIES
                                    NUMBER OF SECURITIES       EXERCISE PRICE OF    REMAINING AVAILABLE FOR EQUITY
                                      TO BE ISSUED UPON           OUTSTANDING            COMPENSATION PLANS
                                   EXERCISE OF OUTSTANDING     OPTIONS, WARRANTS       (EXCLUDING SECURITIES IN
PLAN CATEGORY                    OPTION, WARRANTS AND RIGHTS       AND RIGHTS                  COLUMN (A))
------------------------------   ---------------------------   -----------------    -------------------------------
<S>                                                 <C>        <C>                                        <C>
Equity Compensation Plans
   approved by
    Security Holders                                1,101,490  $            3.95                          2,229,270

Equity Compensation Plans
  Not approved by
    Security Holders                                       0                   0                                  0
</TABLE>



                                       44
<PAGE>

1994 PLAN


Our 1994 Plan was originally adopted by our Board of Directors in May 1994 and
it was approved by our shareholders on June 29, 1994. Our shareholders approved
amendments to our 1994 Plan in March 1999 and September 2000. The 1994 Plan
reserved for issuance up to 1,950,000 million share of our common stock pursuant
to the exercise of options granted under the Plan. As of March 31, 2003, we had
granted all the options that are available for grant under our 1994 Plan. As of
March 31, 2004, we have 330,700 options issued and outstanding under the 1994
Plan and all of these options are fully vested as of March 31, 2004.


YEAR 2001 PLAN


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

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

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

Options granted under the Year 2001 Plan are not transferable except by will or
applicable laws of descent and distribution. Except as expressly determined by
the Committee, no option shall be exercisable after thirty (30) days following
an individual's termination of employment with Singing Machine or a subsidiary,
unless such termination of employment occurs by reason of such individual's
disability, retirement or death. The Committee may in its sole discretion,
provide in a grant instrument that upon a change of control (as defined in the
Year 2001 Plan) that all outstanding option issued to the grantee shall
automatically, accelerate and become full exercisable. Additionally, the
obligations of Singing Machine under the Year 2001 Plan are binding on (1) any
successor corporation or organization resulting from the merger, consolidation
or other reorganization of Singing Machine or (2) any successor corporation or
organization succeeding to all or substantially all of the assets and business
of Singing Machine. In the event of any of the foregoing, the Committee may, at
its discretion, prior to the consummation of the transaction, offer to purchase,
cancel, exchange, adjust or modify any outstanding options, as such time and in
such manner as the Committee deems appropriate.


401(K) PLAN

Effective January 1, 2001, we adopted a voluntary 401(k) plan. All employees
with at least one year of service are eligible to participate in our 401(k)
plan. In fiscal 2002, we made a matching contribution of 100% of salary deferral
contributions up to 3% of pay, plus 50.369% of salary deferral contributions
from 3% to 5% of pay for each payroll period. The amounts charged to earnings
for contributions to this plan and administrative costs during the years ended
March 31, 2004, 2003 and 2002 totaled approximately $55,402, $61,466 and
$41,733, respectively.

                              CERTAIN TRANSACTIONS


On July 14, 2004, Josef A. Bauer, a director, advanced a short-term loan of
$200,000 to us which we are to use to meet our working capital obligations. The
interest rate on the loan is 8.5% per annum and the loan is payable on demand.
On August 26, 2004, we repaid Mr. Bauer a total of $202,109, including $2,109 in
interest.



                                       45
<PAGE>

In June 2004, Edward Steele, former officer and director, advanced $40,000 to
us. The loan was interest fee and paid in full on August 30, 2004.


On or about July 10, 2003, certain officers and directors of our company
advanced $1 million to our company pursuant to written loan agreements. The
officer was Yi Ping Chan and the directors were Josef A. Bauer and Howard Moore.
Mr. Moore resigned from our Board, effective as October 17, 2003. Additionally,
Maureen LaRoche, a business associate of Mr. Bauer, participated in the
financing. These loans bear interest at the rate of 9.5% per annum. These loans
were subordinated to Milberg's factoring agreement, which we terminated
effective as of July 14, 2004. The loan has been subordinated to the Crestmark
bank on August 05, 2004.

On or about March 4, 2003, Josef A. Bauer, a director, advanced $400,000 to
International SMC pursuant to a letter agreement, which used the funds to make
an advance to a vendor for the purchase of raw materials for the production of
our machines. We were to repay Mr. Bauer's loan in two months on or about May 4,
2003 and the loan bore interest at the rate of 8% per annum. We repaid $200,000
on the loan on or about May 4, 2003 and the remaining balance was paid on or
about October 10, 2003.


We believe that of all of these related party transactions described above are
on terms that are as favorable as terms that we could have obtained from
unrelated third parties.

                             PRINCIPAL STOCKHOLDERS


The following table set forth as of October 31, 2004, certain information
concerning beneficial ownership of our common stock by:


o     all directors of the Singing Machine;

o     all executive officers of the Singing Machine; and

o     persons known to own more than 5% of our common stock.


Unless otherwise indicated, the address for each person is The Singing Machine
Company, Inc., 6601 Lyons Road, Building A-7, Coconut Creek, Florida 33073. As
of November 22, 2004, we had 9,202,318 shares of our common stock issued and
outstanding.


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

                                                  SHARES OF       PERCENT OF
                                                COMMON STOCK     COMMON STOCK
                                                ------------     ------------
Yi Ping Chan
Interim Chief Executive Officer and Chief
  Operating Officer                                   67,652(1)             *

Jeff Barocas
Chief Financial Officer                                    0                *

Joseph Bauer
Chairman                                           1,065,471(2)         11.58%

Bernard Appel
Director                                                   0                *

Harvey Judkowitz
Director                                                   0                *

John Klecha                                          810,811(3)          8.81%

Edward Steele                                      1,050,510(4)         11.42%
Former Officer and Director

Wellington Management Company, LLP                   939,400(5)         10.21%

All Directors and Executive Officers as a Group    1,118,162(6)         12.15%


                                       46
<PAGE>


* Less than 1%.

(1) Includes 50,000 shares issuable upon the exercise of stock options that are
exercisable within 60 days of October, 2004.

(2) Includes 11,197 shares held by Mr. Bauer individually, 200,000 shares held
by Mr. Bauer's wife, 180,374 shares held by Mr. Bauer and his wife jointly,
369,400 shares held by Mr. Bauer's pension account, 274,500 shares held in Mr.
Bauer Family United Partnership and 30,000 share issuable upon the exercise of
stock options that can be exercisable within 60 days of October 31, 2004.


(3) All of the information presented in this item with respect to Mr. Klecha's
beneficial ownership were extracted solely from his Amendment No. 2 to his
Schedule 13D filed on October 20, 2003.


(4) Includes 503,200 shares which are held by Mr. Steele directly, 209,810
shares which are held by Mr. Steele's wife and 342,500 shares issuable upon the
exercise of stock options that are exercisable within 60 days of October 31,
2004.


(5) The address of Wellington Management Company, LLP is 75 State Street,
Boston, Massachusetts. All of the information presented in this item with
respect to this beneficial ownership was extracted solely from their Schedule
136 filed on February 12, 2004.


(6) Includes 80,000 shares issuable upon the exercise of stock options that are
exercisable within 60 days of October 31, 2004.


                            DESCRIPTION OF SECURITIES

We are authorized to issue:

o     18,900,000 shares of common stock;

o     100,000 shares of Class A common stock; and

o     1,000,000 shares of convertible preferred stock.


As of October 31, 2004, we have 9,202,318 shares of our common stock issued and
outstanding and no shares of Class A common stock or convertible preferred stock
are issued and outstanding.


COMMON STOCK


We are authorized to issue up to 18,900,000 shares of our common stock, par
value $0.01 per share. The holders of our common stock are entitled to one vote
for each share held of record on all matters to be voted on by stockholders.
There is no cumulative voting with respect to the election of directors, with
the result that the holders of more than 50% of the shares voted for the
election of directors can elect all of the directors. The holders of our common
stock are entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available. In the event of liquidation,
dissolution or winding up of Singing Machine, the holders of our common stock
are entitled to share ratably in all assets remaining available for distribution
to them after payment of liabilities and after provision has been made for each
class of stock, if any, having preference over the common stock. Holders of
shares of common stock, as such, have no conversion, preemptive or other
subscription rights, and, except as noted herein, there are no redemption
provisions applicable to the common stock. All of the outstanding shares of
common stock are validly issued, fully paid and nonassessable.


CLASS A COMMON STOCK

Our Certificate of Incorporation authorizes the issuance of 100,000 shares of
Class A Common Stock, par value $0.01 per share. In connection with our public
offering in 1994, all issued shares of our Class A common stock were converted
into shares of our common stock. We do not plan on issuing any shares of our
Class A common stock and will delete this provision from our Certificate of
Incorporation when we file the next amendment to our Certificate of
Incorporation, which will be at our next shareholder's meeting.


CONVERTIBLE PREFERRED STOCK


Our Board of Directors has the authority, without further action by our
stockholders, to issue up to 1,000,000 shares of our preferred stock, par value
$1.00 per share, in one or more series and to fix the rights, preferences,
privileges and restrictions thereof. In April 1999, we authorized the issuance
of 1,000,000 shares of our convertible preferred stock in connection with a
private offering of our units. All of these shares of convertible preferred
stock were converted into shares of our common stock automatically on April 1,
2000.

We do not plan on issuing any shares of our convertible preferred stock in the
near future and will delete this provision from our Certificate of Incorporation
when we file the next amendment to our Certificate of Incorporation, which will
be at our next shareholder's meeting.


                                       47
<PAGE>

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION,
BYLAWS AND DELAWARE LAW

Certain provisions of our amended certificate of incorporation, bylaws and
Delaware law, which are summarized below, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.

CUMULATIVE VOTING

Our amended certificate of incorporation does not permit our stockholders the
right to cumulate votes in the election of directors.

SPECIAL MEETING OF STOCKHOLDERS

Our bylaws provided that special meetings of our stockholders may only be called
by (1) resolution of the Board or the president or (2) the president or the
secretary upon the written request (stating the purpose of the meeting) of a
majority of the directors then in office or the holders of a majority of the
outstanding shares entitled to vote.

AUTHORIZED BUT UNISSUED SHARES

The authorized but unissued shares of common stock are available for future
issuance without stockholder approval. These additional shares may be utilized
for a variety of corporate purposes, including public or private offerings to
raise capital, corporate acquisitions and employee benefit plans. The existence
of authorized but unissued shares of common stock could render more difficult or
discourage an attempt to obtain control of us, by means of a proxy contest,
tender offer, merger or otherwise.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS


We have adopted provisions in our amended certificate of incorporation and
bylaws that limit the liability of our directors to the fullest extent permitted
by the by the Delaware General Corporation Law. Pursuant to such provisions, no
director will be liable to Singing Machine or its stockholders for monetary
damages for breaches of certain fiduciary duties as a director of Singing
Machine. The limitation of liability will not affect a director's liability for
(1) a breach of the director's duty of loyalty to Singing Machine or its
stockholders, (2) an act or omission not in good faith or that involves
intentional misconduct or a knowing violation of the law, (3) any unlawful
distributions, or (4) a transaction from which the director receives an improper
personal benefit. The limitation of liability also will not affect the
availability of equitable remedies such as injunctive relief or rescission.

Our amended certificate of incorporation and bylaws require us to indemnify our
officers and directors to the fullest extent permitted by Delaware law. We have
entered into indemnification agreements with each of our directors and executive
officers. These agreements, among other things, indemnify our directors and
executive officers for certain expenses, judgments, fines and settlement amounts
incurred by them in any action or proceeding, including any action by or in the
right of Singing Machine, arising out of the person's services as a director or
executive officer of Singing Machine or any other company or enterprise to which
the person provides services at our request. We believe that these provisions
and agreements are necessary to attract and retain qualified directors and
executive officers.

Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling person based on the
foregoing provisions, we have been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy and is,
therefore, unenforceable.


DELAWARE LAW

Under Delaware law, a corporation may not engage in any "business combination"
(as defined in the Delaware General Corporation Law) with an "interested
stockholder" for three years after such stockholder becomes an interested
stockholder. An interested stockholder is any person who is the beneficial owner
of 15% or more of the outstanding voting stock of the corporation. A corporation
may enter into a business combination with an interested stockholder if:

(a) the Board of Directors approves either the business combination or the
transaction which resulted in the stockholder becoming an interested stockholder
before the date on which the stockholder becomes an interested stockholder;

(b) upon consummation of the transaction resulting in the stockholder reaching
the 15% threshold, the stockholder owned 85% of the outstanding voting shares at
the time the transaction commenced, excluding those shares held by directors who
are also officers or employee stock plans in which the participants do not have
the right to determine confidentially whether shares subject to the plan will be
tendered in a tender or exchange offer; or

(c) on or subsequent to becoming an interested stockholder, the business
combination is approved by the Board of Directors and is authorized at a meeting
by the affirmative vote of at least two-thirds of the outstanding voting stock
not owned by the interested stockholder.

TRANSFER AGENT


                                       48
<PAGE>

The transfer agent for our common stock is Continental Stock Transfer & Trust
Co., 2 Broadway, New York, New York 10004.

                         SHARES ELIGIBLE FOR FUTURE SALE


As of October 31, 2004, we have 9,202,318 shares of our common stock issued and
outstanding. If the 4,634,067 shares registered in this Prospectus are issued,
we will have 13,836,385 shares issued and outstanding. Of these shares, all of
the 4,634,067 shares registered in this offering will be freely tradeable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act. Shares that cannot be traded without restriction are
referred to as "restricted securities" as that term is defined in Rule 144 under
the Securities Act. As of October 31, 2004, approximately 7,776,789 (of our
9,202,318 issued and outstanding shares) are eligible for sale under Rule 144.
Restricted securities may be sold in the public market only if registered of if
they qualify for an exemption from registration under Rule 144 of the Securities
Act.


RULE 144


In general, under Rule 144 as currently in effect, a person (or group of person
whose shares are aggregated), including affiliates of Singing Machine, who have
beneficially owned shares of our common stock for at least one year would be
entitled to sell within any three-month period, an amount of restricted
securities that does not exceed the greater of:

o     One percent of the number of shares of common stock then outstanding
      (approximately 88,063 shares as of November 22, 2004; or


o     the average weekly trading volume in the common stock during the four
      calendar weeks preceding the filing of a notice on Form 144 with respect
      to such sale.


Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
us.


RULE 144(K)

Under Rule 144(k), a person who is not deemed to have been one of our affiliates
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, including the holding
period of any prior owner other than an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.


No prediction can be made as to the effect, if any that market sales of Singing
Machine's common stock, or the availability of the common stock for sale, will
have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of a significant number of shares of Singing Machine's
common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and impair
our future ability to raise capital through an offering of equity securities.
See "Risk Factors - Future sales of our common stock may depress our stock
price."


                                  LEGAL MATTERS

The validity of the securities being offered hereby will be passed upon by
Sichenzia Ross Friedman Ference LLP, New York, NY.

                                     EXPERTS


Our financial statements for the years ended March 31, 2004 and 2003 appearing
in this Prospectus and registration statement have been audited by Grant
Thornton LLP, as our former independent registered public accounting firm, as
set forth in their report appearing elsewhere herein, and are included in
reliance upon the report given on the authority of the firm as experts in
accounting and auditing. Our financial statements for the year ended March 31,
2002 appearing in this Prospectus and registration statement have been audited
by Salberg & Company, P.A., as independent registered public accounting firm, as
set forth in their report appearing elsewhere herein, and are included in
reliance upon the report given on the authority of the firm as experts in
accounting and auditing.


                    WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 pursuant to the Securities Act of 1933, as amended, with
respect to the offer, issuance and sale of 6,298,178 shares of our common stock.
This Prospectus does not contain all of the information set forth in the
registration statement. For further information with respect to us, and the
shares of our common stock to be sold in this offering, we make reference to the
registration statement.


                                       49
<PAGE>

You may read and copy all or any portion of the registration statement or any
other information, which we filed at the SEC's public reference rooms in
Washington, D.C. The address for the SEC's public reference room in Washington,
D.C. is Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. You can
request copies of these documents, upon payment of a duplicating filing fee, by
writing to the SEC. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings are also available to you free or charge at the SEC's web
site at http://www.sec.gov.


                                       50
<PAGE>

                THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY

                          INDEX TO FINANCIAL STATEMENTS


Report of Former Independent Registered Public Accounting Firm...............F-2
Report of Former Independent Registered Public Accounting Firm...............F-3
Consolidated Balance Sheets..................................................F-4
Consolidated Statements of Operations........................................F-5
Consolidated Statement of Cash Flows.........................................F-7
Consolidated Statements of Stockholders' Equity..............................F-9
Notes to Consolidated Financial Statements..................................F-10



                                      F-1
<PAGE>

                        REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of The Singing
Machine Company, Inc. and subsidiary (the "Company") as of March 31, 2004 and
2003, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Singing
Machine Company, Inc. and subsidiary as of March 31, 2004 and 2003 and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

We have also audited Schedule II of The Singing Machine Company, Inc. and
subsidiary for the year ended March 31, 2004. In our opinion, this schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information therein.


The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed more fully in Note 2 to the
consolidated financial statements and as of June 16, 2004, the Company has
minimal liquidity. Additionally and as of March 31, 2004, the Company was in
violation of the tangible net worth covenant of its factoring agreement. This
continuing condition of minimal liquidity and the lack of adequate external
financing raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to increasing liquidity are also
described in Note 2 to the consolidated financial statements. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



                             /s/ Grant Thornton LLP

                                 Miami, Florida
                       June 16, 2004 (except for the last
                        paragraph of Note 7, as to which
                           the date is July 14, 2004)


                                      F-2
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated statement of operations, changes
in stockholders' equity, and cash flows for the year ended March 31, 2002 of The
Singing Machine Company, Inc., and Subsidiary. 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 audit.

We conducted our audit in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 audit provides a reasonable basis for our
opinion.

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

As more fully described in Note 3 of the fiscal 2004, 2003 and 2002 consolidated
financial statements, subsequent to the issuance of the Company's 2002 and 2001
consolidated financial statements and our report thereon dated May 23, 2002,
management determined to restate the 2002 and 2001 consolidated financial
statements to reflect a change in their position regarding taxation of certain
corporate income and a resulting increase in the income tax provision for years
2002 and 2001. In our related report, we expressed an unqualified opinion. Our
opinion on the revised consolidated financial statements, as expressed herein,
remains unqualified.


/S/ SALBERG & COMPANY, P.A.
BOCA RATON, FLORIDA
MAY 23, 2002 (EXCEPT FOR NOTE 3 AS TO WHICH THE DATE IS JULY 14, 2003)


                                      F-3
<PAGE>


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

<TABLE>
<CAPTION>
                                                                        SEPTEMBER 30      MARCH 31        MARCH 31,
                                                                            2004            2004            2003
                                                                        ------------    ------------    ------------
                                                                        (UNAUDITED)
<S>                                                                     <C>             <C>             <C>
                               Assets
Current Assets
Cash and cash equivalents                                               $    928,096    $    356,342    $    268,264
Restricted Cash                                                            1,544,302         874,283         838,411
Accounts Receivable, less allowances of $295,085, $98,000 and
  $406,000, respectively                                                   7,473,955       3,806,166       5,762,944
Due from manufacturers                                                       244,579          95,580       1,091,871
Inventories, net                                                           3,410,275       5,923,267      25,194,346
Prepaid expense and other current assets                                     582,954         783,492       1,449,505
Insurance receivable                                                              --         800,000              --
Refundable tax                                                                    --       1,178,512              --
Deferred tax asset                                                                --              --       1,925,612
                                                                        ------------    ------------    ------------
                                                 TOTAL CURRENT ASSETS     14,184,161      13,817,642      36,530,953
PROPERTY AND EQUIPMENT, at cost less accumulated depreciation
  of $2,700,000  $2,567,000 and $1,473,000, respectively                   1,382,096         983,980       1,096,424
OTHER ASSETS
Other non-current assets                                                     483,579         615,773       1,307,917
                                                                        ------------    ------------    ------------
                                                         TOTAL ASSETS   $ 16,049,836    $ 15,417,395    $ 38,935,294
                                                                        ============    ============    ============
                LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdraft                                                          $         --    $     62,282    $    316,646
Accounts payable                                                           7,151,949       4,651,675       7,553,007
Accrued expenses                                                           1,397,626       3,481,905       1,443,406
Customer credits on account                                                1,560,621       2,111,484         933,002
Subordinated debt-related parties                                          1,000,000       1,000,000         400,000
Revolving credit facilities                                                       --              --       6,782,824
Due to factor                                                                474,968              --              --
Income taxes payable                                                       2,563,295       2,447,746       3,821,045
                                                                        ------------    ------------    ------------
                                            TOTAL CURRENT LIABILITIES     14,148,459      13,755,092      21,249,930

LONG TERM LIABILITY
Convertible debentures, net of unamortized discount of $2,498,263,
$2,554,511 and $0, respectively                                            1,501,737       1,445,489              --
                                                                        ------------    ------------    ------------
                                            TOTAL LONG TERM LIABILITY      1,501,737       1,445,489              --
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value; 1,000,000 shares authorized, no
  shares issued and outstanding                                                   --              --              --
Common stock, Class A, $.01 par value;  100,000 shares authorized;
  no shares issued and outstanding                                                --              --              --
Common stock, $0.01 par value;  18,900,000 shares authorized;                 92,023          87,523          81,717
  9,202,318, 8,752,318 and 8,171,678 shares issued and outstanding
Additional paid-in capital                                                11,028,636      10,052,498       4,843,430
Accumulated (deficit)/retained earnings                                  (10,721,019)     (9,923,207)     12,760,217
                                                                        ------------    ------------    ------------
                                           TOTAL SHAREHOLDERS' EQUITY        399,640         216,814      17,685,364
                                                                        ------------    ------------    ------------
                           TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 16,049,836    $ 15,417,395    $ 38,935,294
                                                                        ============    ============    ============
</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



                                      F-4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                                UNAUDITED
                                                                    YEARS ENDED MARCH 31,             SIX MONTHS ENDED SEPTEMBER 30
                                                          ------------------------------------------  -----------------------------
                                                              2004           2003           2002           2004           2003
                                                          ------------   ------------   ------------   ------------   ------------
                                                                                        (as restated)
                                                                                           (Note 3)
<S>                                                       <C>            <C>            <C>            <C>            <C>
NET SALES                                                 $ 70,541,128   $ 95,613,766   $ 62,475,753   $ 22,610,160   $ 40,479,551

COST OF SALES
    Cost of Goods Sold                                      68,279,589     72,329,035     40,852,840     17,579,677     33,333,411
    Impairment of Tooling                                      442,989             --             --             --             --
                                                          ------------   ------------   ------------   ------------   ------------

GROSS PROFIT                                                 1,818,550     23,284,731     21,622,913      5,030,483      7,146,140

OPERATING EXPENSES
Advertising                                                  2,340,439      5,032,367      2,377,638        421,795      1,115,434
Commissions                                                  1,024,883        997,529      1,294,543        358,663        560,256
Compensation                                                 5,048,831      4,095,176      2,486,547      1,335,780      2,455,391
Freight and Handling                                         1,423,082      2,112,435      1,242,910        297,144        721,821
Royalty Expense                                              2,294,727      2,257,653      1,862,116        366,333        833,131
Selling, general and administrative expenses                 9,881,887      7,175,341      4,123,779      2,178,226      4,846,883
                                                          ------------   ------------   ------------   ------------   ------------
TOTAL OPERATING EXPENSES                                    22,013,849     21,670,501     13,387,533      4,957,941     10,532,916
                                                          ------------   ------------   ------------   ------------   ------------

(LOSS) INCOME FROM OPERATIONS                              (20,195,299)     1,614,230      8,235,380         72,542     (3,386,776)

OTHER INCOME (EXPENSES)
Other income (Expenses)                                         22,116        196,537        215,840        117,271        (82,980)
Stock based guarantee fees                                          --             --       (171,472)            --             --
Interest expense                                              (995,137)      (406,126)      (112,123)      (243,704)      (450,562)
Interest expense - Amortization of discount on debentures     (757,815)            --                      (743,921)       (56,801)
Interest income                                                  1,216         11,943         16,934             --             --

                                                          ------------   ------------   ------------   ------------   ------------
NET OTHER EXPENSES                                          (1,729,620)      (197,646)       (50,821)      (870,354)      (590,343)
                                                          ------------   ------------   ------------   ------------   ------------

(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES            (21,924,919)     1,416,584      8,184,559       (797,812)    (3,977,119)

PROVISION FOR INCOME TAXES                                     758,505        198,772      1,895,494             --      1,003,098
                                                          ------------   ------------   ------------   ------------   ------------

NET (LOSS) INCOME                                         $(22,683,424)  $  1,217,812   $  6,289,065   $   (797,812)  $ (2,974,021)
                                                          ============   ============   ============   ============   ============

(LOSS) EARNINGS PER COMMON SHARE:
    Basic                                                 $      (2.65)  $       0.15   $       0.88   $      (0.09)  $      (0.35)
    Diluted                                               $      (2.65)  $       0.14   $       0.79   $      (0.09)  $      (0.35)

WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES:
    Basic                                                    8,566,116      8,114,330      7,159,142      8,799,313      8,278,469
    Diluted                                                  8,566,116      8,931,385      7,943,473      8,799,313      8,278,469
</TABLE>


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



                                      F-5
<PAGE>

            THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                                          YEARS ENDED MARCH 31
                                                                             --------------------------------------------
                                                                                2004             2003            2002
                                                                             ------------    ------------    ------------
                                                                                                            (as restated)
                                                                                                              (Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                          <C>             <C>             <C>
      Net (loss) earnings                                                    $(22,683,424)   $  1,217,812       6,289,065
      Adjustments to reconcile net (loss) earnings to net cash provided by
          (used in) operating activities
      Depreciation and amortization                                               750,359         622,298         394,456
      Impairment of tooling and Intangible                                        628,405              --              --
      Provision for inventory                                                   3,446,518       3,715,357              --
      Provision for bad debt                                                     (159,676)        393,737          45,078
      Amortization of discount/deferred fees on convertible debentures            909,891              --              --
      Stock compensation expense                                                  632,451              --         171,472
      Deferred taxes                                                            1,925,612      (1,734,194)             --
      Changes in assets and liabilities:
          Accounts Receivable                                                   2,116,454      (2,626,074)     (2,626,329)
          Due from manufacturer                                                   996,291        (603,573)        210,798
          Inventories                                                          15,824,562     (19,635,351)     (4,460,891)
          Prepaid expenses and other assets                                       666,013      (1,020,895)       (352,373)
          Insurance receivable                                                   (800,000)             --              --
          Other non-current assets                                              1,204,630        (426,494)        (91,631)
          Accounts payable                                                     (2,901,332)      5,706,769       1,364,158
          Accrued expenses                                                      2,038,499         153,809         199,445
          Customer credits on account                                           1,178,482         933,002              --
          Current income taxes                                                 (2,551,811)      1,779,117       1,811,439
                                                                             ------------    ------------    ------------
              Net cash provided by (used in) operating activities               3,221,924     (11,524,680)      2,954,687
                                                                             ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
      Purchase of property and equipment                                       (1,266,321)     (1,144,064)       (613,691)
      Proceeds from investment in factor                                               --              --         933,407
      Proceeds from repayment of related party loans                                   --              --         125,117
      Restricted cash                                                             (35,872)       (324,727)       (513,684)
      Investment in and advances in unconsolidated subsidiary                          --              --         298,900
                                                                             ------------    ------------    ------------
              Net cash (used in) provided by investing activities              (1,302,193)     (1,468,791)        230,049
                                                                             ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
      Borrowings from revolving credit facilities                              28,863,712      47,825,725      21,856,653
      Repayments to revolving credit facilities                               (35,646,536)    (41,042,901)    (21,856,653)
      Proceeds from issuance of convertible debentures                          4,000,000              --              --
      Borrowing from factoring                                                         --              --              --
      Bank Overdraft                                                             (254,364)        316,645              --
      Payment of fees related to convertible debt                                (255,000)             --              --
      Proceeds from subordinated debt-related parties, net                        600,000         400,000              --
      Proceeds from note payable                                                       --              --              --
      Proceeds from related party loan                                                 --              --              --
      Payment on related party loan                                                    --              --              --
      Proceeds from exercise of stock options and warrants                        860,535         242,119       1,319,190
                                                                             ------------    ------------    ------------
              Net cash (used in) provided by financing activities              (1,831,653)      7,741,588       1,319,190
                                                                             ------------    ------------    ------------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS                                    88,078      (5,251,883)      4,503,926
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                  268,264       5,520,147       1,016,221
                                                                             ------------    ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                   $    356,342    $    268,264    $  5,520,147
                                                                             ============    ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Interest paid                                                          $    943,018    $    406,126    $    112,123
                                                                             ============    ============    ============
      Income taxes paid                                                      $  1,388,804    $    153,849    $    102,415
                                                                             ============    ============    ============

NON-CASH FINANCING ACTIVITIES
Discounts for warrants issued in connection with and beneficial
      conversion feature of convertible debentures                           $  3,312,362    $         --    $         --
                                                                             ============    ============    ============
Financing fees in connection with convertible debentures issuance
      paid in stock and warrants                                             $    409,527    $         --    $         --
                                                                             ============    ============    ============
Warrants issued in connection with convertible debentures admendment         $     30,981    $         --    $         --
                                                                             ============    ============    ============

<CAPTION>
                                                                                          UNAUDITED
                                                                                SIX MONTHS ENDED SEPTEMBER 30
                                                                                -----------------------------
                                                                                    2004           2003
                                                                                ------------    ------------


CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                             <C>             <C>
      Net (loss) earnings                                                       $   (797,812)   $ (2,974,021)
      Adjustments to reconcile net (loss) earnings to net cash provided by
          (used in) operating activities
      Depreciation and amortization                                                  177,380         466,301
      Impairment of tooling and Intangible                                                --              --
      Provision for inventory                                                             --              --
      Provision for bad debt                                                              --              --
      Amortization of discount/deferred fees on convertible debentures               743,886         157,172
      Stock compensation expense                                                     293,000         511,933
      Deferred taxes                                                                      --              --
      Changes in assets and liabilities:
          Accounts Receivable                                                     (3,667,789)    (15,368,857)
          Due from manufacturer                                                     (148,999)      1,090,357
          Inventories                                                              2,512,992       4,631,260
          Prepaid expenses and other assets                                          200,537          83,557
          Insurance receivable                                                       800,000              --
          Other non-current assets                                                   132,194              --
          Accounts payable                                                         2,500,274       7,153,298
          Accrued expenses                                                        (2,084,279)      1,054,718
          Customer credits on account                                               (550,863)             --
          Current income taxes                                                     1,294,061      (1,185,998)
                                                                                ------------    ------------
              Net cash provided by (used in) operating activities                  1,404,582      (4,380,280)
                                                                                ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
      Purchase of property and equipment                                            (575,495)       (157,178)
      Proceeds from investment in factor                                                  --              --
      Proceeds from repayment of related party loans                                      --              --
      Restricted cash                                                               (670,019)        (29,192)
      Investment in and advances in unconsolidated subsidiary                             --              --
                                                                                ------------    ------------
              Net cash (used in) provided by investing activities                 (1,245,514)        186,370
                                                                                ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
      Borrowings from revolving credit facilities                                         --      28,633,112
      Repayments to revolving credit facilities                                           --     (28,902,525)
      Proceeds from issuance of convertible debentures                                    --       4,000,000
      Borrowing from factoring                                                       474,968              --
      Bank Overdraft                                                                 (62,282)       (268,856)
      Payment of fees related to convertible debt                                         --        (255,000)
      Proceeds from subordinated debt-related parties, net                                --              --
      Proceeds from note payable                                                          --         637,122
      Proceeds from related party loan                                               240,000         700,000
      Payment on related party loan                                                 (240,000)             --
      Proceeds from exercise of stock options and warrants                                --         860,535
                                                                                ------------    ------------
              Net cash (used in) provided by financing activities                    412,686       5,404,388
                                                                                ------------    ------------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS                                      571,754         837,738
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                     356,342         268,265
                                                                                ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      $    928,096    $  1,106,003
                                                                                ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Interest paid                                                             $    238,740    $    350,192
                                                                                ============    ============
      Income taxes paid                                                         $         --    $    205,000
                                                                                ============    ============

NON-CASH FINANCING ACTIVITIES
Discounts for warrants issued in connection with and beneficial
      conversion feature of convertible debentures                              $    687,638    $         --
                                                                                ============    ============
Financing fees in connection with convertible debentures issuance
      paid in stock and warrants                                                $         --    $         --
                                                                                ============    ============
Warrants issued in connection with convertible debentures admendment            $         --    $         --
                                                                                ============    ============
</TABLE>


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                      F-6
<PAGE>

                THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                       PREFERRED STOCK                  COMMON STOCK
                                              -------------------------------    --------------------------       PAID IN
                                                    SHARES           AMOUNT          SHARES         AMOUNT        CAPITAL
                                              -----------------   -----------    --------------   ----------   --------------
<S>                                                           <C> <C>                 <C>             <C>      <C>
BALANCE AT MARCH 31, 2001, RESTATED                           -             -         6,538,680       65,387        3,302,982

Net earnings                                                  -             -                 -            -                -
Exercise of warrants                                          -             -           581,100        5,811          584,239
Exercise of employee stock options                            -             -           900,525        9,005          720,135
Fractional share adjustment pursuant to 3:2 stock split       -             -              (278)          (3)          (4,528)
Amortization of deferred guarantee fees                       -             -                 -            -                -
                                              -----------------   -----------    --------------   ----------   --------------
BALANCE AT MARCH 31, 2002, RESTATED                           -             -         8,020,027       80,200        4,602,828

Net earnings                                                  -             -                 -            -                -
Exercise of warrants                                                                     52,500          525           47,600
Exercise of employee stock options                            -             -            99,151          992          193,002
                                              -----------------   -----------    --------------   ----------   --------------
BALANCE AT MARCH 31, 2003                                                             8,171,678       81,717        4,843,430

Net loss
Exercise of employee stock options                            -             -           448,498        4,485        1,076,885
 Warrants issued in connection with convertible
   debenture admendment                                       -             -                 -            -           30,981
Financing fees paid with warrants                             -             -                 -            -          268,386
Warrants issued in connection with and beneficial
  conversion feature of convertible debentures                -             -                 -            -        3,312,362
Issuance of common stock                                      -             -           132,142        1,321          520,454
                                              -----------------   -----------    --------------   ----------   --------------
BALANCE AT MARCH 31, 2004                                     -             -         8,752,318       87,523       10,052,498

Net loss                                                      -             -                 -            -                -
Additonal discount of debenture                               -             -                 -            -          687,638
Stock compensation                                            -             -           450,000        4,500          288,500
                                              -----------------   -----------    --------------   ----------   --------------
BALANCE AT SEPTEMBER 30, 2004                                 -   $         -         9,202,318   $   92,023   $   11,028,636
                                              =================   ===========    ==============   ==========   ==============

<CAPTION>
                                                                               DEFERRED
                                                              RETAINED         GUARANTEE
                                                              EARNINGS           FEES             TOTAL
                                                           ---------------    -----------    ----------------
<S>                                                        <C>                <C>            <C>
BALANCE AT MARCH 31, 2001, RESTATED                              5,253,340       (171,472)          8,450,237

Net earnings                                                     6,289,065              -           6,289,065
Exercise of warrants                                                     -              -             590,050
Exercise of employee stock options                                       -              -             729,140
Fractional share adjustment pursuant to 3:2 stock split                  -              -              (4,531)
Amortization of deferred guarantee fees                                  -        171,472             171,472
                                                           ---------------    -----------    ----------------
BALANCE AT MARCH 31, 2002, RESTATED                             11,542,405              -          16,225,433

Net earnings                                                     1,217,812              -           1,217,812
Exercise of warrants                                                     -                             48,125
Exercise of employee stock options                                       -              -             193,994
                                                           ---------------    -----------    ----------------
BALANCE AT MARCH 31, 2003                                       12,760,217                         17,685,364

Net loss                                                       (22,683,424)             -         (22,683,424)
Exercise of employee stock options                                       -              -           1,081,370
 Warrants issued in connection with convertible
   debenture admendment                                                  -              -              30,981
Financing fees paid with warrants                                        -              -             268,386
Warrants issued in connection with and beneficial
  conversion feature of convertible debentures                           -              -           3,312,362
Issuance of common stock                                                 -              -             521,775
                                                           ---------------    -----------    ----------------
BALANCE AT MARCH 31, 2004                                       (9,923,207)             -             216,814

Net loss                                                          (797,812)             -            (797,812)
Additonal discount of debenture                                          -              -             687,638
Stock compensation                                                       -              -             293,000
                                                           ---------------    -----------    ----------------
BALANCE AT SEPTEMBER 30, 2004                              $   (10,721,019)   $         -    $        399,640
                                                           ===============    ===========    ================
</TABLE>



                                      F-7
<PAGE>

THE SINGING MACHINE COMPANY, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

OVERVIEW

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

The preparation of The Singing Machine's 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 at the date of the financial statements and
revenues and expenses during the period. Future events and their effects cannot
be determined with absolute certainty; therefore, the determination of estimates
requires the exercise of judgment. Actual results inevitably will differ from
those estimates, and such differences may be material to the Company's financial
statements. Management evaluates its estimates and assumptions continually.
These estimates and assumptions are based on historical experience and other
factors that are believed to be reasonable under the circumstances. These
estimates and The Singing Machine's actual results are subject to the risk
factors listed in Quantitative and Qualitative Disclosure About Market Risk
section.

The management of the Company believes that a higher degree of judgment or
complexity is involved in the following areas:


UNAUDITED INTERIM RESULTS. The accompanying balance sheet as of September 30,
2004 and the statements of operations and cash flows for the six months ended
September 30, 2004 and 2003 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results for these
periods. The data disclosed in the notes to the financial statements for these
periods and through the date of this filing are also unaudited.


COLLECTIBILITY OF ACCOUNTS RECEIVABLE. The Singing Machine's allowance for
doubtful accounts is based on management's estimates of the creditworthiness of
its customers, current economic conditions and historical information, and, in
the opinion of management, is believed to be an amount sufficient to respond to
normal business conditions. Management sets 100% reserves for customers in
bankruptcy and other reserves based upon historical collection experience.
Should business conditions deteriorate or any major customer default on its
obligations to the Company, this allowance may need to be significantly
increased, which would have a negative impact on operations.

INVENTORY. The Singing Machine reduces inventory on hand to its net realizable
value on an item by item basis when it is apparent that the expected realizable
value of an inventory item falls below its original cost. A charge to cost of
sales results when the estimated net realizable value of specific inventory
items declines below cost. Management regularly reviews the Company's investment
in inventories for such declines in value.


INCOME TAXES. Significant management judgment is required in developing The
Singing Machine's provision for income taxes, including the determination of
foreign tax liabilities, deferred tax assets and liabilities and any valuation
allowances that might be required against the deferred tax assets. Management
evaluates its ability to realize its deferred tax assets on a quarterly basis
and adjusts its valuation allowance when it believes that it is more likely than
not that the asset will not be realized. At December 31, 2003 and March 31,
2004, the Company concluded that a valuation allowance was needed against all of
the Company's deferred tax assets, as it was not more likely than not that the
deferred taxes would be realized. At September 30, 2004 and as of March 31, 2004
and 2003, The Singing Machine had gross deferred tax assets of $8.7, $8.2
million and $1.9 million, against which the Company recorded valuation
allowances totaling $8.7, $8.2 million and $0, respectively.

For the fiscal year ended March 31, 2004, the Company recorded a tax provision
of $758,505. This occurred because the valuation allowance established against
the Company's deferred tax assets exceeded the amount of the benefit created
from carrying back a portion of the current year's losses. The carry-back of the
losses from the current year resulted in an income tax receivable of $1.1
million, which is included in refundable tax in the accompanying balance sheets.
We have received the tax fund of $1.1 million on August 24, 2004, which has been
used to pay related parties' loan and the vendors. The Company has now exhausted
its ability to carry back any further losses and therefore will only be able to
recognize tax benefits to the extent that it has future taxable income.



                                      F-8
<PAGE>


For the six months ended September 30, 2004, the Company recorded no tax
provision. This occurred because the Company has net operating losses during
this period and has not recorded a benefit for the current period's losses
because realizability is not likely.


The Company's subsidiary has applied for an exemption of income tax in Hong
Kong. Therefore, no taxes have been expensed or provided for at the subsidiary
level. Although no decision has been reached by the governing body, the parent
company has reached the decision to provide for the possibility that the
exemption could be denied and accordingly has recorded a provision for Hong Kong
taxes in fiscal 2003 and 2002. There was no provision for Hong Kong income taxes
in fiscal 2004 due to the subsidiary's net operating losses.

Hong Kong income taxes payable totaled $2.4 million at March 31, 2004 and 2003
and is included in the accompanying balance sheets as income taxes payable.

The Company effectively repatriated approximately $2.0 million, $5.6 million and
$5.7 million from its foreign operations in 2004, 2003 and 2002, respectively.
Accordingly, these earnings were taxed as a deemed dividend based on U.S.
statutory rates. The Company has no remaining undistributed earnings of the
Company's foreign subsidiary.

The Company operates within multiple taxing jurisdictions and is subject to
audit in those jurisdictions. Because of the complex issues involved, any claims
can require an extended period to resolve. In management's opinion, adequate
provisions for income taxes have been made.

OTHER ESTIMATES. The Singing Machine makes other estimates in the ordinary
course of business relating to sales returns and allowances, warranty reserves,
and reserves for promotional incentives. Historically, past changes to these
estimates have not had a material impact on the Company's financial condition.
However, circumstances could change which may alter future expectations.

THE FOLLOWING ARE THE COMPANY'S REMAINING ACCOUNTING POLICIES.

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 intercompany accounts and
transactions have been eliminated in consolidation.

STOCK SPLITS

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.

FOREIGN CURRENCY TRANSLATION


The functional currency of the Hong Kong Subsidiary is its local currency. The
financial statements of the subsidiary are translated to U.S. 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
effect of exchange rate changes on cash at March 31, 2004, 2003 and 2002 were
also not material.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents. Cash balances at
September 30, 2004, March 31, 2004 and 2003 include approximately $799,315,
$140,000 and $73,000, respectively, held in foreign banks by the Hong Kong
Subsidiary.

COMPREHENSIVE EARNINGS (LOSSES)

Other comprehensive earnings (losses) is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources, including foreign currency translation
adjustments and unrealized gains and losses on derivatives designated as cash
flow hedges. For the six months ended September 30, 2004, years ended March 31,
2004, 2003 and 2002, there was no other comprehensive earnings (losses).


INVENTORIES


Inventories are comprised of electronic karaoke audio equipment, accessories,
and compact discs and are stated at the lower of cost or market, as determined
using the first in, first out method. Inventory consigned to customers at
September, 30, 2004, March 31, 2004 and 2003 was $293,230, $300,914 and $56,695,
respectively.



                                      F-9
<PAGE>


The following table represents the major components of inventory:

                               September 30, 2004    March 31,        March 31,
                                  (Unadited)           2004             2003
Finished Goods                     $ 3,410,275      $ 5,801,917      $24,092,406
Inventory in Transit                                $   121,350      $ 1,101,940
                                   -----------      -----------      -----------

Total Inventories                  $ 3,410,275      $ 5,923,267      $25,194,346
                                   ===========      ===========      ===========


LONG-LIVED ASSETS

The Company reviews long-lived assets for impairment whenever circumstances and
situations change such that there is an indication that the carrying amounts may
not be recoverable. If the undiscounted future cash flows attributable to the
related assets are less than the carrying amount, the carrying amounts are
reduced to fair value and an impairment loss is recognized in accordance with
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
During the year ended March 31, 2004, the Company recorded an impairment charge
totaling $442,989 on certain tooling. The charge was the result of the Company's
decision to discontinue certain inventory models.

SHIPPING AND HANDLING COSTS

Shipping and handling costs are classified as a separate component of operating
expenses and those billed to customers are recorded as revenue in the statement
of operations.

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 for in amounts sufficient to relate the cost
of depreciable assets to their estimated useful lives using accelerated and
straight-line methods.

REVENUE RECOGNITION


Revenue from the sale of equipment, accessories, and musical recordings are
recognized upon the later of (a) the time of shipment or (b) when title passes
to the customers, all significant contractual obligations have been satisfied
and collection of the resulting receivable is reasonably assured. Revenues from
sales of consigned inventory are recognized upon sale of the product by the
consignee. Net sales are comprised of gross sales net of a provision for actual
and estimated future returns, discounts and volume rebates. The provision for
actual and estimated sales returns for six months ended September 30, 2004 and
September 30, 2003 was $1.9 million and $4.1 million, respectively. The total
returns represents 8.4% and 10.1% of the net sales for six months ended
September 30, 2004 and 2003. The provision for actual and estimated sales
returns for fiscal year ended March 31, 2004, 2003 and 2002 was $6.6 million,
$9.9 million and $6.3 million, respectively. The total returns represents 9.4%,
10.4% and 10.0% of the net sales for fiscal year ended March 31, 2004 , 2003 and
2002, respectively.


DUE FROM MANUFACTURER


The Hong Kong Subsidiary operates as an intermediary to purchase karaoke
hardware from factories located in China on behalf of the Company. Certain
manufacturers credited the Company for the return of inventory to the factory
for rework. One manufacturer also credited the Company for volume incentive
rebates on purchases in fiscal 2003. The balance due from these manufacturers as
of September 30, 2004, March 31, 2004 and 2003 was $244,579, $95,580 and
$1,091,871, respectively and will be applied to future purchases of inventory.


CUSTOMER CREDITS ON ACCOUNT

Customer credits on account represent customers that have received credits in
excess of their accounts receivable balance. These balances were reclassified
for financial statement purposes as current liabilities until paid or applied to
future purchases.


STOCK BASED COMPENSATION


The Company accounts for stock options issued to employees using the intrinsic
value method 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 applied the disclosure provisions of
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation- Transition and Disclosure an amendment of FASB
Statement No. 123", which permits entities to provide pro forma net earnings
(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 to options granted.


                                      F-10
<PAGE>

Had compensation cost for the Company's stock-based compensation plan been
determined using the fair value method for awards under that plan, consistent
with SFAS No. 123, "Accounting for Stock Based Compensation", the Company's net
earnings (loss) would have been changed to the pro-forma amounts indicated below
for the years ended March 31:


<TABLE>
<CAPTION>
                                                                      Fiscal years ended March 31
                                                         --------------------------------------------------

                                                              2004              2003              2002
                                                         --------------    --------------    --------------

<S>                                                      <C>               <C>               <C>
Net (loss) earnings, as reported                         $  (22,683,424)   $    1,217,812    $    6,289,065
Deductes: Total stock-based employee
  compensation expensed determined under
  fair value based method                                $     (723,058)   $   (1,740,624)   $     (115,489)

Net (loss) earnings, pro forma                           $  (23,406,482)   $     (522,812)   $    6,173,576

Net (loss) earnings per share - basic      As reported   $        (2.65)   $         0.15    $         0.88
                                           Pro forma     $        (2.73)   $        (0.06)   $         0.86
Net (loss) earnings per share - diluted    As reported   $        (2.65)   $         0.14    $         0.79
                                           Pro forma     $        (2.73)   $        (0.06)   $         0.78

<CAPTION>
                                                                    Six Months Ended
                                                            ---------------------------------
                                                            September 30,     September 30,
                                                                 2004              2003
                                                            --------------    --------------
                                                               Unaudited         Unaudited
<S>                                                         <C>               <C>
Net (loss) earnings, as reported                            $     (797,812)   $   (2,974,021)
Deductes: Total stock-based employee
  compensation expensed determined under
  fair value based method                                   $     (158,964)   $     (402,904)

Net (loss) earnings, pro forma                              $     (956,776)   $   (3,376,925)

Net (loss) earnings per share - basic      As reported      $        (0.09)   $        (0.35)
                                           Pro forma        $        (0.18)   $        (0.40)
Net (loss) earnings per share - diluted    As reported      $        (0.09)   $        (0.35)
                                           Pro forma        $        (0.18)   $        (0.40)
</TABLE>


The effect of applying SFAS No. 123 is not likely to be representative of the
effects on reported net earnings (loss) for future years due to, among other
things, the effects of vesting.

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 No. 123 using the following
weighted-average assumptions:


      o     Fiscal 2004: expected dividend yield 0%, risk- free interest rate of
            4%, volatility between 80% and 110% and expected term of three
            years.

      o     Fiscal 2003: expected dividend yield 0%, risk- free interest rate of
            4%, volatility 71% and expected term of three years.

      o     Fiscal 2002: expected dividend yield 0%, risk- free interest rate of
            6.08% to 6.81%, volatility 42% and expected term of two years.

      o     For six months ended September 30, 2004: Expected dividend yield 0%,
            risk-free interest rate of 4%, volatility 81.5% and expected term of
            five years.

      o     For six months ended September 30, 2003: Expected dividend yield 0%,
            risk-free interest rate of 4%, volatility 79.9% and expected term of
            five years.


ADVERTISING


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 as a selling
expense, calculated on the related revenues. Advertising expense for the years
ended March 31, 2004, 2003 and 2002 was $2,340,439, $5,032,367 and $2,377,638,
respectively. Advertising expense for six months ended September 30, 2004 and
2003 was $421,795 and $1,115,434, respectively.


RESEARCH AND DEVELOPMENT COSTS


All research and development costs are charged to results of operations as
incurred. These expenses are shown as a component of selling, general &
administrative expenses in the consolidated statements of operations. For the
years ended March 31, 2004, 2003 and 2002, these amounts totaled $302,144,
$674,925 and $181,866, respectively. For six months ended September 30, 2004 and
2003, these amounts total $80,550 and $89,690, respectively.

EARNINGS PER SHARE

In accordance with SFAS No. 128, "Earnings per Share", basic (loss) earnings per
share is computed by dividing the net (loss) earnings for the year by the
weighted average number of common shares outstanding. Diluted earnings per share
is computed by dividing net earnings by the weighted average number of common
shares outstanding including the effect of common stock equivalents.

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



                                      F-11
<PAGE>


<TABLE>
<CAPTION>
                                                          Fiscal years ended March 31                   Six months ended
                                                   -------------------------------------------  ------------------------------
                                                                                                September 30,    September 30,
                                                       2004            2003           2002           2004            2003
                                                   ------------    ------------   ------------   ------------    ------------
                                                                                                  (Unaudited)     (Unaudited)
<S>                                                <C>             <C>            <C>            <C>             <C>
Net (loss) earnings                                $(22,683,424)   $  1,217,812   $  6,289,065   $   (797,812)   $ (3,977,119)
(Loss) earnings available to common shareholders   $(22,683,424)   $  1,217,812   $  6,289,065   $   (797,812)   $ (3,977,119)
Weighted average shares outstanding - basic           8,566,116       8,114,330      7,159,142      8,799,313       8,389,165
(Loss) earnings per share - basic                  $      (2.65)   $       0.15   $       0.88   $      (0.09)   $      (0.35)

Effect of dilutive securities:
  Stock options/Warrants                                     --         817,055        784,331             --              --
  Convertible debentures                                     --              --             --             --              --

Weighted average shares outstanding - diluted         8,566,116       8,931,385      7,943,473      8,799,313       8,389,165
Earnings per share - diluted                       $      (2.65)   $       0.14   $       0.79   $      (0.09)   $      (0.35)
</TABLE>

For fiscal years ended 2004, 2003 and 2002, 2,657,532, 0 and 0 common stock
equivalents were not included in the computation of diluted earnings per share
as their effect would have been antidilutive.

For six months ended September 30, 2004 and 2003, 4,002,580 and 2,369,202 common
stock equivalents were not included in the diluted per share calculation as
their effect would have been antidilutive.


FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS 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 and accrued expenses
approximates fair value due to the relatively short period to maturity for these
instruments.

RECLASSIFICATIONS


Certain prior years amounts have been reclassified to conform to the current
year presentation.


RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities (and Interpretation of ARB No. 51)" ("FIN 46"). FIN
46 addresses consolidation by business enterprises of certain variable interest
entities, commonly referred to as special purpose entities. The adoption of FIN
46 did not have a material effect on the Company's financial condition, results
of operations, or cash flows.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133 on
Derivative Instruments with Characteristics of both Liabilities and Equity."
This statement amends and clarifies accounting for derivatives instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. This statement is effective for contracts
entered into or modified after June 30, 2003, except as for provisions that
relate to SFAS No. 133 implementation issues that have been effective for fiscal
quarters that began prior to June 15, 2003, which should continue to be applied
in accordance with their respective dates. The adoption of SFAS No. 149 did not
have a material impact on the Company's financial condition, results of
operations, or cash flows.


In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." This Statement
establishes standards for classifying and measuring certain financial
instruments that embody obligations of the issuer and have characteristics of
both liabilities and equity and is effective financial instruments entered into
or modified after May 31, 2003; otherwise effective at the beginning of the
first interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities which are subject to the
provisions of this Statement for the first fiscal period beginning after
December 15, 2003 the adoption of SFAS No. 150 did not have a material impact on
the Company's financial condition, results of operations, or cash flows.


NOTE 2 - GOING CONCERN

      The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern.


      The Company has an accumulated deficit in shareholders equity and is
experiencing difficulty in keeping payments current with various vendors. As a
result, the Company's independent registered public accounting firm has
expressed substantial doubt in the Company's ability to continue as a going
concern in their report for the years ended March 31, 2004 and 2003, which was
included in the Company's annual report on Form 10-K.



                                      F-12
<PAGE>


      Operations will be financed using the following methods:

      o     Vendor Financing. The Company's key vendors in China have agreed to
            manufacture on behalf of the Company, without advanced payments.

      o     A significant amount of committed customer orders have been sold
            under customer letters of credit terms. The customer's letters of
            credit will be used as collateral to provide advances to our
            vendors. The customers will pay and take title of the karaoke
            machines in China as the karaoke machines are shipped. This will
            generate immediate funds to pay the vendors and generate additional
            cash flows.

      o     Asset based lending facility with an US bank for factoring credit of
            $2.5 million to financing the account receivables in the USA

      On June 16 2004, Edward Steele, former officer and director, advanced
$40,000 to us. The loan was interest free and paid in full on August 30, 2004.

      On July 14, 2004, Josef A. Bauer, a director, advanced a short-term loan
of $200,000 to us which we used to meet our working capital obligations. The
interest rate on the loan is 8.5% per annum and the loan is payable on demand.
On August 26, 2004, we repaid Mr. Buaer a total of $202,109, including $2,109 in
interest.


      There can be no assurances that forecasted results will be achieved or
that additional financing will be obtained. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.


NOTE 3 - RESTATEMENT OF FINANCIAL STATEMENTS FOR THE FISCAL YEARS 2002 AND 2001


In June 2003, management revised its position on taxation of its subsidiary's
income by the United States and by the Hong Kong tax authorities.

With regard to taxation in Hong Kong, the Company's subsidiary had previously
applied for a Hong Kong offshore claim income tax exemption based on the
locality of profits of the Hong Kong subsidiary. Management believed that the
exemption would be approved because the source of all profits of the Hong Kong
subsidiary is from exporting to customers outside of Hong Kong. Accordingly, no
provision for income taxes was provided in the consolidated financial statements
as of March 31, 2002 and 2001. However, full disclosure was previously reflected
in the audited financial statements for years ended March 31, 2002 and 2001 of
the estimated amount that would be due to the Hong Kong tax authority should the
exemption be denied. Management is continuing its exemption application process.
However, due to the extended period of time that the application has been
outstanding, as well as management's reassessment of the probability that the
application will be approved, management has determined to restate the 2002 and
2001 consolidated financial statements to provide for such taxes. The effect of
such restatement is to increase income tax expense by $748,672 and $468,424 in
fiscal 2002 and 2001, respectively. However, the Company can claim United States
foreign tax credits in 2002 for these Hong Kong taxes, which is reflected in the
final restated amounts.

With regard to United States taxation of foreign income, the Company had
originally taken the position that the foreign income of the Hong Kong
subsidiary qualified for a deferral under the Internal Revenue Code allowing for
such income to be indefinitely deferred and not taxed in the United States until
such income is repatriated. Full disclosure of the amount and nature of the
indefinite deferral for fiscal year 2002 was reflected in the income tax
footnote of the consolidated financial statements for that year. The internal
revenue code, regulations and case law regarding international income taxation
is quite complex and subject to interpretation. Each case is determined based on
the individual facts and circumstances. Due to certain inter-company loans made
in 2002 and 2003, the profits previously considered to be indefinitely deferred
became partially taxable as "deemed dividends" under section 956 of the Internal
Revenue Code. Although certain arguments against the imposition of a "deemed
dividend" may be asserted, management has determined to restate the fiscal year
2002 consolidated financial statements based on its reassessment of its original
position. The effect of such restatement is to increase income tax expense by
$1,027,545 in fiscal year 2002, which includes the utilization of the foreign
tax credits referred to above.

The net effect of the above two adjustments is to decrease net income by
$1,776,217 and $468,424 in fiscal 2002 and 2001. The net effect on net income
per share is to decrease net income per share basic and diluted by $0.25 and
$0.23, respectively in fiscal 2002 and decrease net income per share basic and
diluted by $0.07 and $0.06, respectively in fiscal 2001.


In September, 2004, management revised the cash flow for the period ending June
30, 2003, September 30, 2003 and December 31, 2003. The amendments are related
to the reclassification of the "Restrict Cash" and "Bank Overdraft". There is no
effect to the Statement of Operations. The following table shows the
reclassification of the cash flow:



                                      F-13
<PAGE>


                THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
                COMPRESSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                 FOR PERIODS ENDED
                                                     -----------------------------------------------------------------------------
                                                       06/30/03        06/30/03         09/30/03        09/30/03       12/31/03
                                                       --------        --------         --------        --------       --------
                                                      AS REPORTED     AS AMENDED      AS REPORTED      AS AMENDED     AS REPORTED
                                                      -----------     ----------      -----------      ----------     -----------
<S>                                                  <C>             <C>             <C>             <C>             <C>
Cash flows from operating activities
   Net Income                                        $ (2,317,352)   $ (2,317,352)   $ (2,974,021)   $ (2,974,021)   $(13,424,622)
      Net Cash Used in Operating Activities               (10,948)        282,757      (4,678,328)     (4,380,280)     (4,998,092)
                                                     ------------    ------------    ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
      Net cash used in Investing Activities              (299,186)       (322,897)       (157,178)       (186,370)       (434,065)
                                                     ------------    ------------    ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
      Net cash provided by Financing Activities           128,282        (141,712)      5,673,244       5,404,388       5,399,850
                                                     ------------    ------------    ------------    ------------    ------------
DECREASE IN CASH AND CASH EQUIVALENTS                    (181,852)       (181,852)        837,738         837,738         (32,307)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD          268,265         268,265         268,265         268,265         268,265
                                                     ------------    ------------    ------------    ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD           $     86,413    $     86,413    $  1,106,003    $  1,106,003    $    235,958
                                                     ============    ============    ============    ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest               $    188,469    $    188,469    $    350,192    $    350,192    $    591,817
                                                     ============    ============    ============    ============    ============
Cash paid during the year for income taxes           $       --      $       --      $    205,000    $    205,000    $    205,000
                                                     ============    ============    ============    ============    ============

<CAPTION>
                                                   FOR PERIOD ENDING
                                                   -----------------
                                                       12/31/03
                                                       --------
                                                      AS AMENDED
                                                      ----------
<S>                                                  <C>
Cash flows from operating activities
   Net Income                                        $(13,424,622)
      Net Cash Used in Operating Activities            (4,998,092)
                                                     ------------
CASH FLOWS FROM INVESTING ACTIVITIES
      Net cash used in Investing Activities              (462,067)
                                                     ------------
CASH FLOWS FROM FINANCING ACTIVITIES
      Net cash provided by Financing Activities         5,427,852
                                                     ------------
DECREASE IN CASH AND CASH EQUIVALENTS                     (32,307)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD          268,265
                                                     ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD           $    235,958
                                                     ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest               $    591,817
                                                     ============
Cash paid during the year for income taxes           $    205,000
                                                     ============
</TABLE>


NOTE 4 - ACCOUNTS RECEIVABLE FACTORING AGREEMENT


On February 9, 2004, the Company entered into a factoring agreement with Milberg
Factors, Inc. ("Milberg") of New York City. The agreement allows the Company, at
the discretion of Milberg, to factor its outstanding receivables without
recourse up to a maximum of the lesser of $3.5 million or 80% of eligible
accounts receivable, less certain reserves determined by Milberg. The Company
will pay 0.8% of gross receivables in fees and the average balance of the line
will be subject to interest on a monthly basis at prime plus 0.75% with a
minimum rate not to decrease below 4.75%. The agreement contains minimum
aggregate charges in any calendar year of $200,000, limits on incurring any
additional indebtedness and the Company must maintain tangible net worth and
working capital above $7.5 million. Milberg also received a security interest in
all of the Company's accounts receivable and inventory located in the United
States and a pledge of 66 2/3% of the Hong Kong Subsidiary. For the year ending
March 31, 2004, the Company incurred $141,455 in related charges which are
included in selling, general and administrative expenses in the accompanying
statements of operations.

No accounts were factored for the six months ended September 30, 2004 and for
the year ended March 31, 2004. As of March 31, 2003, the Company was in
violation of the minimum tangible net worth and working capital requirements and
subsequent to March 31, 2004, the agreement was terminated.

      On August 4, 2004, the Company commenced to factor its accounts
receivables through Crestmark bank in Detroit, Michigan. The agreement allows
the Company, at the discretion of Crestmark, to factor its outstanding
receivables, with recourse, up to a maximum of the lesser of $2.5 million or 70%
of eligible accounts receivable. The Company will pay 1% of gross receivables in
fees with a $9,000 minimum maintenance fee per month. The average balance of the
line will be subject to interest on a monthly basis at prime plus 2%. The rate
is currently 6.75%. The agreement contains a liquidated damages fee of $162,000
for early termination.

      Crestmark Bank also received a security interest in all of the Company's
accounts receivables and inventory located in the United States. The Company's
debenture holders have subordinated their $4 million secured convertible
debentures to the Crestmark debt.

      As of September 30, 2004, the outstanding amount due to Crestmark bank for
factoring is $474,968.

NOTE 5 - PROPERTY AND EQUIPMENT



                                      F-14
<PAGE>

A summary of property and equipment is as follows:


<TABLE>
<CAPTION>
                                       Useful      Sepember 30      March 31      March 31
                                        Live          2004           2004           2003
                                                   (Unaudited)
<S>                                    <C>         <C>            <C>            <C>
Computer and office equipment          5 years     $   465,809    $   465,810    $   313,222
Furniture and fixtures                 5-7 years       381,424        381,164        341,777
Leasehold improvement                  *               103,776        103,776        110,841
Molds and tooling                      3 years       3,655,925      2,903,822      1,803,435
                                                   -----------    -----------    -----------
                                                     4,606,934      3,854,572      2,569,275

Less: Accumulated depreciation                      (3,224,838)    (2,870,592)    (1,472,850)
                                                   -----------    -----------    -----------
                                                   $ 1,382,096    $   983,980    $ 1,096,425
                                                   ===========    ===========    ===========
</TABLE>


* Shorter of remaining term of lease or useful life

NOTE 6 - RESTRICTED CASH


The Company, through the Hong Kong Subsidiary, maintains a letter of credit
facility and short term loan with a major international bank. The Hong Kong
Subsidiary was required to maintain a separate deposit account in the amount of
$1,544,302, $874,283 and $838,411 at September 30, 2004 and as of March 31, 2004
and 2003, respectively. This amount is shown as restricted cash in the
accompanying balance sheets.


NOTE 7 - LOANS AND LETTERS OF CREDIT

CREDIT FACILITY

The Hong Kong Subsidiary maintains separate credit facilities at two
international banks. The primary purpose of the facilities is to provide the
Subsidiary with the following abilities:

o     Overdraft protection facilities ;

o     Issuance and negotiation of letters of credit,

o     Trust receipts; and

o     A Company credit card .


      The facilities are secured by a corporate guarantee from the US company,
restricted cash on deposit with the lender and require that the Company maintain
a minimum tangible net worth. The maximum available credit under the facility is
2.0 million. The credit facilities have been increased to $4 million by
increasing the fixed deposit with the bank, which is used as collateral. The
balances due under the facility at September 30, 2004, March 31, 2004 and 2003
were 0 and $62,282 and 316,646, respectively. The interest rate is approximately
4%. At September 30, 2004, the Company has used all credit facilities to open
the letter of credit to the factories for the purchase. The company does not
have any additional availability under these facilities.


On April 26, 2001, the Company executed a Loan and Security Agreement with a
commercial lender, which as amended was due to expire on March 31, 2004. As of
January 31, 2004 the loan was paid in full, the facility was terminated and the
UCC filings were released.

RELATED PARTY LOANS


      On July 14, 2004, Josef A. Bauer, a director, advanced a short-term loan
of $200,000 to us which we are to use to meet our working capital obligations.
The interest rate on the loan is 8.5% per annum and the loan is payable on
demand. On August 26, 2004, we repaid Mr. Buaer a total of $202,109, including
$2,109 in interest.

      On June 16, 2004, Edward Steele, former officer and director, advanced
$40,000 to us. The loan was interest fee and paid in full on August 30, 2004.

      On or about July 10, 2003, certain officers and directors of our company
advanced $1 million to our company pursuant to written loan agreements. The
officer was Yi Ping Chan and the directors were Josef A. Bauer and Howard Moore.
Mr. Moore resigned from our Board, effective as October 17, 2003. Additionally,
Maureen LaRoche, a business associate of Mr. Bauer, participated in the
financing. The loans accrue interest at 9.5% per annum and as of September 30,
2004, all interest was accrued, and the unpaid amount totaled approximately
$23,750. These loans were originally scheduled to be repaid by October 31, 2003
and are now due on demand. These loans were subordinated to Milberg's factoring
agreement, which we terminated effective as of July 14, 2004 and subsequently
subordinated to Crestmark Bank.



                                      F-15
<PAGE>

NOTE 8 - CONVERTIBLE DEBENTURES WITH WARRANT


      In September 2003, the Company issued $4 million of 8% Convertible
Debentures in a private offering which are due February 20, 2006 ("Convertible
Debentures"). The net cash proceeds received by the Company were $3,745,000
after deduction of cash commissions and other expenses.

      The Convertible Debentures are convertible at the option of the holders
and were initially convertible into 1,038,962 common shares at a conversion
price of $3.85 per common share subject to certain anti-dilution adjustment
provisions, at any time after the closing date. The repayment of the Convertible
Debentures was subordinated to a factoring agreement with Milberg Factors, which
was terminated as of July 14, 2004.


      These Convertible Debentures were issued with 457,143 detachable stock
purchase warrants with an exercise price of $4.025 per share. These warrants may
be exercised at anytime after September 8, 2003 and before September 7, 2006 and
are subject to certain anti-dilution provisions. The warrants are also subject
to an adjustment provision; whereas the price of the warrants may be changed
under certain circumstances.

      The Convertible Debentures bear interest at the stated rate of 8% per
annum. Interest is payable quarterly on March 1, June 1, September 1, and
December 1. The interest may be payable in cash, shares of Common Stock, or a
combination thereof subject to certain provisions and at the discretion of the
Company.


      In accounting for this transaction, the Company allocated the proceeds
based on the relative estimated fair value of the stock purchase warrants and
the convertible debentures. This allocation resulted in a discount on the
convertible debentures of $3.3 million, which is being amortized over the life
of the debt on a straight-line basis to interest expense, which is not
materially different from effective interest method.

      On February 9, 2004, the Company amended its convertible debenture
agreements to increase the interest rate to 8.5% and to grant warrants to
purchase an aggregate of 30,000 shares of the Company's common stock to the
debenture holders on a pro-rata basis. These concessions are in consideration of
the debenture holder's agreements to (i) enter into new subordination agreements
with Milberg, (ii) to waive all liquidated damages due under the transaction
documents through July 1, 2004 and (iii) to extend the effective date of the
Form S-1 registration statement until July 1, 2004. The new warrants have an
exercise price equal to $1.52 per share and the fair value of these warrants was
estimated by using the Black-Scholes Option-Pricing Model and totaled $30,981.
This amount was expensed as a component of selling, general and administrative
expenses during the three months ended December 31, 2003. Pursuant to the
Convertible Debenture agreements, the Company was required to register the
shares of common stock underlying the debentures and detachable stock purchase
warrants issued in connection with the debentures. The registration of the
common shares was required to be effective by July 1, 2004.

      On November 8, 2004, the Company executed a letter agreement with the
debenture holders, whereby the Company agreed to change the interest rate on the
debenture to 9% in exchange for the debenture holders agreeing to (i) execute a
subordination agreement with Crestmark Bank, (ii) waive all liquidated damages
due under the transaction documents through January 7, 2005, and (iii) withdraw
any demand for repayment under the debenture.

      According to the anti-dilution adjustment provision, If the Singing
Machine sells shares of its common stock at an effective price less than Set
Price, the debentures' holders are entitled to convert their debentures into
shares at a new conversion price, which equals to the original set price minus
75% of the difference between the Set Price and the new price if the event
occurs before September 8, 2004. On July 30, 2004, the Singing Machine received
the court approval of the Class Action Lawsuit (case# 03-CV-80596). The Singing
Machine issued 400,000 shares to the plaintiff as part of the settlement on
September 23, 2004. The market closing price on July 30, 2004 was $0.60 per
share. The event has triggered the conversion price reset for the convertible
debentures.

      According to the Emerging Issue Task Force (EITF) Issue No. 00-27, if the
terms of a contingent conversion option do not permit an issuer to compute the
number of shares that the holder would receive if the contingent event occurs
and the conversion price is adjusted, an issuer should wait until the contingent
event occurs and then compute the resulting number of shares that would be
received pursuant to the new conversion price. The incremental intrinsic value
that resulted from the price reset equals additional shares multiplied by the
stock market price at the issuing date of the debentures, which would be
recorded as discount of convertible debentures and amortized over the remaining
life of the debentures. The new adjusted conversion price is $1.41 [3.85-
(3.85-0.60) X 75%] while the conversion price of each warrant is $1.46. As of
July 30,2004, the number of shares issuable upon conversion of the debentures is
2,831,858. As a result, an additional discount of $687,638 was recorded, which
is being amortized over the remaining life of the debentures. Total amortization
for the six months ended September 30, is $743,921 and the unamortized discount
is $2,498,263 as of September 30, 2004.


      In connection with the Convertible Debentures the Company paid financing
fees as follows: 103,896 stock purchase warrants, with a fair value of $268,386,
28,571 shares of common stock with a fair value of $141,141, and cash of
$255,000. Total financing fees of $664,527 were recorded as deferred fees and
are being amortized over the term of the debentures.


      The unamortized deferred fees are reported in other non-current assets in
the accompanying balance sheets and total $378,246 as of September 30, 2004.



                                      F-16
<PAGE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES

LEGAL MATTERS

CLASS ACTION From July 2, 2003 through October 2, 2003, seven securities class
action lawsuits and a shareholder's derivative action were filed against the
Company and certain of its officers and directors in the United States District
Court for the Southern District of Florida on behalf of all persons who
purchased the Company's securities during the various class action periods
specified in the complaints. On September 18, 2003, United States District Judge
William J. Zlock entered an order consolidating the seven (7) purported class
action law suits and one (1) purported shareholder derivative action into a
single action case styled Frank Bielansky v. the Company, Salberg & Company,
P.A., et al - Case Number: 03-80596 - CIV - ZLOCK (the "Class Action"). Salberg
& Company, P.A. is our former independent auditor. The complaints that were
filed allege violations of Section 10(b) and Section 20(a) of the Securities
Exchange Act of 1934 and Rule 10(b)-5. The complaints seek compensatory damages,
attorney's fees and injunctive relief.

The Company entered into a settlement agreement with the plaintiffs in the Class
Action in March 2004. At a hearing in April 2004, the Court gave preliminary
approval for the settlement and directed that notices be sent to shareholders
pursuant to the settlement agreement. The notices advised shareholders of their
rights and responsibilities concerning the settlement. We entered into a
settlement agreement with the plaintiffs in the Class Action in March 2004.

Pursuant to the terms of the settlement agreement, the Company is required to
make a cash payment of $800,000 and Salberg & Company, P.A., our former auditor,
is required to make a payment of $475,000. Our cash payment of $800,000 is
covered by our liability insurance and our insurer has placed this payment in an
escrow account pending final approval of the Settlement. In addition, the
Company is obligated to issue 400,000 shares of its common stock and may also
provide other non-cash consideration. The pending settlement would also obligate
the Company to implement certain corporate governance changes, including an
expansion of its Board of Directors to six members with independent directors
comprising at least 2/3 of the total Board seats.

As of March 31, 2004, the Company recorded an expense equal to the total
estimated cost of the settlement less the amount expected to be reimbursed by
the Company's insurance carrier. The net charge associated with this matter
totaled approximately $462,000 and is included as a component of selling,
general and administrative expenses in the accompanying statements of
operations.


The court entered an order approving the settlement agreement on July 30, 2004.
The Company has issued the 400,000 thousand shares to the plaintiffs on November
22, 2004 and $800,000 was placed in escrow for the benefit of the plaintiffs.

OTHER MATTERS. In August 2003, we were advised that the Securities and Exchange
Commission had commenced an informal inquiry of our company. We are cooperating
fully with the SEC staff. It appears that the investigation is focused on the
restatement of our audited financial statements for fiscal 2002 and 2001. We
have been advised that an informal inquiry should not be regarded as an
indication by the SEC or its staff that any violations of law have occurred or
as a reflection upon any person or entity that may have been involved in those
transactions. We have been informed by SEC in October, 2004 that the informal
inquiry has been close.


The Company entered into a settlement agreement with an investment banker on
November 17, 2003. Pursuant to this agreement, the Company agreed to pay the sum
of $181,067 over a five month period and issue to the investment banker 40,151
shares of stock with a fair value of $94,355. As of the date of the settlement
agreement, the Company expensed the total amount of the settlement, which is
included as selling, general and administrative expenses in the accompanying
statements of operations. As of March 31, 2004, the unpaid balance totaled
$72,427 and is included in accounts payable in the accompanying balance sheets.


The Company is also subject to various other legal proceedings and other claims
that arise in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability, if any, in excess of applicable insurance
coverage, is not likely to have a material effect on the financial condition,
results of operations or liquidity of the Company. However, as the outcome of
litigation or other legal claims is difficult to predict, significant changes in
the estimated exposures could occur, which could have a material impact on the
Company's operations.


LEASES


The Company has entered into various operating lease agreements for office and
warehouse facilities in Coconut Creek, Florida, Compton, California, Rancho
Dominguez, California and Kowloon, Hong Kong. The leases expire at varying
dates. Rent expense for fiscal 2004, 2003 and 2002 was $1,542,041, $901,251 and
$333,751, respectively. Rent expense for six months ended September 30, 2004 and
2003 was $333,668 and $654,137, respectively.


In addition, the Company maintains various warehouse and computer equipment
operating leases.


Future minimum lease payments under property and equipment leases with terms
exceeding one year as of September 30, 2004 are as follows:

                    Property Lease         Equipment Lease
                    --------------------------------------


      2005             $  439,829             $   11,416
      2006             $  620,717             $   14,426
      2007             $  536,412             $    7,968
      2008             $  402,309             $    1,235
      2009             $       --             $       --
                       ----------             ----------
                       $1,999,267             $   35,045
                       ==========             ==========



                                      F-17
<PAGE>

EMPLOYMENT AGREEMENTS


The Company has employment contracts with one key officer and one employee as of
September 30, 2004. These agreements provide for base salaries, with annual cost
of living adjustments and travel allowances and expire through March 31, 2006.
In the event of a termination for cause or in the event of a change of control,
as defined in the agreements, the employees would be entitled to a lump sum
payment in the aggregate of $533,000.


MERCHANDISE LICENSE AGREEMENTS


The Company entered into a licensing agreement with MTV in November 2000 and had
amended the agreement five times since that date. This license covers the sale
of MTV products in the United States, Canada and Australia. During fiscal 2004,
the Company's product line consisted of nine MTV branded machines and a wide
assortment of MTV branded music. The license agreement as amended with MTV
currently expires on December 31, 2004, subject to MTV's option, at its sole
discretion, to extend the agreement. The minimum payment for the calendar year
2004 is $300,000, which is recoupable against sales throughout the calendar
year, unless the license agreement is cancelled. The Company has paid the
$300,000 minimum payment as of September 30, 2004.

In February 2003, the Company entered into a multi-year license agreement with
Universal Music Entertainment to market a line of Motown Karaoke machines and
music. This agreement and its subsidiary agreement signed in March 2003, allow
the Company to be the first to use original artist recordings for our CD+G
formatted karaoke music. Over the term of the license agreement, the Company is
obligated to make guaranteed minimum royalty payments over a specified period of
time in the amount of $300,000. The Universal Music Entertainment license
expires on March 31, 2006 and does not contain any automatic renewal provisions.
The remaining future minimum payment is $125,000 as of September 30, 2004.

The Company entered into a license agreement with Care Bears in September 2003.
Under this agreement, the Company licensed Care Bears branded machines and
electronic products. This license expires on January 1, 2006. Over the term of
the license agreement, the Company is obligated to make guaranteed minimum
royalty payments over a specific period of time in the amount of $200,000. The
Company had amended the agreement in September to reduce the minimum payment
$85,000 with the expiration date on December 31, 2004. As of September 30, 2004,
the Company has paid the $85,000 minimum payment.


NOTE 10 - STOCKHOLDERS' EQUITY

COMMON STOCK ISSUANCES

During the fiscal ended March 31, 2004, the Company issued 580,640 shares of its
common stock. Of these shares, 28,571 were issued in lieu of a cash payment of
commission and closing costs relating to the Convertible Debentures. Certain
executives received 63,420 shares of common stock in lieu of a portion of their
cash compensation and bonuses for fiscal 2004. The fair value of this stock,
$290,464 was charged to compensation expense. 40,151 shares of stock were issued
in lieu of a settlement with an investment banker, at an estimated fair value of
$94,355. The remaining 448,498 shares of stock issued were through the exercise
of vested stock options.


On May 11, 2004, the Company issued 50,000 shares of common stock to a former
executive for consulting services rendered. The Company expensed the consulting
costs in the three months ended December, 31, 2003, the period which services
were provide.

On September 23, 2004, the Company has issued the 400,000 thousand shares to the
plaintiffs on September 23, 2004 for the class action settlement.

During period presented, the Company issued the following shares of stock.



                                      F-18
<PAGE>


Years ended March 31,                       Number of            Proceed to
                                           shares issued          company

                              2004           580,640             $  860,535
                              2003           515,651             $  242,119
                              2002         1,481,347             $1,319,190

Six months ended September 30,

                              2004           450,000             $       --
                              2003           320,000             $  652,800


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, and letter of credit agreement. These
guarantee fees totaled $590,625 and were amortized over a period of 31 months.
For the year ended March 31, 2002, $171,472 of deferred fees were charged to
operations. There were no remaining deferred guarantee fees at March 31, 2002.

EARNINGS PER SHARE


In accordance with SFAS No. 128, "Earnings per Share", basic (loss) earnings per
share are computed by dividing the net (loss) earnings for the year by the
weighted average number of common shares outstanding. Diluted earnings per share
is computed by dividing net earnings for the year by the weighted average number
of common shares outstanding including the effect of common stock equivalents.

In fiscal 2004, 2,657,532 common stock equivalents were not included in the
computation of diluted earnings per share as their effect would have been
antidilutive. Additionally, there were 1,618,570 common stock options and
warrants outstanding with exercise prices between $1.30 and $14.30. In addition,
there was a potential 1,038,962 shares that may be issued in connection with the
Convertible Debentures if certain conditions exist. However, the Convertible
Debentures are now convertible into 2,836,879 shares of common stock because of
a reset conversion price.

For six months ended September 30, 2004, and 2003, 4,002,580 and 2,649,402
common stock equivalents have been excluded in the diluted per share
calculations respectively, as their effect would have been antidilutive.

      The following represents the antidiluted common stock equivalents for the
six months ended September 30, 2004 and 2003:

      o     Options to purchase 630,868 and 1,019,400 shares of common stock,
            respectively, with exercise prices ranging from $0.57 to $9.00 and
            $1.11 to $9.00, respectively.

      o     Warrants to purchase 591,040 shares of common stock with exercise
            price at $1.91. There were outstanding in 2003.

      o     Convertible debentures convert into 2,831,858 shares of common
            stock, with conversion price at $1.41. There were none used in 2003.

STOCK OPTIONS

On June 1, 2001, the Board of Directors approved the 2001 Stock Option Plan
(`Plan"), which replaced the 1994 Stock Option Plan, as amended, (the "1994
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, 2004, the Plan is authorized to grant 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. As of September 30, 2004, the
Company had granted 1,101,490 options under the Year 2001 Plan, leaving
1,027,530 options available to be granted. As of September 30, 2004, the Company
had 358,700 options issued and outstanding under its 1994 Plan.

The exercise price of employee common stock option issuances in 2004, 2003 and
2002 was equal to the fair market value on the date of grant. Accordingly, no
compensation cost has been recognized for options issued under the Plan in these
years. A summary of the options issued as of presented period and changes during
the years is presented below.

In accordance with SFAS No. 123, for options issued to employees, the Company
applies the intrinsic value method of APB Opinion No. 25 and related
interpretations in accounting for its options issued. The following table sets
forth the issuances of stock options for the periods presented.


                                      F-19
<PAGE>


<TABLE>
<CAPTION>
                                                                                                              SIX MONTHS END
                                         FISCAL 2004             FISCAL 2003            FISCAL 2002          SEPTEMBER 30, 2004

                                                 WEIGHTED               WEIGHTED              WEIGHTED                  WEIGHTED
                                                 AVERAGE                AVERAGE               AVERAGE                   AVERAGE
                                     NUMBER OF   EXERCISE    NUMBER     EXERCISE    NUMBER    EXERCISE    NUMBER        EXERCISE
                                      OPTIONS     PRICE    OF OPTIONS    PRICE     OF OPTIONS  PRICE     OF OPTIONS      PRICE
<S>                                  <C>          <C>      <C>            <C>      <C>           <C>        <C>          <C>
STOCK OPTIONS:
BALANCE AT BEGINNING OF PERIOD       1,543,250        4    1,094,475          2     2,433,300         1      1,027,530    $3.95
GRANTED                                423,980        3      597,000          8        82,800         4        152,000    $0.90
EXERCISED                             (448,500)       2     (143,725)         2    (1,406,625)        1             --    $0.87
FORFEITED                             (491,200)       7       (4,500)         2       (15,000)        2        (78,040)   $1.89
                                     ---------             ---------               ----------                ---------
BALANCE AT END OF PERIOD             1,027,530    $3.95    1,543,250      $4.43     1,094,475     $2.11      1,101,490    $3.68
                                     =========             =========               ==========                =========
OPTIONS EXERCISABLE AT END OF PERIOD   630,168    $2.33      976,250      $2.45       647,738     $2.11        580,882    $2.05
</TABLE>

The following table summarizes information about employee stock options
outstanding at September 30, 2004:

<TABLE>
<CAPTION>
                                             Weighted Average     Number      Weighted Average
Range of Exercise Price   Number Outstanding    Exercise Price   Exercisable  Exercise Price
<S>                          <C>                   <C>             <C>          <C>
     0.57 - $1.97            362,290               $ 1.25          20,001       $ 1.30
        $ 2.04               373,700               $ 2.04         373,700       $ 2.04
     $4.03 - $7.26           215,000               $ 4.48          91,667       $ 5.67
       $9 - $14.3            150,500               $10.47         145,500       $11.95
                             101,490                              630,868
</TABLE>

STOCK WARRANTS

During fiscal year 2004, the Company issued a total of 591,040 stock purchase
warrants as follows. In September, 2003, 457,143 of the warrants were issued to
investors in connection with the $4 million debenture offering (see Note 8) and
103,896 warrants were issued to the respective investment banker. The estimated
fair value of the warrants issued to the investors in the amount of $1,180,901
was recorded as a discount on the debentures and the estimated fair value of the
warrants issued to the investment banker in the amount of $268,386 has been
record as deferred fees. Both amounts are being amortized over the term of the
debentures. In February 2004, the Company issued an additional 30,001 warrants
to the investors in connection with a settlement agreement (see Note 8). The
estimated fair value of these warrants totaled $30,981, which was expensed as
component of selling, general and administrative expenses. The weighted average
fair value of warrants issued during fiscal 2004 was $2.67.

On July 30, 2004, the exercise price for 457,143 warrants issued to the
debentures' holder has been adjusted from $4.05 to $1.46 pursuant to
antidilution provision (see Note 8).

As of September 30, 2004, 591,040 stock purchase warrants were outstanding and
exercisable with a weighted average exercise price of $1.91. The range of
exercise prices was between $1.46 and $4.05 per common share.


NOTE 11 - INCOME TAX

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 earnings consisted of the
following components for 2004, 2003 and 2002:

                                     2004            2003           2002
                                 ------------    ------------   ------------
                                  (as restated)
Current:
U.S. Federal                     $ (1,071,709)   $    663,816   $  1,027,545
Foreign                                    --       1,230,650        748,672
State                                 (95,398)         38,500        119,277
Deferred                            1,925,612      (1,734,194)            --
                                 ------------    ------------   ------------
                                 $    758,505    $    198,772   $  1,895,494
                                 ============    ============   ============

The United States and foreign components of earnings (loss) before income taxes
are as follows:

                                     2004            2003         2002
                                 -------------   -------------   -----------
UNITED STATES                    $ (21,362,610)  $  (5,952,129)  $ 3,669,341
FOREIGN                               (562,309)      7,368,713     4,515,218
                                 -------------   -------------   -----------
                                 $ (21,924,919)  $   1,416,584   $ 8,184,559
                                 =============   =============   ===========


                                      F-20
<PAGE>


      The actual tax expense differs from the "expected" tax expense for the
years ended March 31, 2004, 2003 and 2002 (computed by applying the U.S. Federal
Corporate tax rate of 34 percent to income before taxes) as follows:

<TABLE>
<CAPTION>
                                                                         2004            2003          2002
                                                                     -------------   -------------  ------------
                                                                                                     (AS
                                                                                                     RESTATED)

<S>                                                                  <C>             <C>            <C>
      Expected tax expense (benefit)                                 $ (7,454,472)   $    481,880   $ 2,782,750
      State income taxes, net of Federal income tax benefit              (426,796)        (43,204)       78,723
      Permanent differences                                                 5,830          69,114             --
      Deemed Dividend                                                     410,513       1,011,628     1,027,545
      Change in valuation allowance                                     8,160,924               --    (1,059,089)
      Tax rate differential on foreign earnings                            92,781      (1,326,368)     (812,739)
      Other                                                               (30,274)          5,723      (121,696)
                                                                     -------------   -------------  ------------
      Actual tax expense                                             $    758,505    $    198,772   $ 1,895,494
                                                                     =============   =============  ============
</TABLE>

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

<TABLE>
<CAPTION>
                                               2004           2003            2002
                                            -----------    -----------    -----------
                                                                              (As
                                                                             restated)
Deferred tax assets:
<S>                                         <C>            <C>            <C>
Inventory differences                       $ 2,309,488    $ 1,491,021    $        --
State net operating loss carryforward           502,417        171,019         89,315
Federal net operating loss carryforward       2,425,186             --             --
Hong Kong net operating loss carryforward        98,404             --             --
Hong Kong foreign tax credit                  2,447,746             --             --
AMT credit carryforward                          70,090             --             --
Bad debt reserve                                 33,323        137,958          4,087
Reserve for sales returns                       161,726        110,303         55,886
Stock based expense                                  --             --         13,056
Charitable contributions                         58,037             --
Amortization of reorganization intangible        68,981         28,076         36,400
                                            -----------    -----------    -----------
Total Gross Deferred Assets                   8,175,397      1,938,377        198,744
Less valuation allowance                     (8,160,924)            --
Deferred tax liability                               --      1,938,377
Depreciation                                    (14,473)       (12,765)        (7,326)
                                            -----------    -----------    -----------
Net Deferred Tax Asset                      $     (0.00)   $ 1,925,612    $   191,418
                                            ===========    ===========    ===========
</TABLE>



                                      F-21
<PAGE>

NOTE 12 - SEGMENT INFORMATION


The Company operates in one segment and maintains its records accordingly. The
majority of sales to customers outside of the United States are made by the Hong
Kong Subsidiary. Sales by geographic region for the period presented are as
follows:


<TABLE>
<CAPTION>
                                                         Six months ended September 30
                                                         -----------------------------
                 Fiscal 2004  Fiscal 2003   Fiscal 2002      2004           2003
<S>             <C>           <C>           <C>           <C>           <C>
United States   $43,044,496   $77,696,780   $62,381,366   $18,079,845   $21,553,954
Asia                     --        21,310        49,314            --
Australia           959,444       814,334            --       238,245       310,579
Europe           25,783,789    15,714,846            --     4,262,903    17,809,897
Latin America       753,399     1,366,496        45,073        29,168       805,121
                -----------   -----------   -----------   -----------   -----------
                $70,541,128   $95,613,766   $62,475,753   $22,610,161   $40,479,551
                ===========   ===========   ===========   ===========   ===========
</TABLE>

The geographic area of sales is based primarily on the location where the
product is delivered.

NOTE 13 - EMPLOYEE BENEFIT PLANS


The Company has a 401(k) plan for its employees to which the Company makes
contributions at rates dependent on the level of each employee's contributions.
Contributions made by the Company are limited to the maximum allowable for
federal income tax purposes. The amounts charged to operations for contributions
to this plan and administrative costs during the years ended March 31, 2004,
2003 and 2002 totaled $55,402, $61,466 and $41,733, respectively. The amount for
the six months ended September 30, 2004 and 2003 was $13,160 and $33,142,
respectively. The amount are included as a component of compensation expenses in
the accompanying statements of operations. The Company does not provide any post
employment benefits to retirees.

NOTE 14 - CONCENTRATIONS OF CREDIT RISK, CUSTOMERS, SUPPLIERS, AND FINANCING


The Company derives primarily all of its revenues from retailers of products in
the U.S. 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 by management. At March 31, 2004, 65% of accounts receivable were due
from three customers: two from the U.S. and one from an International Customer.
Accounts receivable from three customers that individually owed over 10% of
accounts receivable at March 31, 2004 was 31%, 24% and 10%. Accounts receivable
from four customers that individually owed over 10% of accounts receivable at
March 31, 2003 was 22%, 19%, 15% and 11%. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral.

Revenues derived from five customers in 2004, 2003 and 2002 were 54%, 67% and
87% of revenues, respectively. Revenues derived from three customers in 2004
,2003, and 2002, respectively, which individually purchased greater than 10% of
the Company's total revenues, were 20%, 12% and 10% in 2004, 21%, 17% and 15% in
2003, 37%, 28%, and 10% in 2002.

The Company is dependent upon foreign companies for the 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 years 2004, 2003 and 2002, manufacturers in the People's Republic
of China ("China") accounted for approximately 96%, 94% and 95%, respectively,
of the Company's total product purchases, including all of the Company's
hardware purchases.

Net sales derived from the Hong Kong Subsidiary aggregated $43.1 million in
2004, $49.3 million in 2003 and $27.2 million in 2002. The carrying value of net
assets held by the Company's Hong Kong based subsidiary was $ 14.4 million at
March 31, 2004.


                                      F-22
<PAGE>


NOTE 15 - QUARTERLY FINANCIAL DATA - UNAUDITED


The following financial information reflects all normal recurring adjustments
that are, in the opinion of management, necessary for a fair statement of the
results of the interim periods. The quarterly unaudited results for the years
2004 and 2003 are set forth in the following table:

<TABLE>
<CAPTION>
                                                                           BASIC           DILUTED
                                                                          EARNINGS        EARNINGS
                         SALES        GROSS PROFIT      NET EARNINGS       (LOSS)          (LOSS)
                                                          (LOSS)          PER SHARE       PER SHARE
                     (In thousands)  (In thousands)   (In thousands)
<C>                     <C>             <C>              <C>              <C>             <C>
2005 First quarter      $  3,857        $    770         $ (1,520)        $  (0.17)       $  (0.17)
     Second quarter       18,753           4,260              722             0.08            0.06
                        --------        --------         --------         --------        --------
     Total              $ 22,610        $  5,030           $ -798         $  (0.09)       $  (0.09)
                        ========        ========         ========         ========        ========

2004
     First quarter      $  7,628        $  1,726         $ (2,317)        $  (0.28)       $  (0.28)
     Second quarter       31,984           3,804             (657)           (0.08)          (0.08)
     Third quarter        28,690          (2,601)         (10,451)(1)        (1.20)          (1.20)
     Fourth quarter        2,239          (1,110)          (9,259)(2)        (1.09)          (1.09)
                        --------        --------         --------         --------        --------
     Total              $ 70,541        $  1,819         $ -22,684        $  (2.65)       $  (2.65)
                        ========        ========         ========         ========        ========

2003
     First quarter      $  4,152        $  1,660         $ (1,191)        $  (0.15)       $  (0.15)
     Second quarter       32,977           9,416            3,827             0.47            0.44
     Third quarter        48,870          13,431            3,321             0.41            0.39
     Fourth quarter        9,615          (1,222)          (4,739)           (0.58)          (0.58)
                        --------        --------         --------         --------        --------
     Total              $ 95,614        $ 23,285         $  1,218         $   0.15        $   0.10
                        ========        ========         ========         ========        ========

2002
     First quarter      $  5,523        $  1,861         $   (115)        $  (0.03)       $  (0.03)
     Second quarter       15,749           5,310            1,825             0.27            0.23
     Third quarter        34,159          11,439            4,690             0.96            0.82
     Fourth quarter        7,045           3,013             (111)            0.02           (0.02)
                        --------        --------         --------         --------        --------
     Total              $ 62,476        $ 21,623         $  6,289         $   1.22        $   1.00
                        ========        ========         ========         ========        ========
</TABLE>

(1) Includes additional inventory write-downs totaling $4.8 million and deferred
tax valuation allowance adjustment in the amount of $1.9 million.



(2) Includes additional inventory write-downs totaling $1.7 million.


[Balance of page intentionally left blank]



                                      F-23
<PAGE>

                                SUPPLEMENTAL DATA

                                   SCHEDULE II


<TABLE>
<CAPTION>
                                                      BALANCE AT     CHARGED TO     REDUCTION TO    CREDITED TO     BALANCE AT
                                                     BEGINNING OF   COSTS AND         ALLOWANCE      COSTS AND       END OF
                   Description                        PERIOD         EXPENSES       FOR WRITE OFF    EXPENSES         PERIOD
<S>                                                  <C>            <C>            <C>             <C>             <C>
Six months ended Septembr 30, 2004
Reserves deducted from assets to which they apply:
apply:
              Allowance for doubtful accounts        $    98,009    $   197,080    $        --     $        --     $   295,089
              Deferred tax valuation allowance       $ 8,160,924    $        --    $               $               $ 8,160,924
              Inventory reserve                      $ 6,581,146    $              $               $(1,772,145)    $ 4,809,001

Year ended March 31, 2004
Reserves deducted from assets to which they apply:
              Allowance for doubtful accounts        $   405,759    $    70,788    $  (148,074)    $  (230,464)    $    98,009
              Deferred tax valuation allowance       $        --    $ 8,160,924    $               $               $ 8,160,924
              Inventory reserve                      $ 3,715,357    $ 7,047,197    $               $(4,181,408)    $ 6,581,146

Year ended March 31, 2003
Reserves deducted from assets to which they apply:
              Allowance for doubtful accounts        $    12,022    $   412,055    $        --     $   (18,318)    $   405,759
              Deferred tax valuation allowance       $        --    $        --    $        --     $        --     $        --
              Inventory reserve                      $        --    $ 3,715,357    $        --     $        --     $ 3,715,357

Year ended March 31, 2002
Reserves deducted from assets to which they apply:
              Allowance for doubtful accounts        $     9,812    $    45,078    $   (42,868)    $        --     $    12,022
              Deferred tax valuation allowance       $        --    $        --    $        --     $        --     $        --
              Inventory reserve                      $        --    $        --    $        --     $        --     $        --
</TABLE>


                                      F-24
<PAGE>

                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth various expenses, which will be incurred in
connection with the registration of our securities. Other than the SEC
Registration Fee, the amounts set forth below are estimates:


SEC Registration Fee                                                $    947
Printing & Engraving Expenses                                       $  5,000
Legal Fees and Expenses                                             $150,000
Accounting Fees and Expenses                                        $ 50,000
Transfer Agent Fees                                                 $  1,000
                                                                    --------
         TOTAL                                                      $260,947
                                                                    ========


ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As a Delaware corporation, we are subject to the Delaware General Corporation
Law. Section 102(b)(7) of Delaware law enables a corporation in its certificate
of incorporation to eliminate or limit personal liability of members of its
Board of Directors for monetary damages for breach of a director's fiduciary
duty of care. Article 10 of our Certificate of Incorporation provides that a
director shall not be personally liable to us or our stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to us or our stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of Delaware or (iv) for any transaction from which the director derived an
improper personal benefit and contains a comparable provision. Under Section 174
of Delaware law, directors are subject to personal liability if they declare
dividends or have the corporate buy back, acquire or purchase shares of its
common stock in circumstances which are not permitted by Delaware law. Under
Delaware law, directors can not declare dividends unless the company has legally
available surplus, as such term is defined under Delaware law, or the dividends
are declared out of net profits in the fiscal year in which the dividend is
declared. Directors can not authorize the acquisition, purchase or redemption of
shares of a company's common stock unless such transaction is authorized by the
company's articles of incorporation.

Section 145 of Delaware law permits a corporation organized under Delaware law
to indemnify directors and officers with respect to any matter in which the
director or officer acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the company, and with respect
to any criminal action or proceeding, he had no reasonable cause to believe his
conduct was unlawful. Article VI of our Bylaws provides that our officers,
directors, employees or agent shall be indemnified to the full extent permitted
by Delaware law. Article VI also provides that we may advance expenses to a
director prior to the final disposition of the action. However, if required
under Delaware law, we may require an officer or director to give us an
undertaking in advance of the final disposition that he will repay all amounts
so advanced, if it shall ultimately be determined that such officer or director
is not entitled to be indemnified under our by-laws or otherwise.

The above discussion of Delaware law and our certificate of incorporation and
bylaws is not intended to be exhaustive and is qualified in its entirety by our
certificate of incorporation, bylaws and Delaware law.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following table sets forth our sale of securities during the last three
years, which securities were not registered under the Securities Act of 1933, as
amended. Except as described in paragraph 23, no underwriters were employed with
respect to the sale of any of the securities listed below.

1. During fiscal 2000, six employees exercised options to acquire 118,250 stock
options. All of these options were granted to our employees on December 8, 1999.
The names of the employees, the number of shares purchased and the proceeds to
us are listed below:

                  NUMBER OF                      PROCEEDS
                   SHARES         PURCHASE        TO THE          DATE OF
NAME              ACQUIRED          PRICE         COMPANY        EXERCISE
--------------  --------------   ------------   ------------   --------------
Melody Rawski           7,500    $       .29    $     2,150         12/30/99
John Steele             7,500    $       .29    $     2,150         01/04/00
John Klecha            75,000    $       .29    $    21,500         01/18/00
Terry Marco             7,500    $       .29    $     2,150         01/25/00
Terri Phillips          3,750    $       .29    $     1,075         02/16/00
Adolph Nelson           2,250    $       .29    $       645         03/15/00
Jorge Otaegui           2,250    $       .29    $       645         08/02/00


                                      II-1
<PAGE>

Each of the employees paid for the options with cash. Each employee's exercise
of the option was made in reliance on Section 4(2) of the Securities Act. Each
employee represented that he/she had no need for liquidity in his/her investment
and had adequate financial resources to withstand a total loss of their
investment. A legend was placed on the certificates stating that the securities
were not registered under the Securities Act and set forth the restrictions on
their transferability and sale.

2. During fiscal 2000, eleven warrant holders exercised their warrants to
acquire 195,000 shares of our common stock. Each of these warrant holders
acquired their warrants in our private offering of units that closed on May 12,
1999. The names of the warrant holders, the date of exercise, the number of
shares purchased, the exercise price and the proceeds received by us are listed
below.

                                                                       PROCEEDS
                            DATE OF         NO. OF       EXERCISE      TO THE
NAME                        EXERCISE        SHARES        PRICE        COMPANY
------------------------    -----------   -----------   -----------   ---------
Benchmark Capital              4/26/00        24,000    $     1.33    $  32,000
Sebastian Angelico             5/03/00         6,000    $     1.33    $   8,000
Josef Bauer                    5/15/00        12,000    $     1.33    $  16,000
Albert Wardi                   5/22/00         3,000    $     1.33    $   4,000
Wolcot Capital Inc.            5/24/00         6,000    $     1.33    $ 128,000
Wendy Blauner                  5/24/00         6,000    $     1.33    $   8,000
Jon Blauner                    5/24/00         6,000    $     1.33    $   8,000
John Klecha                    9/25/00         6,000    $     1.33    $   8,000
Bank Sal. Oppenheim           10/27/00        60,000    $     1.33    $  80,000
Sil Venturi                   12/01/00         6,000    $     1.33    $   8,000
Aton Trust                    12/01/00        60,000    $     1.33    $  80,000


Each of these warrant holders exercised their warrants in reliance upon Section
4(2) of the Securities Act of 1933, because each of the holders was
knowledgeable, sophisticated and had access to comprehensive information about
us. We 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.


3. During fiscal 2000, certain of our outside consultants exercised warrants to
acquire an aggregate of 483,000 shares that were issued to them. The names of
the consultants, the date of issuance of the warrants, the date of exercise, the
number of warrants, exercise price and proceeds are listed below.

<TABLE>
<CAPTION>
                                      DATE OF         DATE OF          NO. OF        EXERCISE
NAME                                  ISSUANCE        EXERCISE        WARRANTS        PRICE         PROCEEDS
-----------------------------------  -----------    -------------   -------------   -----------   --------------
<S>                                    <C>              <C>              <C>        <C>           <C>
Portfolio  Research  Associates         6/08/99          5/17/00         114,000    $      .92    $     104,500
Jack Robbins                           4/1/5/99          5/24/00         125,000    $      .67    $      75,000
Jack Robbins                            4/15/99          5/24/00         125,000    $    1.005    $     112,500
Union Atlantic                          2/08/99         11/01/00          30,000    $      .67    $      20,000
</TABLE>

Each of these consultants exercised their warrants in reliance upon Section 4(2)
of the Securities Act of 1933, because each of the holders was knowledgeable,
sophisticated and had access to comprehensive information about us. We 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.

4. In May 2000, we obtained two working capital loans in the amount of $100,000
and $500,000 from Maureen La Rouche and Josef A. Bauer. The loans were for a
period of eight months and bore interest at the rate of 15% per annum. As
consideration for extending the loans, we issued 7,500 warrants to Ms. La Rouche
and 37,500 warrants to Mr. Bauer, on May 25, 2000. Each warrant allowed the
holder to purchase one share of our common stock at an exercise price of $2.18
per share. The warrants expire on May 25, 2003.


                                      II-2
<PAGE>

5. On September 5, 2000, we issued 37,500 warrants to Neal Berkman for services
rendered to our Company. Mr. Berkman a principal at Berkman and Associates, a
firm that provides investor relation services to us. The warrants had an
exercise price of $2.04 per share and 18,750 warrants vested on December 1, 2001
and the remaining 18,750 on December 1, 2002. The warrants expired on December
1, 2006. We issued these warrants to Mr. Berkman in reliance upon Section 4(2)
of the Securities Act, because Mr. Berkman was knowledgeable, sophisticated and
had access to comprehensive information about us.

6. On September 5, 2000, we issued an aggregate of 625,500 options to our
employees, as consideration for services they had rendered to us. We issued
these options to our employees in reliance upon Section 4(2) of the Securities
Act, because our employees were knowledgeable, sophisticated and had access to
comprehensive information about us.

                                           NO. OF       EXERCISE
NAME                                       OPTIONS        PRICE
--------------------------------------   ------------   -----------
Brian Cino                                    15,000    $     2.04
April Green                                   30,000    $     2.04
Alicia Haskamp                                45,000    $     2.04
John Klecha                                  270,000    $     2.04
Terry Marco                                   45,000    $     2.04
Marion McElligott                             10,000    $     2.04
Jamilla Miller                                 4,500    $     2.04
Howard Moore                                  37,500    $     2.04
Adolph Nelson                                  3,750    $     2.04
Jorge Otaeugi                                  4,500    $     2.04
Terry Phillips                                 7,500    $     2.04
Melody Rawski                                 15,000    $     2.04
Edward Steele                                300,000    $     2.04
John Steele                                   75,000    $     2.04
Richard Torrelli                               3,500    $     2.04
Edwin Young                                   75,000    $     2.04


For each employee, officer or director, fifty percent of their options are
exercisable on December 1, 2001 and 50% on December 1, 2002. The options all
expire on December 1, 2006.


7. On September 5, 2000, we issued an aggregate of 75,000 options to our current
directors and one previous director for their services to us during the
preceding year. We issued these options to our directors in reliance upon
Section 4(2) of the Securities Act, because our directors were knowledgeable,
sophisticated and had access to comprehensive information about us.

                               NO. OF       EXERCISE
NAME                           OPTIONS       PRICE
--------------------------    ----------   -----------
Josef Bauer                      15,000    $     2.04
Edward Steele                    15,000    $     2.04
John Klecha                      15,000    $     2.04
Howard Moore                     15,000    $     2.04
Alan Schor                       15,000    $     2.04

These options are immediately exercisable and expire on September 5, 2006.

8. On March 13, 2001, we issued 30,000 options to Robert Weinberg and 15,000
options to John DeNovi. Mr. Weinberg received his grant of options because he
was joining our Board of Directors and Mr. DeNovi because he was joining our
company as an employee The exercise price of these options is $3.27 per share
and the expiration date is March 13, 2006. Half of Mr. Weinberg's options vest
on December 1, 2001 and the remainder vest on December 1, 2002. Half of Mr.
DeNovi's options vest on March 13, 2002 and the remainder vest on March 13,
2003. We issued these options to Mr. Weinberg and Mr. DeNovi in reliance upon
Section 4(2) of the Securities Act, because each of them was knowledgeable,
sophisticated and had access to comprehensive information about us.


                                      II-3
<PAGE>

9. During fiscal 2002, thirteen employees, one director and one former director
exercised stock options issued under our 1994 Amended and Restated Management
Stock Option Plan. The names of the option holders, the dates of grant, the
dates of exercise, the number of shares purchased, the exercise price and the
proceeds received by us are listed below.


<TABLE>
<CAPTION>
                                                 DATE OF         DATE OF          NO. OF       EXERCISE
NAME                                              GRANT          EXERCISE         SHARES        PRICE        PROCEEDS
--------------------------------------------   -------------   -------------    -----------    ----------    -----------
<S>                                                <C>             <C>            <C>          <C>           <C>
Adolph Nelson                                      12/08/99        04/30/01          2,250     $     .29     $      645
John Steele                                        12/08/99        04/30/01          7,500     $     .29     $    2,150
Teresa Marco                                       12/08/99        05/01/01          7,500     $     .29     $    2,150
Terry Philips                                      12/08/99        05/01/01          2,250     $     .29     $      645
Brian Cino                                         12/08/99        05/02/01          5,100     $     .29     $    1,462
John Klecha                                        12/08/99        05/30/01         75,000     $     .29     $   21,500
Melody Rawski                                      12/08/99        06/14/01          7,500     $     .29     $    2,150
Terry Phillips                                     12/08/99        07/11/01          2,250     $     .29     $      645
April Green                                        06/25/99        07/11/01            150     $     .66     $      166
Brian Cino                                         12/08/99        07/15/01          1,200     $     .29     $      344
April Green                                        06/25/99        07/11/01            300     $    1.11     $      332
John Steele                                        12/02/99        07/24/01         15,000     $    0.29     $   16,600
Josef Bauer                                        09/05/00        08/16/01         15,000     $    2.04     $   30,600
April Green                                        06/25/99        08/16/01            300     $    1.11     $      332
Edward Steele                                      12/08/99        09/28/01        262,500     $     .29     $   75,250
Edward Steele                                      12/08/99        09/28/01          7,500     $    2.04     $   15,300
April Green                                        06/25/99        10/02/01          1,500     $    1.11     $    1,660
April Green                                        06/25/99        10/31/01          1,500     $    1.11     $    1,660
John Steele                                        06/25/99        11/06/01         15,000     $    1.11     $   16,600
Brian Cino                                         12/08/98        11/13/01            525     $     .29     $      151
April Green                                        06/25/99        11/13/01          1,500     $    1.11     $    1,660
Teresa Marco                                       06/25/99        11/13/01         15,000     $    1.11     $   16,600
John Steele                                        09/25/00        12/07/01          7,500     $    2.04     $   15,300

<CAPTION>
                                                 DATE OF         DATE OF          NO. OF       EXERCISE
NAME                                              GRANT          EXERCISE         SHARES        PRICE        PROCEEDS
--------------------------------------------   -------------   -------------    -----------    ----------    -----------
<S>                                                <C>             <C>            <C>          <C>           <C>
April Green                                        06/25/99        12/07/01          1,050     $    1.11     $    1,162
Melody Rawski                                      09/25/00        12/18/01          7,500     $    2.04     $   15,300
April Green                                        09/05/00        12/18/01          3,000     $    2.04     $    6,120
Edwin Young                                        09/05/00        12/28/01         37,500     $    2.04     $   76,500
Adolph Nelson                                      09/25/00        12/28/01          1,875     $    2.04     $    3,825
Edward Steele                                      12/08/99        01/03/02        262,500     $    .287     $   75,250
Edward Steele                                      06/25/99        01/03/02         45,000     $   1.107     $   49,800
Edward Steele                                      09/05/00        01/03/02         15,000     $    2.04     $   30,600
Alicia Haskamp                                     09/05/00        01/03/02          6,000     $    2.04     $   12,240
M. McElligott                                      09/05/00        02/06/02          3,750     $    2.04     $    7,650
Brian Cino                                         12/09/98        02/06/02            675     $    .287     $   193.50
Brian Cino                                         09/05/00        02/06/02          1,350     $    2.04     $    2,754
Jorge Otaeugi                                      12/09/98        02/06/02          2,250     $     .29     $      645
Jorge Otaeugi                                      09/05/00        02/06/02          2,250     $    2.04     $    4,590
John Steele                                        09/05/00        02/06/02          7,500     $    2.04     $   15,300
Terry Phillips                                     09/05/00        02/19/02            450     $    2.04     $      918
Alan Schor                                         09/05/00        02/19/02          7,500     $    2.04     $   15,300
Robert Torrelli                                    09/05/00        03/07/02            150     $    2.04     $      306
John DeNovi                                        03/13/01        03/07/02          2,550     $    3.27     $    8,330
John Steele                                        09/05/00        03/14/02         22,500     $    2.04     $   45,900
Terry Phillips                                     09/05/00        03/22/02            900     $    2.04     $    1,836
</TABLE>


Each person paid for theirs shares with cash. Each person exercised their
options in reliance upon Section 4(2) of the Securities Act of 1933, because
he/she was knowledgeable, sophisticated and had access to comprehensive
information about us. The shares issued to these optionees were registered under
the Securities Act on a registration statement on Form S-8. The shares issued to
employees who were not affiliates did not contain any restrictive legends. The
shares issued to our executive officers and our directors contained a control
legend. Control legends were contained on the shares issued to Edward Steele,
our Chief Executive Officer and a director, John Klecha, our Chief Operating
Officer and a director and Josef Bauer, our director.

10. During fiscal 2002, six warrant holders exercised their warrants to acquire
an aggregate of 75,000 shares of our common stock. All of these persons acquired
their warrants in the Company's private offering of units on May 12, 1999. The
names of the warrant holders, the dates of exercise the number of shares
purchased, the exercise price and the proceeds received by us are listed below.

                    DATE OF      DATE OF      NO. OF      EXERCISE
NAME                 GRANT       EXERCISE     SHARES        PRICE      PROCEEDS
------------------  ----------   ----------  ----------  ----------  -----------
Entropy Holdings     05/12/99      04/30/01     15,000   $    1.33   $   20,000
Itamar Zac Jones     05/12/99      07/15/01      6,000   $    1.33   $    8,000
Anthony Broy         05/12/99      10/31/01      6,000   $    1.33   $    8,000
Edward Steele        05/12/99      01/03/02     12,000   $    1.33   $   16,000
Fred Merz            05/12/99      02/19/02      6,000   $    1.33   $    8,000
John Klecha          05/12/99      03/19/02     30,000   $    1.33   $   40,000

Each of the warrant holders paid for their shares with cash. Each of these
warrant holders exercised their warrants in reliance upon Section 4(2) of the
Securities Act of 1933, because each of these holders was knowledgeable,
sophisticated and had access to comprehensive information about us. We 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.


                                      II-4
<PAGE>

11. During fiscal 2002, four consultants exercised their warrants to acquire an
aggregate of 243,600 shares of our common stock. The names of the warrant
holders, the dates of issuance of the warrant, the number of shares purchased,
the exercise price and the proceeds received by us are listed below.

                     DATE OF       DATE OF     NO. OF      EXERCISE
NAME                 ISSUANCE     EXERCISE     SHARES       PRICE      PROCEEDS
------------------  -----------  ------------  ---------  -----------  ---------
SISM Research          5/21/99      11/02/01      15,000  $     1.33   $  20,000
FRS Investments        7/08/99      12/31/01      30,000  $      .92   $  27,500
FRS Investments        7/08/99      04/30/01      15,000  $      .92   $  13,750
FRS Investments        7/08/99      03/04/02      30,000  $    0.917   $  27,500
Edward Borelli         7/08/99      10/29/01     143,100  $      .92   $ 131,175
Clarion Finanz AG      4/14/99      11/08/01      10,500  $      .92   $  92,125


Each of the consultants paid for their shares with cash. Each of these warrant
holders exercised their warrants in reliance upon Section 4(2) of the Securities
Act of 1933, because each of these holders was knowledgeable, sophisticated and
had access to comprehensive information about us. We 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.


12. On August 15, 2001, we issued an aggregate of 75,000 options to its
directors pursuant to an annual grant of options to persons who had served on
the Board during the previous year. Each of the following directors received
15,000 options: Edward Steele, John Klecha, Josef Bauer, Howard Moore and Robert
Weinberg. The exercise price of the options is $4.25 per share and the options
expire on August 14, 2006. The options are exercisable immediately. We issued
these options to our directors in reliance upon Section 4(2) of the Securities
Act, because our directors are knowledgeable, sophisticated and have access to
comprehensive information about us.

13. On August 16, 2001, Josef Bauer and Maureen LaRoche, Mr. Bauer's assistant,
exercised warrants to acquire an aggregate of 90,000 shares of our common stock.
Mr. Bauer and Ms. LaRoche acquired these warrants on May 15, 2000 when they
advanced working capital to our company in May 2000. The dates of exercise 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
------------------   -----------   ----------    -----------   ------------
Josef Bauer             8/16/01       15,000     $     1.34    $    20,000
Josef Bauer             8/16/01       37,500     $     2.17    $    81,250
Josef Bauer             8/16/01       75,000     $      .67    $    50,000
Maureen LaRoche         8/16/01        7,500     $     2.17    $    16,250

Mr. Bauer and Ms. LaRoche paid for their shares with cash and exercised their
warrants in reliance upon Section 4(2) of the Securities Act of 1933, because
each was knowledgeable, sophisticated and had access to comprehensive
information about us. We 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.

14. On November 30, 2001, Neil Berkman exercised options to acquire 37,500
shares of our common stock at a purchase price of $2.04 per share. Mr. Berkman
acquired these warrants for financial consulting services that he rendered to
us. Mr. Berkman paid for his shares with cash and exercised their warrants in
reliance upon Section 4(2) of the Securities Act of 1933, because he was
knowledgeable, sophisticated and had access to comprehensive information about
us. We 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.


                                      II-5
<PAGE>

15. On December 28, 2001, Josef A. Bauer exercised 15,000 stock options acquired
under our Year 2001 Stock Option Plan at an exercise price of $2.04 per share.
Mr. Bauer received a grant of these options on September 5, 2000. Mr. Bauer
exercised his options in reliance upon Section 4(2) of the Securities Act of
1933, because he was knowledgeable, sophisticated and had access to
comprehensive information about us. We placed legends on the certificates
stating that the securities were not registered under the Securities Act and set
forth their restrictions on transferability and sale.

16. During fiscal 2003, five employees and a director exercised stock options
issued under our 1994 Amended and Restated Management Stock Option Plan. All of
these options were granted on September 5, 2000. The employees and director
exercised options to acquire an aggregate of 91,225 shares of our common stock.
The names of the option holder, the dates of exercise, 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
----------------   -------------   ----------    ----------    ------------
Alicia Haskamp         04/06/02       16,500     $    2.04     $    33,660
Howard Moore           07/12/02       33,750     $    2.04     $    68,850
Terri Phillips         07/31/02          600     $    2.04     $     1,224
Adolph Nelson          12/19/02        1,875     $    2.04     $     3,825
Edwin Young            01/21/03       37,500     $    2.04     $    76,500
April Green            02/24/03        1,000     $    2.04     $     2,040

Each employee and director paid for the shares with cash. Each employee and
director exercised his/her options in reliance upon Section 4(2) of the
Securities Act of 1933, because he/she was knowledgeable, sophisticated and had
access to comprehensive information about us. We registered all the stock
underlying the options granted under our 1994 Plan on a registration statement
on Form S-8. The shares issued to employees who were not affiliates did not
contain any restrictive legends. The shares issued to our executive officer and
our director contained a control legend. Control legends were contained on the
shares issued to April Green, our Chief Financial Officer, and Howard Moore, our
director.

17. During the three month period ended June 30, 2002, one warrant holder, FRS
Investments, Inc. ("FRS") exercised its warrants to acquire an aggregate of
52,500 shares of our common stock. FRS received the warrant grant on July 8,
1999 in connection with consulting services rendered to us. The date of
exercise, the number of shares purchased, the exercise price and the proceeds
received by us are listed below.

                                       NO. OF DATE OF EXERCISE
NAME                   EXERCISE        SHARES         PRICE        PROCEEDS
--------------------  -----------     ----------   ------------   ------------
FRS Investments          05/17/02        52,500    $    0.9167    $    48,125

FRS paid for its shares with cash. FRS exercised its warrants in reliance upon
Section 4(2) of the Securities Act of 1933, because it was knowledgeable,
sophisticated and had access to comprehensive information about the us. We
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.

18. On December 31, 2002, we issued an aggregate of 187,000 options to our
employees, as consideration for services they had rendered to us. We issued
these options to our employees in reliance upon Section 4(2) of the Securities
Act, because our employees were knowledgeable, sophisticated and had access to
comprehensive information about us.


                                      II-6
<PAGE>


                                                NO. OF
NAME                                        OPTIONS ISSUED       PRICE
---------------------------------------    ------------------   ---------
Frank Abell                                            6,000    $   9.00
Jennifer Barnes                                        5,000    $   9.00
Dan Becherer                                          10,000    $   9.00
Almina Brady-Dykes                                     6,000    $   9.00
Elizabeth Canela                                       3,000    $   9.00
Tammy Chestnut                                         1,000    $   9.00
Belinda Cheung                                           500    $   9.00
Danny Cheung                                           1,000    $   9.00
Jeffrey Chiu                                           1,000    $   9.00
Brian Cino                                             3,000    $   9.00
John DeNovi                                           10,000    $   9.00
Teresa Garcia                                         15,000    $   9.00
April Green                                           20,000    $   9.00
Alicia Haskamp                                        18,000    $   9.00
Michelle Ho                                            3,000    $   9.00
Wilson Ho                                              1,000    $   9.00
Dale Hopkins                                          10,000    $   9.00

                                                NO. OF
NAME                                        OPTIONS ISSUED       PRICE
---------------------------------------    ------------------   ---------
Irene Ko                                               3,000    $   9.00
Bill Lau                                               4,500    $   9.00
Dora Lee                                               3,000    $   9.00
Nataly Lessard                                         6,000    $   9.00
Gigi Leung                                               500    $   9.00
Marian McElligott                                     15,000    $   9.00
Adolph Nelson                                          2,000    $   9.00
Rick Ng                                                  500    $   9.00
Cathy Novello                                          4,000    $   9.00
Jennifer O'Kuhn                                        2,000    $   9.00
Jorge Otaegui                                          2,000    $   9.00
Terri Phillips                                         3,000    $   9.00
Melody Rawski                                          5,000    $   9.00
Asante Sellers                                         1,000    $   9.00
Stacy Sethman                                          5,000    $   9.00
John Steele                                           10,000    $   9.00
Richard Torrelli                                       1,000    $   9.00
Nicolas Venegas                                        2,000    $   9.00
Vicky Xavier                                           2,500    $   9.00
Ho Man Yeung                                             500    $   9.00
Yen Yu                                                 1,000    $   9.00


For each employee, twenty percent (20%) of their options are exercisable on
January 1, 2004 and 20% exercisable each January 1st thereafter with the last
20% becoming exercisable on January 1, 2008. The options expire 5 years after
they become exercisable with varying expiration dates from December 31, 2009
through December 31, 2013.

19. Effective as of April 15, 2003, we issued an aggregate of 50,000 options to
Jack Dromgold as consideration for services that he had rendered to us. The
options had an exercise price of $7.60 per share and vested in five equal
installments over a five year period beginning on January 1, 2004. We issued
these options to Mr. Dromgold in reliance upon Section 4(2) of the Securities
Act, because he was knowledgeable, sophisticated and had access to comprehensive
information about us. We inadvertently failed to report these options in the
first quarter of fiscal 2004. These options expired in March 2004, ninety days
after Mr. Dromgold's resignation from our company.

20. During April 2003, four employees exercised stock options issued under our
1994 Amended and Restated Management Stock Option Plan. The employees exercised
options to acquire an aggregate of 128,500 shares of our common stock. All of
the options were granted on September 5, 2000, except John Klecha received the
grant for 58,500 options at $1.11 on June 25, 1999. The names of the option
holder, the dates of exercise, the number of shares purchased, the exercise
price and the proceeds received by us are listed below.

                         NO. OF             EXERCISE     EXERCISE
NAME               OPTIONS EXERCISED         PRICE          DATE        PROCEEDS
---------------  -----------------------   -----------  -------------   --------
John Steele                      30,000    $     2.04        04/9/03    $ 61,200
Allen Schor                       7,500    $     2.04        04/9/03    $ 15,300
Alicia Haskamp                    7,500    $     2.04       04/18/03    $ 15,300
Alicia Haskamp                   10,000    $     2.04       04/01/03    $ 20,400
John Klecha                      58,500    $     1.11       04/22/03    $ 64,935
John Klecha                      15,000    $     2.04       04/22/03    $ 30,600


                                      II-7
<PAGE>

All of the above issuances were paid for with cash. The above employees
exercised their options in reliance upon Section 4(2) of the Securities Act of
1933, because each was knowledgeable, sophisticated and had access to
comprehensive information about our company. We registered all the stock
underlying the options granted under our 1994 Plan on a registration statement
on Form S-8. The shares issued to our employees who were not affiliates did not
contain any restrictive legends. The shares issued to our executive officer
contained a control legend. Control legends were contained on the shares issued
to John Klecha, our Chief Operating Officer and director.


21. On August 1, 2003, we issued 14, 492 and 11,594 shares of its common stock
to Jack Dromgold and John Steele as bonus payments, respectively. Mr. Dromgold
was guaranteed a $50,000 bonus in cash under his employment agreement, but he
agreed that we could pay his bonus with shares of our common stock. Mr. John
Steele was entitled to an $80,000 bonus under his employment agreement, but he
agreed to take a $40,000 bonus which would be paid with our common stock. Our
average trading price for the five days preceding August 1, 2003 of $3.45 was
used to calculate the number of shares that would be issued to Mr. Dromgold and
Mr. Steele. We issued these shares to Mr. Dromgold and Mr. Steele in reliance
upon Section 4(2) of the Securities Act, because each of them was knowledgeable,
sophisticated and had access to comprehensive information about our company. We
placed restrictive legends on the certificates stating that the securities were
not registered under the Securities Act and set forth their restrictions on
transferability and sale.


22. On August 1, 2003, Yi Ping Chan, Jack Dromgold and Edward Steele agreed to
take 15% of their annual compensation in the form of stock. The salary
reductions for Mr. Chan and Mr. Dromgold covered a nine month period from August
1, 2003 through March 31, 2004 and the salary reduction for Mr. Steele covered
an eight month period from August 1, 2003 through February 28, 2004. The average
trading price of our common stock for the five days preceding August 1, 2003 of
$3.45 was used to calculate the number of shares that would be issued to Mr.
Chan, Mr. Dromgold and Mr. Steele. Mr. Chan agreed to take a salary reduction of
$3,125 per month for an aggregate of $28,125 over a nine month period , which
would be paid with 8,153 shares of our common stock. Mr. Dromgold agreed to take
a salary reduction of $1,948 per month for an aggregate of $17,535 over a nine
month period, which would be paid with 5,082 shares of our common stock. Mr.
Steele agreed to take a salary reduction of $7,892 per month for an aggregate of
$63,136 over an eight month period, which would be paid with 18,300 shares of
our common stock. We issued these shares to Mr. Chan, Mr. Dromgold and Mr.
Steele in reliance upon Section 4(2) of the Securities Act, because each of them
was knowledgeable, sophisticated and had access to comprehensive information
about our company. We placed restrictive legends on the certificates stating
that the securities were not registered under the Securities Act and set forth
their restrictions on transferability and sale.

23. On August 1, 2003, we issued 2,899 shares of our common stock to Josef A.
Bauer and Howard Moore for services that they had rendered on our Board during
fiscal 2003. The value of these shares was equal to $10,000, based on the five
day average trading price of our common stock during the five day period
preceding August 1, 2003, which was $4.60. We issued these shares to Mr. Bauer
and Mr. Moore in reliance upon Section 4(2) of the Securities Act, because each
of them was knowledgeable, sophisticated and had access to comprehensive
information about our company. We placed restrictive legends on the certificates
stating that the securities were not registered under the Securities Act and set
forth their restrictions on transferability and sale.

24. On September 8, 2003, we issued an aggregate of $4,000,000 of 8% convertible
debentures in a private offering to six accredited investors. The debentures
initially are convertible into shares of common stock at a price of $3.85 per
share, subject to adjustment in certain situations. Each investor also received
warrants equal to 40% of the subscription amount divided by $3.50. The exercise
price of the warrants is $4.025 per share and the warrants expire on September
7, 2006. We have an obligation to register the shares of common stock underlying
the debenture and warrants, which we are satisfying by filing this registration
statement. The names of the investors, the amount of the debentures and the
number or warrants issuable to each investor are set forth below.

                                            AMOUNT OF          NO. OF
NAME                                       DEBENTURES         WARRANTS
--------------------------------------   ----------------    ------------
Omnicron Master Trust                    $     2,500,000         285,714
SF Capital Partners, Ltd                 $       500,000          57,143
Bristol Investment Fund, Ltd.            $       300,000          34,286
Ascend Offshore Fund, Ltd.               $       478,000          54,629
Ascend Partners, LP                      $        58,200           6,651
Ascend Partners Sapient LP               $       163,800          18,720

We issued these shares to these persons in reliance upon Section 4(2) of the
Securities Act, because the investors were knowledgeable, sophisticated and had
access to comprehensive information about us. We placed legends on the
debentures and the warrant agreements stating that the securities were not
registered under the Securities Act and set forth the restrictions on their
transferability and sale. We used Roth Capital as our placement agent and they
received a commission equal to 5.5% of the proceeds and a warrant to purchase
103,896 shares or our common stock. We agreed to register the shares underlying
Roth's warrant in a registration statement.


                                      II-8
<PAGE>


25. On November 17, 2003, we agreed to issue 40,151 shares of our common stock
to AG Edwards & Sons pursuant to a settlement agreement. In September 2003, we
had a disagreement with AG Edwards & Sons, regarding the total amount of fees
that were payable under our investment banking agreement with them. We entered
into a settlement agreement with them effective as of November 17, 2003 in which
we agreed to pay them the aggregate sum of $181,067 in five equal installments
beginning on November 17, 2003 and ending on March 15, 2005. We also agreed to
issue 40, 151 shares of our common stock to them and to register these shares
for resale in this Prospectus. We issued the shares to AG Edwards in reliance
upon Section 4(2) of the Securities Act, because it was knowledgeable,
sophisticated and had access to comprehensive information about us. We placed
legends on the stock certificates stating that the shares were not registered
under the Securities Act and set forth the restrictions on their transferability
and sale.


26. On December 19, 2003, we issued an aggregate of 221,920 options to our
employees, as consideration for services they had rendered to us. We issued
these options to our employees in reliance upon Section 4(2) of the Securities
Act, because our employees were knowledgeable, sophisticated and had access to
comprehensive information about us.



                                              NUMBER OF       EXERCISE
NAME                                           OPTIONS         PRICE
--------------------------------------      --------------   -----------
Frank Abell                                   1,320           $  1.97
Josef Bauer                                   2,740
Dan Becherer                                  4,910           $  1.97
Almina Brady-Dykes                            1,320           $  1.97
Pam Broyles                                     500           $  1.97
Elizabeth Canela                                660           $  1.97
Yi Ping Chan                                 52,800           $  1.97
Belinda Cheung                                  110           $  1.97
Jeffrey Chiu                                    220           $  1.97
Brian Cino                                      660           $  1.97
John Dahl                                    50,000           $  1.97
April Green                                   4,380           $  1.97
Alicia Haskamp                               24,600           $  1.97
Jeff Ho                                       5,000           $  1.97
Michelle Ho                                   5,660           $  1.97
Wilson Ho                                       220           $  1.97
Irene Ko                                        660           $  1.97
Rose Labadessa                                5,000           $  1.97
Bill Lau                                      5,990           $  1.97
Doral Lee                                     5,660           $  1.97
Nataly Lessard                                1,320           $  1.97
Marian McElligott                             3,290           $  1.97
Alyssa Malamud                                1,000           $  1.97
Bernardo Melo                                 4,000           $  1.97
Rick Ng                                         110           $  1.97
Dennis Norden                                 8,000           $  1.97
Cathy Novello                                   880           $  1.97
Jennifer O'Kuhn                                 440           $  1.97
Jorge Otaegui                                   440           $  1.97
John Petko                                    1,500           $  1.97
Terri Phillips                                  660           $  1.97
Melody Rawski                                 1,100           $  1.97
Evelyn Romero                                   500           $  1.97
Kristi Ronyak                                 1,000           $  1.97
Rafael Ros                                    1,200           $  1.97
Stacy Sethman                                 1,100           $  1.97
Edward Steele                                10,000           $  1.97
john Steele                                  12,200           $  1.97
Nicolas Venegas                                 440           $  1.97
Ho Man Yeung                                    110           $  1.97
Yen Yu                                          220           $  1.97


                                      II-9
<PAGE>

These options vest in three equal installments over a period of three years,
beginning on December 17, 2004. The options expire three years after the vesting
date.

27. On January 23, 2004, we issued an aggregate of 32,000 options to our
employees, as consideration for services they had rendered to us. We issued
these options to our employees in reliance upon Section 4(2) of the Securities
Act, because our employees were knowledgeable, sophisticated and had access to
comprehensive information about us. The names of the employees, the number of
options and the exercise price of the options is listed below.




                                     II-10
<PAGE>


                                            NUMBER OF       EXERCISE
NAME                                         OPTIONS         PRICE
--------------------------------------    --------------   -----------
Dennis Nordeen                                   17,000    $     1.60
John Steele                                      15,000    $     1.60


For each employee, 20% of their options vest on January 23, 2005 and 20% are
exercisable on each January 23 thereafter with the last 20% becoming exercisable
on January 23, 2010. The options expire 5 years after the date on which they
first become exercisable with varying expiration dates of January 22, 2010
through January 22, 2015.

28. On February 6, 2004, we issued an aggregate of 41,560 options to our
employees, as consideration for their agreement to reduce their respective
salaries. We issued these options to our employees in reliance upon Section 4(2)
of the Securities Act, because our employees were knowledgeable, sophisticated
and had access to comprehensive information about us. The names of the
employees, the number of options and the exercise price of the options is listed
below.

                                        NUMBER OF       EXERCISE
NAME                                     OPTIONS         PRICE
----------------------------------    --------------   -----------
Jeffrey Li-Chieh Ho                           7,000    $     1.54
Stacy Blair Sethman                           3,500    $     1.54
Bernardo Melo                                 6,000    $     1.54
John Petko                                    5,640    $     1.54
Rosalina Labadessa                            6,000    $     1.54
Marian McElligott                             6,400    $     1.54
Frank Abell                                   7,170    $     1.54

For each employee, half of these options become exercisable on August 6, 2004
and the remaining half vest on February 5, 2005. The options expire 5 years
after the date on which they become exercisable with an expiration dates of
August 5, 2008 and February 5, 2009.

29. Effective as of February 9,2004, we issued an aggregate of 30,000 warrants
to the investors that had purchased debentures in our $4 million private
offering. We agreed to the debenture holders in exchange for their agreement to
(i) enter into new subordination agreements with Milberg, (ii) to waive all
liquidated damages due under the transaction documents through July 1, 2004 and
(iii) to extend the effective date of the Form S-1 registration statement until
July 1, 2004. We issued the warrants to the debenture holders in reliance on
Section 4(2) of the Securities Act, because each of the debenture holders was
knowledgeable, sophisticated and had access to comprehensive information about
the Company. The new warrants have an exercise price equal to $1.52 per share,
the fair market value of the Company's common stock on February 9, 2004, the
date of the grant. We placed restrictive legends on the warrants stating that
the securities were not registered under the Securities Act and set forth their
restrictions on transferability and sale.

30. On February 26, 2004, we issued an aggregate of 60,000 options to our three
non-employee directors. Josef A. Bauer, Bernard Appel and Richard Ekstract each
received 20,000 options. The exercise price of the options is equal to $1.30 per
share, the fair market value on the date of grant. The options vest in three
equal installments beginning on February 27, 2004 and expire three years after
the vesting date, provided that each person continues to serve on our Board of
Directors. If any of these persons were to resign from our Board, all vested
options would terminate six months after the director's resignation date. We
issued these options to Mr. Bauer, Mr. Appel and Mr. Ekstract in reliance upon
Section 4(2) of the Securities Act, because each of them was knowledgeable,
sophisticated and had access to comprehensive information about our company. We
placed restrictive legends on the options stating that the securities were not
registered under the Securities Act and set forth their restrictions on
transferability and sale.


31. On September 23, 2004, we issued 400,000 shares of our common stock to an
escrow account for the benefit of the plaintiffs from the class action lawsuit.
This share issuance was exempt from registration pursuant to Section 3 (a) (10)
of the Securities Act of 1933 pursuant to a court approved settlement dated July
30, 2004.



                                     II-11
<PAGE>


EXHIBIT INDEX


3.1 Certificate of Incorporation of the Singing Machine filed with the Delaware
Secretary of State on February 15, 1994 and amendments through April 15, 1999
(incorporated by reference to Exhibit 3.1 in the Singing Machine's registration
statement on Form SB-2 filed with the SEC on March 7, 2000).

3.2 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 Singing Machine's Quarterly Report on Form 10-QSB for the period
ended September 30, 1999 filed with the SEC on November 14, 2000).

3.3 Certificates of Correction filed with the Delaware Secretary of State on
March 29 and 30, 2001 correcting the Amendment to our Certificate of
Incorporation dated April 20, 1998 (incorporated by reference to Exhibit 3.11 in
the Singing Machine's registration statement on Form SB-2 filed with the SEC on
April 11, 2000).

3.4 Amended By-Laws of the Singing Machine Singing Machine (incorporated by
reference to Exhibit 3.14 in the Singing Machine'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 Singing Machine's registration statement on
Form SB-2 filed with the SEC on March 7, 2000). File No. 333-57722).

5.1 Opinion from Counsel

10.1 Factoring Agreement dated February 9, 2004 between Milberg Factors, Inc.
and the Singing Machine. (incorporated by reference to Exhibit 10.1 in the
Singing Machine's Quarterly Report on Form 10- Q filed with the SEC on February
17, 2004, File No. 000- 24968).

10.2 Security Agreement for Goods and Chattels dated February 9, 2004 between
Milberg Factors, Inc. and the Singing Machine. incorporated by reference to
Exhibit 10.2 in the Singing Machine's Quarterly Report on Form 10-Q filed with
the SEC on February 17,2004, File No. 000-24968).

10.3 Security Agreement for Inventory dated February 9, 2004 between Milberg
Factors, Inc. and the Singing Machine (incorporated by reference to Exhibit 10.3
in the Singing Machine's Quarterly Report on Form 10- Q filed with the SEC on
February 17, 2004, File No. 000-24968).

10.4 Second Amendment to the Transaction Documents dated February 9, 2004
between Omicron Master Trust, SF Capital Partners, Ltd, Bristol Investment Fund,
Ltd., Ascend Offshore Fund, ltd., Ascend Partners, LP, Ascend Partners Sapient
L.P. and the Singing Machine (incorporated by reference to Exhibit 10.4 in the
Singing Machine's Quarterly Report on Form 10-Q filed with the SEC on February
17, 2004, File No. 000- 24968).

10.5 Form of Subordination Agreement executed by institutiona Investors.
(Incorporated by reference to Exhibit 10.18 of the Singing Machine's Amendment
No. 1 to its registration statement on Form S-1 filed with SEC on April, 2004,
File No. 333-109574).

10.6 Employment Agreement dated February 27, 2004 between the Singing Machine
and Edward Steele (incorporated by reference to Exhibit 10.6 of the Singing
Machine's Annual Report on Form 10-K for fiscal 2004 filed with the SEC on July
15, 2004, File No. 000-24968).

10.7 Employment Agreement dated May 2, 2003 between the Singing Machine and Yi
Ping Chan. (incorporated by reference to Exhibit 10.20 of the Singing Machine's
Annual Report on Form 10-KSB/A filed with the SEC on July 23, 2003, File No.
000-24968).

10.8 Separation and Release Agreement effective as of May 2, 2003 between the
Singing Machine and John Klecha (incorporated by reference to Exhibit 10.1 of
the Singing Machine's Annual Report on Form 8-K filed with the SEC on July 17,
2003, File No. 000-24968).

10.9 Separation and Release Agreement effective as of April 9 2004 between the
Singing Machine and April Green (incorporated by reference to Exhibit 10.9 of
the Singing Machine's Annual Report on Form 10-K for fiscal 2004 filed with the
SEC on July 15, 2004, File No. 000-24968).

10.10 Separation and Release Agreement dated December 16,2003 between the
Singing Machine and Jack Dromgold (incorporated by reference to Exhibit 10.10 of
the Singing Machine's Annual Report on Form 10-K for fiscal 2004 filed with the
SEC on July 15, 2004, File No. 000-24968).

10.11 Separation and Release Agreement effective as of April 12, 2004 between
the Singing Machine and John Dahl (incorporated by reference to Exhibit 10.11 of
the Singing Machine's Annual Report on Form 10-K for fiscal 2004 filed with the
SEC on July 15, 2004, File No. 000-24968).

10.12 Industrial Lease dated March 1, 2002, by and between AMP Properties, L.P.
and the Singing Machine for warehouse space in Compton, California (incorporated
by reference to Exhibit 10.20 of the Singing Machine's Annual Report on Form
10-KSB/A filed with the SEC on July 23, 2002, File No. 000-24968).

10.13 Amended and Restated 1994 Management Stock Option Plan (incorporated by
reference to Exhibit 10.6 to the Singing Machine's registration statement on
Form SB-2 filed with the SEC on March 28, 2001, File No. 333-59684).


                                     II-12
<PAGE>

10.14 Year 2001 Stock Option Plan (incorporated by reference to Exhibit 10.1 of
the Singing Machine's registration statement on Form S-8 filed with the SEC on
September 13, 2002, File No. 333-99543).

10.15 Securities Purchase Agreement dated as of August 20, 2003 by and among the
Singing Machine and Omicron Master Trust, SF Capital Partners, Ltd., Bristol
Investment Fund, Ltd., Ascend Offshore Fund, Ltd., Ascend Partners, LP and
Ascend Partners Sapient, LP (collectively, the "Investors") (filed as Exhibit
10.1 to the Singing Machine's Registration Statement filed with the SEC on
October 9, 2003, File No. 333- 109574).

10.16 Amendment dated September 5, 2003 to Securities Purchase Agreement between
the Singing Machine and the Investors (filed as Exhibit 10.2 to the Singing
Machine's Registration Statement filed with the SEC on October 9, 2003, File No.
333-109574).

10.17 Form of Debenture Agreement issued by the Singing Machine to each of the
Investors (filed as Exhibit 10.3 to the Singing Machine's Registration Statement
filed with the SEC on October 9, 2003, File No. 333- 109574).

10.18 Form of Warrant Agreement issued by the Singing Machine to the Investors
(filed as Exhibit 10.4 to the Singing Machine's Registration Statement filed
with the SEC on October 9, 2003, File No. 333-109574).

10.19 Warrant Agreement between the Singing Machine and Roth Capital Partners,
LLC (filed as Exhibit 10.5 to the Singing Machine's Registration Statement filed
with the SEC on October 9, 2003, File No. 333- 109574).

10.20 Registration Rights Agreement between the Singing Machine and each of the
Investors and Roth Capital Partners, LLC (filed as Exhibit 10.5 to the Singing
Machine's Registration Statement filed with the SEC on October 9, 2003, File No.
333-109574).

10.21 Domestic Merchandise License Agreement dated November 1, 2000 between MTV
Networks, a division of Viacom International, Inc. and the Singing Machine
(incorporated by reference to Exhibit 10.3 of the Singing Machine's Quarterly
Report on Form 10-Q for the quarter ended December 31, 2002, filed with the SEC
on February 14, 2003, File No. 000-24968).

10.22 Amendment dated January 1, 2002 to Domestic Merchandise License Agreement
between MTV Networks, a division of Viacom International, Inc. and the Singing
Machine (incorporated by reference to Exhibit 10.4 of the Singing Machine's
Quarterly Report on Form 10-Q for the quarter ended December 31, 2002, filed
with the SEC on February 14, 2003, File No. 0000-24968).

10.23 Second Amendment as of November 13, 2002 to Domestic Merchandise License
Agreement between MTV Networks, a division of Viacom International, Inc. and the
Singing Machine (incorporated by reference to Exhibit 10.5 of the Singing
Machine's Quarterly Report on Form 10-Q for the quarter ended December 31, 2002,
filed with the SEC on February 2003, File No. 000-24968).

10.24 Third Amendment as of February 26, 2003 to Domestic Merchandise License
Agreement between MTV Networks, a division of Viacom International, Inc. and the
Singing Machine (incorporated by reference to Exhibit 10.10 of the Singing
Machine's Annual Report on Form 10-K for the fiscal year ended March 31, 2003,
filed with the SEC on July 17, 2003, File No. 000-24968).

10.25 Amendment to Domestic Licensing Agreement dated November 15, 2002 between
the Singing Machine and MTV Networks, a division of Viacom International, Inc.
(incorporated by reference to Exhibit 10.5 in the Singing Machine's Quarterly
Report on Form 10-Q filed with the SEC on February 17, 2004, File No.
000-24968).

10.26 Fifth Amendment to Domestic Licensing Agreement dated December 23, 2003
between the Singing Machine and MTV Networks, a division of Viacom
International, Inc. (incorporated by reference to Exhibit 10.6 in the Singing
Machine's Quarterly Report on Form 10-Q filed with the SEC on February 17, 2004,
File No. 000-24968).

10.27 Sales Agreement effective as of December 9, 2003 between the Singing
Machine and CPP Belwin, Inc. and its affiliates (incorporated by reference to
Exhibit 10.7 in the Singing Machine's Quarterly Report on Form 10-Q filed with
the SEC on February 17, 2004, File No. 000-24968).

10.28 Distribution Agreement dated April 1, 2003 between the Singing Machine and
Arbiter Group, PLC (incorporated by reference to Exhibit 10.28 of the Singing
Machine's Annual Report on Form 10-K for fiscal 2004 filed with the SEC on July
15, 2004, File No. 000-24968).

10.29 Loan Agreements dated August 13, 2003 in the aggregate amount of $1
million between the Company and each of Josef A. Bauer, Howard Moore & Helen
Moore Living Trust, Maureen G. LaRoche and Yi Ping Chan (incorporated by
reference to Exhibit 10.28 of the Singing Machine's Annual Report on Form 10-K
for fiscal 2004 filed with the SEC on July 15, 2004, File No. 000-24968).

10.30 Letter dated March 4, 2003 from Josef A. Bauer to the Singing Machine
regarding a $400,000 loan (incorporated by reference to Exhibit 10.30 of the
Singing Machine's Annual Report on Form 10-K for fiscal 2004 filed with the SEC
on July 15, 2004, File No. 000-24968).


10.31 Letter Agreement dated November 5, 2004 with the convertible note holders.

10.32 Letter Agreement dated July 13, 2004 with Joseph A. Bauer regarding a
$200,000 loan.


14.1 Code of Ethics (incorporated by reference to Exhibit 14. of the Singing
Machine's Annual Report on Form 10-K for fiscal 2004 filed with the SEC on July
15, 2004, File No. 000-24968).


                                     II-13
<PAGE>

21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 of the
Singing Machine's Annual Report on Form 10-K for fiscal 2004 filed with the SEC
on July 15, 2004, File No. 000-24968).

23.1 Consent of Grant Thornton LLP.

23.2 Consent of Salberg & Co.


                                     II-14
<PAGE>

ITEM 17. UNDERTAKINGS

                  The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:

(i) Include any Prospectus required by Section 10(a)(3) of the Securities Act;

(ii) Reflect in the Prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of Prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in
the aggregate, the change in volume and price represents no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation of
the Registration Fee" table in the effective registration statement; and

(iii) Include any additional or changed material information on the plan of
distribution.

(2) That, for the purpose of determining any liability under the Securities Act
of 1933, as amended, treat each such post-effective amendment as a new
registration statement relating to the securities offered therein, and the
offering of the securities at that time to be the initial bona fide offering
thereof.

(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.

(4) For purposes of determining any liability under the Securities Act of 1933,
as amended, treat the information omitted from the form of Prospectus filed as
part of this registration statement in reliance upon Rule 430A, and contained in
a form of Prospectus filed by the small business issuer under Rule 424(b)(1) or
(4) or 497(h) under the Securities Act as part of this registration statement as
of the time the Commission declares it effective.

(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of Prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at the time as the initial bona fide
offering of those securities.

Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.


                                   SIGNATURES


Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 3 to the Registration Statement on Form S-1, to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Coconut Creek, Florida, on December 7, 2004.

                        THE SINGING MACHINE COMPANY, INC.


Dated: December 3, 2004                By: /s/ YI PING CHAN
                                       -----------------------------------------
                                           Yi Ping Chan
                                           Interim Chief Executive Officer
                                           (Principal Executive Officer)



                                     II-15
<PAGE>


                                POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Yi Ping Chan
his or her true and lawful attorney in fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all amendments (including
post effective amendments) to the Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and all post effective amendments thereto,
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, each acting alone, or his or her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-1 has been signed below by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
           SIGNATURE                                 TITLE                              DATE
-------------------------------   ----------------------------------------------   ---------------
<S>                               <C>                                             <C>
/s/ YI PING CHAN                  Interim Chief Executive Officer                  December 7, 2004
-------------------------         and Chief Operating
Yi Ping Chan

/s/ JEFF BAROCAS                  Chief Financial Officer                          December 7, 2004
-------------------------         (Principal Financial Officer)
Jeff Barocas

/s/ DANNY ZHENG                   Principal Accounting Officer                     December 7, 2004
-------------------------
Danny Zheng

/s/ JOSEF A. BAUER                Director                                         December 7, 2004
-------------------------
Josef A. Bauer

/s/ HARVEY JUDKOWITZ              Director                                         December 7, 2004
-------------------------
Harvey Judkowitz

/s/ BERNARD APPEL                 Director                                         December 7, 2004
-------------------------
Bernard Appel
</TABLE>



                                     II-16

</TEXT>
</DOCUMENT>
