##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission File Number: 0-24091
 Tweeter Home Entertainment Group, Inc.
  Delaware
(State or other jurisdiction of incorporation or organization)
    
    04-3417513
(I.R.S. Employer Identification No.)
 40 Pequot Way
Canton, MA 02021
 781-830-3000
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ
  TITLE OF CLASS
Common Stock, $0.01 par value
    
    OUTSTANDING AT May 5, 2006
25,457,464




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##### Table of Contents



TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of March 31, 2006, September 30, 2005 and
March 31, 2005
    
    
    2Condensed Consolidated Statements of Operations for the Three and Six Months Ended
March 31, 2006 and 2005
    
    
    3Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31,
2006 and 2005
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    18Item 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3. Defaults upon Senior Securities
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19SIGNATURESEXHIBIT INDEXEX-31.1 Certification of Chief Executive Officer and acting Chief Financial Officer pursuant to Section 302 of Sabanes-Oxley ActEX-32.1 Certification of Chief Executive Officer and acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements.
 TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 March 31,
    
    
    September 30,
    
    
    March 31,2006
    
    
    2005
    
    
    2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    4,373,505
    
    
    $
    1,309,871
    
    
    $
    1,368,569Accounts receivable, net of allowance
for doubtful accounts of $1,564,543,
$1,400,172 and $681,874, respectively
    
    
    26,491,100
    
    
    
    28,189,414
    
    
    
    23,940,644Inventory
    
    
    110,955,560
    
    
    
    111,506,056
    
    
    
    108,733,209Refundable income taxes
    
    
    8,896,841
    
    
    
    9,006,740
    
    
    
    10,366,321Prepaid expenses and other current assets
    
    
    6,999,724
    
    
    
    8,189,625
    
    
    
    6,529,864Total current assets
    
    
    157,716,730
    
    
    
    158,201,706
    
    
    
    150,938,607Property and equipment, net
    
    
    101,606,848
    
    
    
    115,306,933
    
    
    
    128,144,932Long-term investments
    
    
    2,714,578
    
    
    
    2,220,353
    
    
    
    3,372,071Intangible assets, net
    
    
    226,666
    
    
    
    566,667
    
    
    
    906,667Goodwill
    
    
    5,250,868
    
    
    
    5,250,868
    
    
    
    4,885,133Other assets, net
    
    
    1,968,456
    
    
    
    2,470,599
    
    
    
    1,820,676Total Assets
    
    $
    269,484,146
    
    
    $
    284,017,126
    
    
    $
    290,068,086LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current portion of long-term debt
    
    $
    10,129,461
    
    
    $
    9,278,849
    
    
    
    13,989,526Current portion of deferred consideration
    
    
    476,533
    
    
    
    484,866
    
    
    
    493,199Accounts payable
    
    
    27,066,332
    
    
    
    34,885,458
    
    
    
    28,134,140Accrued expenses
    
    
    44,069,462
    
    
    
    48,775,158
    
    
    
    30,756,574Customer deposits
    
    
    19,987,003
    
    
    
    25,623,763
    
    
    
    19,949,805Deferred warranty
    
    
    
    
    
    
    
    
    
    
    46,812Total current liabilities
    
    
    101,728,791
    
    
    
    119,048,094
    
    
    
    93,370,056Long-term debt
    
    
    43,525,989
    
    
    
    62,617,263
    
    
    
    43,816,413Rent related accruals
    
    
    21,278,902
    
    
    
    16,939,556
    
    
    
    15,483,883Deferred consideration
    
    
    2,303,113
    
    
    
    2,545,547
    
    
    
    2,787,980Commitments and ContingenciesStockholders Equity:Preferred stock, $.01 par value,
10,000,000 shares authorized, no shares
issued
    
    
    
    
    
    
    
    
    
    
    Common stock, $.01 par value, 60,000,000
shares authorized; 26,749,952,
26,249,725 and 26,243,693 shares issued,
respectively
    
    
    267,500
    
    
    
    262,497
    
    
    
    262,437Additional paid in capital
    
    
    307,756,160
    
    
    
    304,663,875
    
    
    
    304,533,247Unearned equity compensation
    
    
    
    
    
    
    
    
    
    
    (1,410
    )Accumulated other comprehensive income
    
    
    131,792
    
    
    
    112,329
    
    
    
    100,556Accumulated deficit
    
    
    (205,843,184
    )
    
    
    (220,488,691
    )
    
    
    (168,555,005
    )Treasury stock, 1,551,373, 1,577,698 and
1,644,452 shares, at cost, respectively
    
    
    (1,664,917
    )
    
    
    (1,683,344
    )
    
    
    (1,730,071
    )Total stockholders equity
    
    
    100,647,351
    
    
    
    82,866,666
    
    
    
    134,609,754Total Liabilities and Stockholders Equity
    
    $
    269,484,146
    
    
    $
    284,017,126
    
    
    $
    290,068,086
  2




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TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Total revenue
    
    $
    187,235,170
    
    
    $
    182,039,473
    
    
    $
    453,754,644
    
    
    $
    440,262,357Cost of sales
    
    
    (106,643,359
    )
    
    
    (107,760,802
    )
    
    
    (263,925,840
    )
    
    
    (262,224,038
    )Gross profit
    
    
    80,591,811
    
    
    
    74,278,671
    
    
    
    189,828,804
    
    
    
    178,038,319Selling, general and administrative expenses
    
    
    79,147,594
    
    
    
    81,259,825
    
    
    
    172,807,802
    
    
    
    175,372,995Amortization of intangibles
    
    
    170,000
    
    
    
    170,000
    
    
    
    340,000
    
    
    
    340,000Restructuring charges
    
    
    400,287
    
    
    
    
    
    
    
    483,530
    
    
    
    Income (loss) from continuing operations
    
    
    873,930
    
    
    
    (7,151,154
    )
    
    
    16,197,472
    
    
    
    2,325,324Interest expense
    
    
    (1,112,634
    )
    
    
    (684,432
    )
    
    
    (2,499,625
    )
    
    
    (1,228,232
    )Interest income
    
    
    207
    
    
    
    607
    
    
    
    243
    
    
    
    14,041Income (loss) from continuing operations
before income taxes
    
    
    (238,497
    )
    
    
    (7,834,979
    )
    
    
    13,698,090
    
    
    
    1,111,133Income tax provision
    
    
    10,000
    
    
    
    18,342,093
    
    
    
    110,000
    
    
    
    21,920,538Income (loss) from continuing operations
before income from equity investments
    
    
    (248,497
    )
    
    
    (26,177,072
    )
    
    
    13,588,090
    
    
    
    (20,809,405
    )Income from equity investments
    
    
    490,384
    
    
    
    22,234
    
    
    
    1,186,031
    
    
    
    290,945Net income (loss) from continuing operations
    
    
    241,887
    
    
    
    (26,154,838
    )
    
    
    14,774,121
    
    
    
    (20,518,460
    )Discontinued operations:Pre-tax income (loss) from
discontinued operations
    
    
    90,239
    
    
    
    (742,769
    )
    
    
    (128,614
    )
    
    
    (1,900,493
    )Income tax provision
    
    
    
    
    
    
    463,090
    
    
    
    
    
    
    
    Net income (loss) from discontinued
operations
    
    
    90,239
    
    
    
    (1,205,859
    )
    
    
    (128,614
    )
    
    
    (1,900,493
    )Net income (loss)
    
    $
    332,126
    
    
    $
    (27,360,697
    )
    
    $
    14,645,507
    
    
    $
    (22,418,953
    )Basic earnings (loss) per share:Income (loss) from continuing
operations
    
    $
    0.01
    
    
    $
    (1.06
    )
    
    $
    0.60
    
    
    $
    (0.83
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.05
    )
    
    
    (0.01
    )
    
    
    (0.08
    )Basic net income (loss) per share
    
    $
    0.01
    
    
    $
    (1.11
    )
    
    $
    0.59
    
    
    $
    (0.91
    )Diluted earnings (loss) per share:Income (loss) from continuing
operations
    
    $
    0.01
    
    
    $
    (1.06
    )
    
    $
    0.59
    
    
    $
    (0.83
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.05
    )
    
    
    (0.01
    )
    
    
    (0.08
    )Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    (1.11
    )
    
    $
    0.58
    
    
    $
    (0.91
    )Weighted average shares outstanding:Basic
    
    
    25,038,614
    
    
    
    24,561,204
    
    
    
    24,882,751
    
    
    
    24,508,041Diluted
    
    
    25,602,697
    
    
    
    24,561,204
    
    
    
    25,191,800
    
    
    
    24,508,041
  3




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TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months EndedMarch 31,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    14,645,507
    
    
    $
    (22,418,953
    )Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:Depreciation and amortization
    
    
    12,451,908
    
    
    
    12,281,200Accretion expense
    
    
    119,662
    
    
    
    Stock-based compensation  vendor
    
    
    191,000
    
    
    
    Stock-based compensation  employee
    
    
    370,431
    
    
    
    74,317Income from equity investment
    
    
    (1,186,031
    )
    
    
    (484,908
    )Distributions from equity investment
    
    
    416,559
    
    
    
    Loss on disposal of property and equipment
    
    
    472,977
    
    
    
    29,890Allowance for doubtful accounts
    
    
    349,934
    
    
    
    232,658Tax benefit from options exercised
    
    
    
    
    
    
    43,568Deferred income tax provision
    
    
    
    
    
    
    22,282,497Amortization of deferred gain on sale leaseback
    
    
    (100,299
    )
    
    
    (22,421
    )Recognition of deferred lease incentives
    
    
    (315,122
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    1,348,380
    
    
    
    (6,377,380
    )Inventory
    
    
    407,162
    
    
    
    (2,452,259
    )Prepaid expenses and other assets
    
    
    1,995,765
    
    
    
    (454,573
    )Accounts payable and accrued expenses
    
    
    (11,475,281
    )
    
    
    (11,135,382
    )Customer deposits
    
    
    (5,636,760
    )
    
    
    (1,944,096
    )Deferred warranty
    
    
    
    
    
    
    (46,813
    )Rent related accruals
    
    
    124,823
    
    
    
    338,574Deferred consideration
    
    
    (376,043
    )
    
    
    (267,433
    )Net cash provided by (used in) operating activities
    
    
    13,804,572
    
    
    
    (10,321,514
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (8,577,711
    )
    
    
    (14,111,185
    )Proceeds from sale-leaseback transaction, net of fees
    
    
    13,521,951
    
    
    
    Proceeds from sale of property and equipment
    
    
    1,200
    
    
    
    3,174,045Purchase of equity investments
    
    
    
    
    
    
    (300,000
    )Net cash provided by (used in) investing activities
    
    
    4,945,440
    
    
    
    (11,237,140
    )CASH FLOWS FROM FINANCING ACTIVITIES:Increase in amount due to bank
    
    
    851,843
    
    
    
    10,815,418Net (repayments) proceeds of long-term debt
    
    
    (19,092,505
    )
    
    
    8,804,317Proceeds from options exercised
    
    
    2,408,646
    
    
    
    336,534Proceeds from employee stock purchase plan
    
    
    145,638
    
    
    
    169,949Net cash (used in) provided by financing activities
    
    
    (15,686,378
    )
    
    
    20,126,218INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    3,063,634
    
    
    
    (1,432,436
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,309,871
    
    
    
    2,801,005CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    4,373,505
    
    
    $
    1,368,569
  4




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##### Table of Contents



TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
   Accounting for the
Impairment or Disposal of Long-Lived Assets
 2. Summary of Selected Accounting Policies
 Inventory-
 Long-Term Investments
  Revenue Recognition-
    5




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##### Table of Contents



3. Stock Based Compensation
 Stock-based compensation  Share-Based
Payment Accounting for
Stock-Based Compensation Accounting for
Stock Issued to Employees
    Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services
   6




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Three Months Ended
    
    Six Months EndedMarch 31, 2006
    
    March 31, 2006Stock
    
    
    
    
    
    StockOption
    
    
    
    
    
    OptionPlan
    
    ESPP
    
    Plan
    
    ESPPRisk-free interest rate
    
    
    4.4
    %
    
    
    4.0
    %
    
    
    4.2
    %
    
    
    3.7
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected life of option grants and ESPP shares (years)
    
    
    5.17
    
    
    
    0.25
    
    
    
    5.17
    
    
    
    0.25Expected volatility of underlying stock
    
    
    80.2
    %
    
    
    100.4
    %
    
    
    77.9
    %
    
    
    93.5
    %Expected forfeitures as percentage of total option
grants and ESPP shares
    
    
    5.7
    %
    
    
    0.0
    %
    
    
    5.7
    %
    
    
    0.0
    %
   Three Months Ended
    
    
    Six Months EndedMarch 31, 2005
    
    
    March 31, 2005Net loss as reported
    
    $
    (27,360,697
    )
    
    $
    (22,418,953
    )Add:Total stock-based employee
compensation expense
recorded, net of related
tax effects
    
    
    30,573
    
    
    
    74,317Deduct:Total stock-based employee
compensation expense
determined under fair value
based method for all
awards, net of related tax
effects
    
    
    (1,147,318
    )
    
    
    (2,329,805
    )Pro forma net loss
    
    $
    (28,477,442
    )
    
    $
    (24,674,441
    )Loss per shareBasic and diluted  as reported
    
    $
    (1.11
    )
    
    $
    (0.91
    )Basic and diluted  pro forma
    
    $
    (1.16
    )
    
    $
    (1.01
    )
  7




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Three Months Ended
    
    Six Months EndedMarch 31, 2005
    
    March 31, 2005Risk-free interest rate
    
    
    
    
    
    
    3.4
    %Expected dividend yield
    
    
    
    
    
    
    0.0
    %Expected life of option grants (years)
    
    
    
    
    
    
    10.00Expected volatility of underlying stock
    
    
    
    
    
    
    83.2
    %Expected forfeitures as percentage of
total grants
    
    
    
    
    
    
    7.0
    %
  Stock Option Activity
  Weighted-AverageNumber of
    
    
    ExerciseOptions
    
    
    PriceOutstanding at December 31, 2005
    
    
    3,942,686
    
    
    $
    6.92Granted
    
    
    44,094
    
    
    
    6.80Exercised
    
    
    (364,864
    )
    
    
    5.64Forfeited or expired
    
    
    (137,732
    )
    
    
    10.02Outstanding at March 31, 2006
    
    
    3,484,184
    
    
    $
    6.93Exercisable at March 31, 2006
    
    
    2,821,959
    
    
    $
    7.65
  Weighted-AverageNumber of
    
    
    ExerciseOptions
    
    
    PriceOutstanding at September 30, 2005
    
    
    3,601,505
    
    
    $
    7.21Granted
    
    
    728,159
    
    
    
    3.81Exercised
    
    
    (460,227
    )
    
    
    5.23Forfeited or expired
    
    
    (385,253
    )
    
    
    5.67Outstanding at March 31, 2006
    
    
    3,484,184
    
    
    $
    6.93Exercisable at March 31, 2006
    
    
    2,821,959
    
    
    $
    7.65
 8




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Options Outstanding
    
    
    Options ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-Weighted-
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicRange of Exercise Prices
    
    Shares
    
    
    Price
    
    
    Term (Years)
    
    
    Value
    
    
    Shares
    
    
    Price
    
    
    Term (Years)
    
    
    Value$ 2.70 - $ 4.38
    
    
    651,122
    
    
    $
    3.59
    
    
    
    9.5
    
    
    $
    2,764,722
    
    
    
    42,536
    
    
    $
    3.54
    
    
    
    9.3
    
    
    $
    182,742$ 4.70 - $ 5.64
    
    
    995,535
    
    
    
    5.43
    
    
    
    6.5
    
    
    
    2,395,129
    
    
    
    985,990
    
    
    
    5.44
    
    
    
    6.4
    
    
    
    2,369,739$ 5.90 - $ 7.18
    
    
    685,209
    
    
    
    6.04
    
    
    
    6.6
    
    
    
    1,230,935
    
    
    
    643,209
    
    
    
    6.00
    
    
    
    6.4
    
    
    
    1,184,475$ 7.27 - $ 8.05
    
    
    757,313
    
    
    
    7.84
    
    
    
    5.1
    
    
    
    101,837
    
    
    
    755,219
    
    
    
    7.84
    
    
    
    5.1
    
    
    
    101,837$12.00-$32.13
    
    
    395,005
    
    
    $
    15.95
    
    
    
    1.2
    
    
    $
    
    
    
    
    395,005
    
    
    $
    15.95
    
    
    
    1.2
    
    
    $
    
        Weighted-AverageNumber of
    
    
    ExerciseOptions
    
    
    PriceNon-vested at December 31, 2005
    
    
    655,815
    
    
    $
    3.62Granted
    
    
    44,094
    
    
    
    6.80Vested
    
    
    
    
    
    
    Forfeited
    
    
    (37,684
    )
    
    
    3.60Non-vested at March 31, 2006
    
    
    662,225
    
    
    $
    3.83
  Weighted-AverageNumber of
    
    
    ExerciseOptions
    
    
    PriceNon-vested at September 30, 2005
    
    
    1,750
    
    
    $
    2.70Granted
    
    
    698,159
    
    
    
    3.82Vested
    
    
    
    
    
    
    Forfeited
    
    
    (37,684
    )
    
    
    3.60Non-vested at March 31, 2006
    
    
    662,225
    
    
    $
    3.83
 9




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##### Table of Contents



4. Restructuring Charges
   Accounting for
Costs Associated with Exit or Disposal Activities
  LeaseTerminationand OtherRelated
    
    
    ProfessionalCharges
    
    
    Fees
    
    
    Severance
    
    
    TotalBalance as of September 30, 2005
    
    $
    6,394,552
    
    
    $
    928,564
    
    
    $
    8,992
    
    
    $
    7,332,108Change in estimate  revised
assumptions
    
    
    483,530
    
    
    
    
    
    
    
    
    
    
    $
    483,530Payments
    
    
    (2,431,359
    )
    
    
    (111,597
    )
    
    
    (8,992
    )
    
    
    (2,551,948
    )Balance as of March 31, 2006
    
    $
    4,446,723
    
    
    $
    816,967
    
    
    $
    
    
    
    $
    5,263,690
  5. Discontinued Operations
   10




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##### Table of Contents



LeaseTerminationand OtherRelated
    
    
    ProfessionalCharges
    
    
    Fees
    
    
    Severance
    
    
    TotalBalance as of September 30, 2005
    
    $
    1,565,310
    
    
    $
    530,885
    
    
    $
    6,653
    
    
    $
    2,102,848Change in estimate  revised assumptions
    
    
    128,614
    
    
    
    
    
    
    
    
    
    
    
    128,614Payments
    
    
    (362,647
    )
    
    
    (126,521
    )
    
    
    (6,653
    )
    
    
    (495,821
    )Balance as of March 31, 2006
    
    $
    1,331,277
    
    
    $
    404,364
    
    
    $
    
    
    
    $
    1,735,641
  6. Income Taxes
 Accounting for Income Taxes
 7. Net Income per Share
   11




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Basic Earnings (Loss) Per Share:Numerator:Net income (loss) from continuing operations
    
    $
    241,887
    
    
    $
    (26,154,838
    )
    
    $
    14,774,121
    
    
    $
    (20,518,460
    )Denominator:Weighted-average shares outstanding
    
    
    25,038,614
    
    
    
    24,561,204
    
    
    
    24,882,751
    
    
    
    24,508,041Basic net income (loss) per share
    
    $
    0.01
    
    
    $
    (1.06
    )
    
    $
    0.60
    
    
    $
    (0.83
    )Diluted Earnings (Loss) Per Share:Numerator:Net income (loss) from continuing operations
    
    $
    241,887
    
    
    $
    (26,154,838
    )
    
    $
    14,774,121
    
    
    $
    (20,518,460
    )Denominator:Weighted-average shares outstanding
    
    
    25,602,697
    
    
    
    24,561,204
    
    
    
    25,191,800
    
    
    
    24,508,041Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    (1.06
    )
    
    $
    0.59
    
    
    $
    (0.83
    )Anti-dilutive options and warrants not
included in earnings per share calculation
    
    
    2,108,898
    
    
    
    4,553,493
    
    
    
    2,139,898
    
    
    
    4,510,955Exercise price range of anti-dilutive options
and warrantsLow
    
    $
    7.27
    
    
    $
    0.31
    
    
    $
    6.70
    
    
    $
    0.31High
    
    $
    32.13
    
    
    $
    32.13
    
    
    $
    32.13
    
    
    $
    32.13
 8. Related-Party Transactions
     12




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##### Table of Contents



9. Sale-Leaseback Transaction
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 INTRODUCTION
   Accounting for the Impairment or Disposal of
Long-Lived Assets
    13




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##### Table of Contents



RESULTS OF OPERATIONS
 THREE MONTHS ENDED MARCH 31, 2006 AS COMPARED TO THREE MONTHS ENDED MARCH 31, 2005
 Total Revenue 
  Cost of Sales and Gross Profit  ,
 Selling, General and Administrative Expenses 
 Amortization of Intangibles 
 Restructuring Charges 
 14




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##### Table of Contents



Interest Expense 
 Income from Equity Investment 
 Income Taxes  Accounting for Income Taxes
 Discontinued Operations 
 SIX MONTHS ENDED MARCH 31, 2006 AS COMPARED TO SIX MONTHS ENDED MARCH 31, 2005
 Total Revenue 
  Cost of Sales and Gross Profit  ,
 Selling, General and Administrative Expenses 
 15




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##### Table of Contents



Amortization of Intangibles 
 Restructuring Charges 
 Interest Expense 
 Income from Equity Investment 
 Income Taxes  Accounting for Income Taxes
 Discontinued Operations 
 LIQUIDITY AND CAPITAL RESOURCES
   16




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  17




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control over Financial Reporting.
 
 
 
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults upon Senior Securities.
 18




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 Ex. 31.1 Certification of Chief Executive Officer and acting
Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley ActEx. 32.1 Certification of Chief Executive Officer and acting
Chief Financial Officer pursuant to 18 U.S.C. Section 1350
 19




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##### Table of Contents



SIGNATURES
  TWEETER HOME ENTERTAINMENT GROUP, INC.By:
    /s/ Joseph G. McGuireJoseph G. McGuirePresident and Chief Executive Officer and
acting Chief Financial Officer