SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

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

For the quarterly period ended September 30, 2001
---------------------

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

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

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

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

There were 4,747,620 shares of Common Stock, $.01 par value, issued and
outstanding at September 30, 2001.

THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements:
Page No.
--------

Consolidated Balance Sheets - September 30, 2001 (Unaudited)
and March 31, 2001 .............................................. 3

Consolidated Statement of Operations - Three and six months
ended September 30, 2001 and 2000 (Unaudited) ................... 4

Consolidated Statement of Cash Flows - Six months ended
September 30, 2001 and 2000 (Unaudited) ......................... 5

Notes to Consolidated Financial Statements ...................... 6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 10

PART II. OTHER INFORMATION

Item 1. Legal Proceedings ............................................... 18

Item 2. Changes in Securities ........................................... 18

Item 3. Defaults Upon Senior Securities ................................. 19

Item 4. Submission of Matters to a Vote of Security Holders ............. 19

Item 5. Other Information ............................................... 19

Item 6. Exhibits and Reports on Form 8-K ................................ 19

SIGNATURES ............................................................... 20

THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION

Item I. Financial Statements

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

September 30, March 31,
2001 2001
------------ ------------
(unaudited)

ASSETS

CURRENT ASSETS:
Cash $ 2,422,768 $ 1,016,221
Accounts Receivable,
net of allowance of $9,812 7,241,745 955,652
Due from Factor -- 933,407
Due from Vendor -- 699,096
Inventories 10,194,450 4,813,461
Interest Receivable -- 7,425
Prepaid Expenses and
Other Current Assets 1,137,351 598,487
------------ ------------
TOTAL CURRENT ASSETS 20,996,314 9,023,749
PROPERTY AND EQUIPMENT, NET 296,823 263,791
OTHER ASSETS:
Deposit for Credit Line 256,008 --
Due from related party -- 7,692
Due from officers -- 110,000
Investment in/advances to Unconsolidated Subsidiary 268,537 374,730
Reorganization Intangible - net 231,231 277,047
Deferred tax asset 452,673 452,673
------------ ------------
TOTAL ASSETS $ 22,501,586 $ 10,509,682
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable 3,691,522 821,684
Accrued Expenses 3,985,182 746,017
Income taxes payable -- 23,320
Loan Payable 569,511 --
Notes Payable -- --
Due to related party 2,491,530 --
------------ ------------
TOTAL CURRENT LIABILITIES 10,737,745 1,591,021
------------ ------------
STOCKHOLDERS' 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 authorized,
no shares issued and outstanding -- --
Common Stock, $.01 par value; 18,900,000 shares authorized;
4,747,620 and 4,359,120 shares issued and outstanding, respectively 47,476 43,590
Additional Paid In Capital 3,701,633 3,324,779
Deferred Guarantee Fees -- (171,472)
Retained Earnings 8,014,731 5,721,764
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 11,763,841 8,918,661
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,501,586 $ 10,509,682
============ ============

See accompanying notes to consolidated financial statements

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

Three Months Ended Six Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------

NET SALES $ 15,749,241 $ 11,786,707 $ 21,272,851 $ 17,855,298

COST OF SALES 10,438,974 8,481,626 14,101,529 13,031,470
------------ ------------ ------------ ------------
GROSS PROFIT 5,310,267 3,305,081 7,171,322 4,823,828

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,069,794 1,506,220 4,877,849 2,546,117
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 2,240,472 1,798,861 2,293,473 2,277,711

OTHER INCOME (EXPENSES):
Other income 125,379 917 143,230 3,946
Interest expense (34,465) (140,094) (134,037) (203,192)
Interest income 28 11,156 2,475 35,215
Factoring fees (40) (33,923) (173) (68,498)
------------ ------------ ------------ ------------
NET OTHER EXPENSES 90,902 (161,944) 11,494 (232,529)

INCOME BEFORE INCOME TAX EXPENSE 2,331,374 1,636,917 2,304,967 2,045,182

INCOME TAX EXPENSE 6,000 388,848 12,000 388,848

NET INCOME $ 2,325,374 $ 1,248,069 $ 2,292,967 $ 1,656,334
============ ============ ============ ============
NET INCOME PER COMMON SHARE
Basic $ 0.51 $ 0.29 $ 0.51 $ 0.40
============ ============ ============ ============
Diluted $ 0.44 $ 0.25 $ 0.44 $ 0.33
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Basic 4,517,104 4,251,033 4,454,857 4,157,677
Diluted 5,322,815 5,037,428 5,214,841 4,961,589

See accompanying notes to financial statements.

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

Six Months Ended
--------------------------------
September 30, September 30,
2001 2000
----------- -----------

NET CASH USED IN
OPERATING ACTIVITIES: $ (301,528) $ (853,117)

CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (101,973) (177,252)
Proceeds from factor 933,407 (255,319)
Proceeds from Officer 117,425 --
Deposit for Credit line (256,008) --
Investment/Advances in unconsolidated subsidiary 64,973 --
Due from related parties -- 394,706
----------- -----------
Net cash provided by (used in) investing activities 752,824 (37,865)

CASH FLOW FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common
stock & exercise of warrants and options 380,740 409,163
Line of credit net proceeds 569,511 --
Net proceeds from notes payable -- 599,247
----------- -----------
Net cash provided by financing activities 950,251 1,008,410
----------- -----------

Increase in cash and cash equivalents 1,406,547 117,428

Cash and cash equivalents - beginning of period 1,016,221 378,848
----------- -----------
CASH AND CASH EQUIVALENTS
- END OF PERIOD $ 2,422,768 $ 496,276

See accompanying notes to consolidated financial statements.

THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying consolidated financial statements of the Company have
been prepared in accordance with the instructions to accordance with the
instructions to Form 10-QSB and, therefore, omit or condense certain
footnotes and other information normally included in financial statements
prepared in accordance with generally accepted accounting principles. It
is suggested that these consolidated condensed financial statements
should be read in conjunction with the Company's financial statements and
notes thereto included in the Company's audited financial statements on
Form 10-KSB for the fiscal year ended March 31, 2001.

The accounting policies followed for interim financial reporting are the
same as those disclosed in Note 1 of the Notes to Financial Statements
included in the Company's audited financial statements for the fiscal
year ended March 31, 2001, which are included in Form 10- KSB.

The Financial Accounting Standards Board has recently issued several new
accounting pronouncements which may apply to the Company. Statement No.
133 as amended by Statement No. 137 and 138, "Accounting for Derivative
Instruments and Hedging Activities" established accounting and reporting
standards for derivative instruments and related contracts and hedging
activities. This statement is effective for all fiscal quarters and
fiscal years beginning after June 15, 2000. The adoption of this
pronouncement did not have a material effect on the Company's financial
position, results of operations or liquidity. Statement No. 141 "Business
Combinations" ("SFAS 141") establishes revised standards for accounting
for business combinations. Specifically, the statement eliminates the
pooling method, provides new guidance for recognizing intangible assets
arising in a business combination, and calls for disclosure of
considerably more information about a business combination. This
statement is effective for business combinations initiated on or after
July 1, 2001. The adoption of this pronouncement on July 1, 2001 did not
have a material effect on the Company's financial position, results of
operations or liquidity. Statement No. 142 "Goodwill and Other Intangible
Assets" ("SFAS 142") provides new guidance concerning the accounting for
the acquisition of intangibles, except those acquired in a business
combination, which is subject to SFAS 141, and the manner in which
intangibles and goodwill should be accounting for subsequent to their
initial recognition. Generally, intangible assets with indefinite lives,
and goodwill, are no longer amortized; they are carried at lower of cost
or market and subject to annual impairment evaluation, or interim
impairment evaluation if an interim triggering event occurs, using a new
fair market value method. Intangible assets with finite lives are
amortized over those lives, with no stipulated maximum, and an impairment
test is performed only when a triggering event occurs. This statement is
effective for all fiscal years beginning after December 15, 2001. The
Company believes that the future implementation of SFAS 142 on April 1,
2002 will not have a material effect on the Company's financial position,
results of operations or liquidity. Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" supercedes Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121"). Though it retains the basic
requirements of SFAS 121 regarding when and how to measure an impairment
loss, SFAS 144 provides additional implementation guidance. SFAS 144
excludes goodwill and intangibles not being amortized among other
exclusions. SFAS 144 also supercedes the provisions of APB 30, "Reporting
the Results of Operations", pertaining to discontinued operations.
Separate reporting of a discontinued operation is still required, but
SFAS 144 expands the presentation to include a component of an entity,
rather than strictly a business segment as defined in SFAS 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
144 also eliminates the current exemption to consolidation when control
over a subsidiary is likely to be temporary. This statement is effective
for all fiscal years beginning after December 15, 2001. The Company
believes that the future implementation of SFAS 144 on April 1, 2002 will

not have a material effect on the Company's financial position, results
of operations or liquidity.

Certain amounts in the September 30, 2000 interim consolidated financial
statements have been reclassified to conform to the September 30, 2001
presentation.

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

The results of operations for the six month period ended September 30,
2001 are not necessarily indicative of the results that may be expected
for the entire fiscal year ending March 31, 2002.

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

NOTE 2 - INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARY

In November 2000, the Company closed on an acquisition of 60% of the
ordinary voting shares of a Hong Kong toy company for a total purchase
price of $170,000. The Company believed that the acquiree had agreed to
extend the effective date to June 2001, but a dispute arose and the
Company committed to dispose of the entire investment. Accordingly,
pursuant to Statement of Financial Accounting Standards No. 94
"Consolidation of All Majority-Owned Subsidiaries," the Company is
treating the control of the subsidiary as temporary and has recorded the
investment of $170,000 and advances and interest of $213,947 at cost.

The Company completed a contract selling the 60% interest on September
11, 2001. The transaction resulted in a net loss on investment of
$48,912. The purchaser took over operation of the company on September
12, 2001. Payment of the remaining contract price, $90,002, will take
place over a four month period of time ending December 31, 2001. The
advances and interest remaining at September 30, 2001, in the amount of $
171,821, will be paid in full over a ten month period and will accrue
additional interest over that time. The additional amount due of $6,714
was added after the transaction.

NOTE 3 - DEPOSIT FOR CREDIT LINE

The Company, through its Hong Kong subsidiary, is negotiating with a
major international bank for credit facilities. Pursuant to these
negotiations, the Company's subsidiary is required to maintain a
separate depository account in the amount of $256,008.

NOTE 4 - LOANS AND LETTERS OF CREDIT

In July 1999, the Company entered into a financing agreement with a
financing corporation. The agreement expired in July 2001. The financing
corporation opens letters of credits on behalf of the Company to purchase
inventory. Under the terms of the agreement, the Company pays a flat fee
negotiated based on each letter of credit and the maximum amount of a
single letter of credit cannot exceed $1,000,000. At March 31, 2001, the
Company has no letters of credit open with the financing corporation. The
factor has agreed under a third party agreement to factor receivables
related to these letters of credit and pays the financing corporation
directly. This agreement was terminated in April 2001.

On May 19, 1999, as amended on February 14, 2000, the Company, through
its Hong Kong Subsidiary, obtained a credit facility of $500,000 from a
Hong Kong subsidiary of a Belgian bank. This facility is a revolving line
of credit based upon drawing down a maximum of 15% of the value of export
letters of credit lodged with Belgian Bank. There is no expiration date
to this agreement, except that Belgian Bank reserves the right to revise
the terms and conditions at the Bank's discretion. The cost of this
credit facility is the U.S. Dollar prime rate plus 1.25%. Repayment of
principal plus interest shall be made upon negotiation of the export
letters of credit, but not later than 90-days after the advance. As of
March 31, 2001, there was no outstanding balance on this credit facility.

On April 26, 2001, the Company executed a Loan and Security Agreement
(the "Agreement") with a commercial lender (the "Lender"). The Lender
will advance up to 75% of the Company's eligible accounts receivable,
plus up to 40% of the eligible inventory, plus up to 40% of the
commercial letters of credit opened for the purchase of eligible
inventory, less reserves of up to $1,200,000 as defined in the agreement.

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

The Agreement contains a financial covenant stipulating a minimum
tangible net worth of $6,250,000 with escalations as defined in the
Agreement.

The outstanding balance at September 30, 2001, was $569,511.

NOTE 5 - EQUITY

Stock options and warrants were exercised during the second quarter of
fiscal year 2002. 297,100 shares of common stock were issued with
proceeds to the Company of $316,288. The total of Stock options and
warrants exercised for the six month period ended September 30, 2001 were
388,500 shares with a total proceeds to the Company of $380,740.

On August 15, 2001, the directors of the Company were each issued 10,000
common stock options (50,000 options total) at the then current stock
price of $6.35. Pursuant to APB no. 25, no compensation expense will be
recognized.

NOTE 6 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company has an agreement with FLX (a China manufacturer of consumer
electronics products) to produce electronic recording equipment based on
the Company's specifications. A former director of the Company, is
Chairman of the Board and a principal stockholder of FLX. During the
fiscal year ended March 31, 2001, the Company purchased approximately 80%
of its equipment from FLX. The Company anticipates the purchase level to
remain close to this number for fiscal year 2002. The amount due to FLX
at September 30, 2001 of $2,491,530 is included in the related party
payable. The Company believes that all of the foregoing transactions with
FLX have been on terms no less favorable to the Company than could have
been obtained from unaffiliated third
parties in arms-length transactions under similar circumstances.

NOTE 7 - MAJOR CUSTOMERS

As a percentage of total revenues, the Company's net sales in the
aggregate to its five (5) largest customers during the quarters ended
September 30, 2001 and 2000 were approximately 94% and 76%, respectively.
For the six months ending September 30, 2001 and 2000, two (2) major
retailers accounted for 79% and 32% each of total revenues. Because of
the seasonality of the Company's sales, these results may be distorted
due to the historically low percentage of overall sales during the
Company's first fiscal quarter of each year.

NOTE 8 - EARNINGS PER SHARE

Basic net income (loss) per common share (Basic EPS) excludes dilution
and is computed by dividing net income (loss) available to common
stockholder by the weighted-average number of common shares outstanding
for the period. Diluted net income per share (Diluted EPS) reflects the
potential dilution that could occur if stock options or other contracts
to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the Company. The assumed exercise of 50,000 common stock options and
1,656,000 public warrants for the three and six months ended September
30, 2001 were not utilized since the effect was antidilutive; however,
those common stock options and public warrants outstanding may dilute
future earnings per share.

NOTE 9 - SEGMENTS

The Company operates in one business segment. Sales during the three
months and six months September 30, 2001, were all generated in the
United States.

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

FORWARD-LOOKING STATEMENTS

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

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

GENERAL

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

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

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

We had a net profit before estimated income tax of $2,304,967 for the
six month period ended September 30, 2001. Our working capital as of September
30, 2001, was approximately $10,258,569.

RESULTS OF OPERATIONS

REVENUES

Revenues for the three months ended September 30, 2001 (the "second
quarter") were $15,749,241, an increase of 33% over the second quarter of fiscal
2001. Revenues for the six months ended September 30, 2001 were $21,272,851, an
increase of 19% over the first six months of fiscal 2001. The revenue growth was
driven by the addition of new products to the Company's core product line.

GROSS PROFIT

Gross profit for the three month period ended September 30, 2001 was
$5,310,267 or 34% of sales compared with $3,305,081 or 28% of sales for the
second quarter of the prior year. Gross profit for the six months ended
September 30, 2001 and 2000 were $7,171,322, or 33.7% of revenues and
$4,823,828, or 27% of revenues, respectively. This favorable increase in the
Company's gross profit margin is due to increased purchasing efficiencies and to
the increased sale of music products which have higher profit margins than some
of our electronic products. It is also due to the elimination of manufacturers
agency fees which were a part of product cost in prior years and a different mix
of products

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") were $3,069,794
or 20% of total revenues, in the second quarter, up from $1,506,220 or 13% of
total revenues, in the second quarter of the prior year. For the six months
ended September 30, 2001, SG&A were $4,877,849 or 23% of total revenues, up from
$2,546,117 or 14% of total revenues for the six months ended September 30, 2000.
The increase in SG&A expenses is primarily due to costs associated with: (1)
with opening the Company's Hong Kong office, (2) the Company's first advertising
campaign, (3) the amortization of certain guarantee fees and (4) certain
expenses associated with increased sales.

In December 2000, the Company's wholly-owned subsidiary, International
SMC (HK) Ltd. opened a Hong Kong office and incurred SG&A expenses of
approximately $283,182. By opening this office, the Company saves the
manufacturers agency fees which were paid in prior years. The Hong Kong office
has fixed overhead expenses every month, as opposed to per shipment agency fees.
The benefit can be seen in the second quarter and will continue to be seen in
the third quarter when, historically, the Company has the greatest amount of
purchases from the Orient.

For the first time in its history, the Company has embarked on a formal
advertising campaign, which will use print advertising, radio spots,
sponsorships, promotions and other media. The cost of advertising during the
second quarter was approximately $470,000. The Company's SG&A expenses also
increased by $114,316 due to the accelerated amortization of certain deferred
guarantee fees in the first quarter when the loan agreements for which the
guarantees were made were terminated.

Another factor in these increased SG&A expenses was payroll and its
associated expenses which contributed approximately $354,000 in expenses. Other
increases in SG&A expenses were variable expenses which are directly related to
the increase in sales. These variable expenses include royalty expense,
commission expense and warehouse expenses.

DEPRECIATION AND AMORTIZATION EXPENSES

The Company's depreciation and amortization expenses were $148,684 or
.9 % of total revenues in the second quarter, up from $30,449 or .2% in the
second quarter of the prior year. For the six months ended September 30, 2001,
the Company's depreciation and amortization expenses were $215,123, or 1% of
total revenues, up from $59,213, or .3% of total revenues, for the six months
ended September 30, 2000. The increase in depreciation and amortization expenses
can be attributed to the Company's acquisition of new fixed assets during the
last twelve months, which included computers, furniture and other equipment in
all of the Company's locations in Florida, California and Hong Kong. The
amortization expense also includes the amortization of a fee paid to LaSalle
Bank for our line of credit facility.

OTHER INCOME AND EXPENSES

Other income was $90,902 for the second quarter of fiscal 2002 compared
with net expenses of $161,944 for the second quarter of the prior year. Other
income was $11,494 for the six months ended September 30, 2001 compared with net
expenses of $232,529 for the six months ended September 30, 2000. The Company
has begun to generate positive income from these miscellaneous items because it
has had a decrease in factoring fees and interest expense. The Company no longer
has to pay factoring fees because it terminated its factoring agreement in the
first quarter of 2002, when it entered into its credit facility with LaSalle
National Bank. Furthermore, the Company has had limited interest expense during
the first six months because it has made nominal borrowing under its credit
facility with LaSalle. The Company has also begun to generate income from
royalty payments received in Hong Kong for the use of Company owned molds by
other parties.

INCOME BEFORE INCOME TAX EXPENSE

The Company's net income before income taxes increased 42.4% to
$2,331,374 for the second quarter compared with $1,636,917 for the second
quarter of the previous year. The Company's net income before income taxes
increased 12.7% to $2,304,967 for the six month ended September 30, 2001
compared with $2,045,182 for the six months ended September 30, 2000. This
increase in profit is due primarily to the increase in sales.

INCOME TAX EXPENSE

The Company files separate tax returns for the parent and for the Hong
Kong Subsidiary.

During the second quarter of fiscal 2002, the Company showed a loss in
the U.S. parent company, and a profit in International SMC (HK) Ltd., its
wholly-owned Hong Kong subsidiary. As a result of this, the accrual for income
tax included only an estimate for alternative minimum tax. No additional tax is
estimated to be owed and the change in the deferred tax asset was not material.

The Company's Hong Kong subsidiary has applied for a Hong Kong
"offshore claim" income tax exemption based on the locality of the profits of
the Hong Kong subsidiary. Management believes that since the source of all
profits of the Hong Kong subsidiary are from customers outside of Hong Kong it
is likely the exemption will be approved. Accordingly, no provision for income
taxes on the profits of the Hong Kong subsidiary have been provided in the
accompanying consolidated financial statements.

In the event the exemption is not approved, the Hong Kong subsidiary
profits will be taxed at a flat rate of 16% resulting in an estimated income tax
expense for the six months ended September 30, 2001 of approximately $568,000.

NET INCOME

As a result of the foregoing, the Company's net income increased 86.3%
to $2,325,374 for the second quarter compared with $1,248,069 for the second
quarter of the prior year. The Company's net income increased 38.4% to
$2,292,967 for the six months ended September 30, 2001 compared with $1,656,334
for the six months ended September 30, 2000.

SEASONALLY AND QUARTERLY RESULTS

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

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

FINANCIAL CONDITION AND LIQUIDITY

At September 30, 2001, the Company had current assets of $20,996,314
and total assets of $22,501,586 compared to current assets of $9,023,749 and
total assets of $10,509,682 at March 31, 2001. This increase in current assets
and total assets is primarily due to the increase in accounts receivable for
sales in the month of September, as well as an increase in inventory for future
shipments.

Current liabilities increased to $10,737,745 as of September 30, 2001,
compared to $1,591,021 at March 31, 2001. This increase in current liabilities
is because of increased accounts payable and increased purchases of electronic
recording equipment from a related party in the month of September. The use of
the credit line was primarily to purchase inventory. Accounts payable increased
to $3,691,522 as of September 30, 2001 from $821,684 as of March 31, 2001,

primarily as a consequence of the Company's increased expenditures to finance
its sales efforts.

The Company's stockholders' equity increased from $8,918,661 as of
March 31, 2001, to $11,763,841 as of September 30, 2001 due to the exercise of
warrants, the write off of deferred guarantee fees and the current quarter net
income.

Cash flows used for operating activities were $301,528 during the six
months ended September 30, 2001. This amount was primarily the result of
increases in accounts receivable, inventory, accounts payable and accrued
expenses. These increases are a direct result of the increased volume of sales
for the period.

Cash provided by investing activities during this same period was
$757,824 resulting primarily from receipt of $933,407 previously invested with
the Company's factor. Other factors included in this increase included $117,425
received from payments from our officers . Cash used for investing activities
consisted of property and equipment in the amount of $101,973 and a $256,008
deposit placed for a credit line.

Cash flows provided by financing activities were $950,251 during the
six month period ended September 30, 2001. This consisted of proceeds from the
exercise of warrants and options and the net amount of borrowing on the line of
credit at LaSalle Bank.

CAPITAL RESOURCES

The Company has obtained significant financing for continuing
operations and growth. In April 2001, the Company entered into a credit facility
with LaSalle Business Credit, Inc., which replaced the Company's pre-existing
financing arrangements with Main Factors, Inc. and EPK Financial. The Company
also has a credit facility with Belgian Bank, which is not currently in use and
the terms of which are being renegotiated.

LaSalle Bank

The Company entered into a new credit facility with LaSalle Business
Credit, Inc. (the "Lender" or "LaSalle") in April 2001. Under this credit
facility, the Lender will advance up to 75% of the Company's eligible accounts
receivable, plus up to 40% of eligible inventory, plus up to 40% of commercial
letters of credit issued/guaranteed by the Lender minus reserves as set out in
the loan documents.

The agreement is subject to loan limits from zero to $10,000,000
depending on the time of the year, as stipulated in the loan documents.

The loan of funds under this agreement bears interest at the lender's
prime rate plus .5%. There is also and annual fee of 1% of the loan maximum, or
$100,000.

The term of the agreement runs through April 26, 2004 and is
automatically renewable for one-year terms thereafter. The facility contains a
covenant on minimum tangible net worth that the Company must maintain. The loan
contains a 90 days repayment on demand in the event of default, and allows for a
clean up period every 12 months where the loan amount must go to zero for a
period of time. The loan is secured by a first lien on all present and future
assets of the Company, except certain tooling located in China.

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

The Company has no material commitments for capital expenditures. The
Company knows of no material trends, favorable or unfavorable, in the Company's
capital resources. The Company has no additional outstanding credit lines or
credit commitments in place and has no additional current need for financial
credit. In next few months, the Company may obtain additional credit facilities
for its Hong Kong subsidiary, but this will not have a significant impact on its
liquidity.

Belgian Bank

Effective February 14, 2000, the Company, through its Hong Kong
subsidiary, obtained a credit facility of $500,000 (US) from Belgian Bank, Hong
Kong, a subsidiary of Generale Bank, Belgium. This facility is a revolving line
based upon drawing down a maximum of 15% of the value of export letters of
credit held by Belgian Bank. There is no maturity date except that Belgian Bank
reserves the right to revise the terms and conditions at the Bank's discretion.

The cost of this credit facility is the U.S. Dollar prime rate plus
1.25%. Repayment of principal plus interest shall be made upon negotiation of
the export letters of credit, but not later than ninety (90) days after the
advance. This credit facility is not currently in use and the terms are being
renegotiated.

RISK FACTORS

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

Factors That May Affect Future Results and Market Price of Stock

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

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

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

As a percentage of total revenues, our net sales to our five largest
customers during the six months ended September 30, 2001 and 2000, were
approximately 94% and 76% respectively. During fiscal year 2002, we further
intend to broaden our base of customers. Although we have long-established
relationships with many of our customers, we do not have long-term contractual
arrangements with any of them. A decrease in business from any of our major
customers could have a material adverse effect on our results of operations and
financial condition.

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

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

deterioration in the financial condition of our major customers could have a
material adverse effect on our future profitability.

We are subject to the risks of doing business abroad

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

During fiscal 2001 and 2000, suppliers in the People's Republic of
China ("China") accounted for in excess of 94% and 88%, respectively of our
total product purchases, including virtually all of our hardware purchases. The
Company expects purchasing for fiscal 2002 to fall within the above range as
well.

In November 2001, the People's Republic of China was admitted to the
World Trade Organization ("WTO"), which should help facilitate our business
operations in China. However, if the People's Republic of China's membership in
the WTO is revoked, restricted or suspended in any way, our cost of goods
purchased from Chinese vendors is likely to increase. A resultant change in
suppliers would likely have an adverse effect on our operations and possibly,
earnings, although management believes such adversity would be short-term as a
result of its ability to find alternative suppliers. We continue to closely
monitor the situation and have determined that production capabilities in
countries outside China, which have Most Favored Nation status or membership in
the WTO, and therefore, have favorable duty rates would meet our production
needs.

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

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

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

We have experienced, and will experience in the future, significant
fluctuations in sales and operating results from quarter to quarter. This is due
largely to the fact that a significant portion of our business is derived from a
limited number of relatively large customer orders, the timing of which cannot
be predicted. Furthermore, as is typical in the karaoke industry, the quarters
ended September 30 and December 31 will include increased revenues from sales
made during the holiday season. Additional factors that can cause our sales and
operating results to vary significantly from period to period include, among
others, the mix of products, fluctuating market demand, price competition, new
product introductions by competitors, fluctuations in foreign currency exchange
rates, disruptions in delivery of components, political instability, general
economic conditions, and the other considerations described in this section
entitled "Risk Factors."

Accordingly, period-to-period comparisons may not necessarily be
meaningful and should not be relied on as indicative of future performance.
Historically, the first and fourth quarters of our fiscal year have been the
least profitable quarter and the second and third have been the most profitable.

Our proprietary technology may not be sufficiently protected

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

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

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

We may be infringing upon the copyrights of third parties

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

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

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

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

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

Our success depends to a significant degree upon the continued
contributions of our executive officers, both individually and as a group.
Although we have entered into employment contracts with Edward Steele, our Chief
Executive Officer and John Klecha, our President, Chief Operating Officer, Chief
Financial Officer, Treasurer and Secretary, and the loss of the services of
either of these individuals could prevent us from executing our business
strategy.

Your investment may be diluted

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

Our ability to manage growth could hurt our business

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

Risks Associated with our Capital Structure

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

As of September 30 2001, there were 4,747,620 shares of our common
stock outstanding,. We have filed two registration statements to register an
aggregate of 3,194,823 shares of our common stock ( a registration statement on
Form S-3 to register the resale of 1,965,323 shares or our common stock and a
registration statement on Form S-8 to register the sale of 1,229,500 shares
underlying options granted under our 1994 Stock Option Plan). We also intend to
file a registration statement on Form S-8 to register 1,300,000 shares of our
common stock underlying options granted under our Year 2001 Stock Option Plan.
The market price of our common stock could drop due to the sale of large number
of shares of our common stock, such as the shares sold pursuant to the
registration statements or under Rule 144, or the perception that these sales
could occur.

Adverse Effect on Stock Price from Future Issuances of Additional Shares

Our Certificate of Incorporation authorizes the issuance of 18,900,000
million shares of common stock. As of September 30, 2001, we had 4,747,620
shares of common stock issued and outstanding and an aggregate of 1,308,900
outstanding options and warrants. As such, our Board of Directors has the power,
without stockholder approval, to issue up to 12,843,488 shares of common stock.

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

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

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

We are also subject to certain provisions of Delaware law that could
delay, deter or prevent us from entering into an acquisition, including the
Delaware General Corporation Law, which prohibits a Delaware corporation from
engaging in a business combination with an interested stockholder unless
specific conditions are met. The existence of these provisions could limit the
price that investors are willing to pay in the future for shares of our common
stock and may deprive you of an opportunity to sell your shares at a premium
over prevailing prices.

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Item 2. CHANGES IN SECURITIES

(a) Not Applicable.

(b) Not Applicable.

(c) During the three month period ended September 30, 2001, six
employees exercised stock options issued under our 1994 Amended and Restated
Management Stock Option Plan. The employees exercised options to acquire an
aggregate of 184,800 shares of our common stock. The names of the option
holders, the dates of exercise the number of shares purchased, the exercise
price and the proceeds received by the Company are listed below.

Date of No. of Exercise
Name Exercise Shares Price Proceeds
---------- ----------- --------- ---------- -----------
Terry Phillips 7/11/01 1,500 $ .43 $ 645
April Green 7/11/01 100 $1.66 $ 166
Brian Cino 7/15//01 800 $ .43 $ 344
April Green 7/11/01 200 $1.66 $ 332
John Steele 7/24/01 10,000 $ .43 $16,600
Josef Bauer 8/16/01 10,000 $3.06 $30,600
April Green 8/16/01 200 $1.66 $ 332
Edward Steele 9/28/01 175,000 $ .43 $75,250
Edward Steele 9/28/01 5,000 $3.06 $15,300

Each of these employees paid for the shares with cash. Each of the employees
exercised their options in reliance upon Section 4(2) of the Securities Act of
1933, because each of them was knowledgeable, sophisticated and had access to
comprehensive information about the Company. The shares issued to our employees
were registered under the Securities Act on a registration statement on Form
S-8. As such, no restrictive legends were placed on the shares, except a control
legend was placed on the shares that were issued to Mr. Bauer and Mr. Edward
Steele.

During the three month period ended September 30, 2001, three warrant
holders exercised their warrants to acquire an aggregate of 94,000 shares of our
common stock. The names of the warrant holders, the dates of exercise the number
of shares purchased, the exercise price and the proceeds received by the Company
are listed below.
Date of No. of Exercise
Name Exercise Shares Price Proceeds
---------- ----------- --------- ---------- ----------
Itamar Zac Jones 7/15/01 4,000 $ 2.00 $ 8,000
Josef Bauer 8/16/01 10,000 $ 2.00 $20,000
Josef Bauer 8/16/01 25,000 $ 3.25 $81,250
Josef Bauer 8/16/01 50,000 $ 1.00 $50,000
Maureen LaRoche 8/16/01 5,000 $ 3.25 $16,250

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 the Company. The

Company placed legends on the certificates stating that the securities were not
registered under the Securities Act and set forth the restrictions on their
transferability and sale. We have registered these shares for resale on a
registration statement on Form S-3.

On August 15, 2001, the Company issued an aggregate of 50,000 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 10,000 options: Eddie Steele, John Klecha, Josef Bauer, Howard Moore
and Robert Weinberg . The exercise price of the options is $6.35 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 the Company.

(d) Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

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

On August 16, 2001, the Company held its Annual Meeting of
Stockholders. The stockholders of record at July 12, 2001 were provided with a
Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934
as filed July 10, 2001. This Proxy statement detailed four proposals which were
brought to vote at the August 16 meeting. The outcome of these proposals as well
as details of each vote follows.

Proposal 1 - Election of Directors. The following five directors were elected to
serve until the next Annual Meeting of Shareholders and until their successors
shall be elected and qualified:

Broker
For Against Withheld Abstentions Non-Votes
--- ------- -------- ----------- ----------

Edward Steele 3,803,510 0 3,070 0 552,540
John Klecha 3,803,510 0 3,070 0 552,540
Josef Bauer 3,803,510 0 3,004 0 552,606
Howard Moore 3,803,510 0 3,004 0 552,606
Robert Weinberg 3,803,510 0 3,004 0 552,606

Proposal 2 - To approve the year 2001 Stock Option Plan:

Broker
For Against Withheld Abstentions Non-Votes
--- ------- -------- ----------- ----------

2,414,541 92,549 3,490 848,192

Proposal 3 - To approve the Company's Cash Bonus Performance Plan:

Broker
For Against Withheld Abstentions Non-Votes
--- ------- -------- ----------- ----------

2,296,275 210,279 0 4,026 961,992

Proposal 4 - To ratify the selection of Salberg & Company, P.A., as the
Company's independent certified public accountants for the fiscal year end March
31, 2002:

Broker
For Against Withheld Abstentions Non-Votes
--- ------- -------- ----------- ----------

3,813,010 1,290 0 2,280 542,540

Item 5. OTHER INFORMATION

The Company's wholly-owned subsidiary, International SMC (HK) Ltd. sold
600,000 shares or 60% of the issued and outstanding shares of Toy Concepts
International Limited, a Hong Kong company, to Kingsky Technology Limited, a
Hong Kong company, effective as of September 12, 2001. The sale was not a
material disposition, and did not require that the Company file a Form 8-K. The
sales price for the Toy Concept's shares was $120,003, with $30,000 received on
September 30, 2001 and the balance of the purchase price being paid in full by
December 30, 2001. Over the past year, the Company had advanced an aggregate of
approximately $200,000 to Toy Concepts, which it has agreed to repay, along with
accrued interest, pursuant to a payment schedule ending on June 30, 2002.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

2.1 Stock Purchase Agreement dated September 11, 2001 between
International SMC (HK) Limited, as the vendor, and Kingsky Technology Limited,
as the purchaser.

(b) Reports on Form 8-K

The Company did not file any reports on Form 8-K in the three months
ended September 30, 2001.

SIGNATURES

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

THE SINGING MACHINE COMPANY, INC.

Dated: November 13, 2001 By: /s/ John F. Klecha
-------------------------------------------
John F. Klecha
President, Chief Financial Officer,
Chief Operating Officer, Treasurer and
Secretary
(Principal Financial and Accounting Officer)