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Form 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

For the quarterly period ended March 31, 2003

Commission file number: 0-24091



|                                       | 
|-------------------------------------- | 
|Tweeter Home Entertainment Group, Inc.

(Exact name of Registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 04-3417513                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

40 PEQUOT WAY
CANTON, MA 02021(Address of principal executive offices including zip code)

781-830-3000(Registrants telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all documents
and reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes[ ] No [X]

Indicate the number of shares outstanding of each of the registrants
classes of common stock, as of the latest practicable date.

|                             |  |                             |            | 
|---------------------------- |  | --------------------------- | ---------- | 
|TITLE OF CLASS               |  | OUTSTANDING AT MAY 12, 2003
|                             |  |                            
|Common Stock, $.01 par value |  |                             | 23,893,915 | 



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TABLE OF CONTENTS



|                                                 |                                                                                               |                                                                |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------- |  |  |  |  |  | 
|                                                 |                                                                                               | Consolidated Balance Sheets                                   
|                                                 |                                                                                               | Consolidated Statements of Income                             
|                                                 |                                                                                               | Consolidated Statements of Cash Flows                         
|                                                 |                                                                                               | NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                 | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                                 | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION                      
|                                                 | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                                                 | ITEM 5. OTHER INFORMATION                                                                    
|                                                 | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                      
|CERTIFICATIONS                                  
|EX-99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
|EX-99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER



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##### Table of Contents



TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES

INDEX

|         |  |                                                                                       |  |                                                                                                     |    |      |   | 
|-------- |  | ------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|         |  |                                                                                       |  |                                                                                                     |    | PAGE
|         |  |                                                                                       |  |                                                                                                     |    |     
|Part I.  |  | FINANCIAL INFORMATION                                                                 |  |                                                                                                     |    |     
|Item 1   |  | Condensed Consolidated Financial Statements (Unaudited)                               |  |                                                                                                     |    |     
|         |  |                                                                                       |  | Consolidated Balance Sheets as of September 30, 2002
and March 31, 2003                             |    |      | 3 | 
|         |  |                                                                                       |  | Consolidated Statements of Income for the Three Months and Six
Months Ended March 31, 2002 and 2003 |    |      | 4 | 
|         |  |                                                                                       |  | Consolidated Statements of Cash Flows for the Six
Months Ended March 31, 2002 and 2003              |    |      | 5 | 
|         |  |                                                                                       |  | Notes to Unaudited Consolidated Financial Statements                                                |    |      | 6 | 
|Item 2   |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations |  |                                                                                                     | 9  |     
|Item 3   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                     | 12 |     
|Item 4   |  | Controls and Procedures                                                               |  |                                                                                                     | 12 |     
|Part II. |  | OTHER INFORMATION                                                                     |  |                                                                                                     |    |     
|Item 4   |  | Submissions of Matters to a vote of Security Holders                                  |  |                                                                                                     | 13 |     
|Item 5   |  | Other Information                                                                     |  |                                                                                                     | 13 |     
|Item 6   |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                     | 13 |     

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Tweeter Home Entertainment Group, Inc. and Subsidiaries
Consolidated Balance Sheets

|                                     |                                                                                                                                             |                           |             |               |             |           |             |              |             | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ----------- | ------------- | ----------- | --------- | ----------- | ------------ | ----------- | 
|                                     |                                                                                                                                             |                           |             | September 30, |             | March 31,
|                                     |                                                                                                                                             |                           |             | 2002          |             | 2003     
|                                     |                                                                                                                                             |                           |             |               |             |          
|                                     |                                                                                                                                             |                           |             |               |             |           |             | (Unaudited) 
|Assets                               |                                                                                                                                             |                           |             |               |             |           |             |             
|                                     | Current Assets:                                                                                                                             |                           |             |               |             |           |             |              |            
|                                     | Cash and cash equivalents                                                                                                                   |                           | $           | 2,282,635     |             |           | $           | 1,748,400    |            
|                                     | Accounts receivable, net of allowance for doubtful accounts of
$1,075,000 at September 30, 2002 and $1,273,000 at March 31, 2003            |                           |             | 23,116,040    |             |           |             | 23,486,677   |            
|                                     | Inventory                                                                                                                                   |                           |             | 143,234,060   |             |           |             | 143,910,846  |            
|                                     | Deferred tax assets                                                                                                                         |                           |             | 3,943,838     |             |           |             | 4,358,294    |            
|                                     | Prepaid expenses and other current assets                                                                                                   |                           |             | 17,084,739    |             |           |             | 14,668,428   |            
|                                     |                                                                                                                                             |                           |             |               |             |           |             |             
|                                     |                                                                                                                                             | Total current assets      |             |               | 189,661,312 |           |             |              | 188,172,645 | 
|                                     | Property and equipment, net                                                                                                                 |                           |             | 134,310,705   |             |           |             | 140,714,065  |            
|                                     | Long-term investments                                                                                                                       |                           |             | 1,103,280     |             |           |             | 1,103,362    |            
|                                     | Deferred tax assets                                                                                                                         |                           |             | 7,273,068     |             |           |             | 7,613,897    |            
|                                     | Intangible assets, net                                                                                                                      |                           |             | 2,606,667     |             |           |             | 2,266,667    |            
|                                     | Other assets, net                                                                                                                           |                           |             | 923,169       |             |           |             | 1,726,454    |            
|                                     |                                                                                                                                             |                           |             |               |             |           |             |             
|                                     |                                                                                                                                             | Total                     |             | $             | 335,878,201 |           |             | $            | 341,597,090 | 
|                                     |                                                                                                                                             |                           |             |               |             |           |             |             
|Liabilities and Stockholders Equity |                                                                                                                                             |                           |             |               |             |           |             |             
|Current Liabilities:                 |                                                                                                                                             |                           |             |               |             |           |             |             
|                                     | Current portion of long-term debt                                                                                                           |                           | $           | 288,745       |             |           | $           | 239,679      |            
|                                     | Amount due to bank                                                                                                                          |                           |             | 4,520,513     |             |           |             | 11,265,450   |            
|                                     | Accounts payable                                                                                                                            |                           |             | 51,550,051    |             |           |             | 32,556,901   |            
|                                     | Accrued expenses                                                                                                                            |                           |             | 27,449,859    |             |           |             | 24,592,795   |            
|                                     | Customer deposits                                                                                                                           |                           |             | 16,259,734    |             |           |             | 16,432,535   |            
|                                     | Deferred warranty                                                                                                                           |                           |             | 301,583       |             |           |             | 301,583      |            
|                                     |                                                                                                                                             |                           |             |               |             |           |             |             
|                                     |                                                                                                                                             | Total current liabilities |             |               | 100,370,485 |           |             |              | 85,388,943  | 
|Long-Term Debt                       |                                                                                                                                             |                           | 50,073,501  |               |             |           | 67,881,544  |             
|Other Long-Term Liabilities:         |                                                                                                                                             |                           |             |               |             |           |             |             
|                                     | Rent related accruals                                                                                                                       |                           |             | 10,338,737    |             |           |             | 10,488,064   |            
|                                     | Deferred warranty                                                                                                                           |                           |             | 484,673       |             |           |             | 209,590      |            
|                                     |                                                                                                                                             |                           |             |               |             |           |             |             
|Total other long-term liabilities    |                                                                                                                                             |                           | 10,823,410  |               |             |           | 10,697,654  |             
|                                     |                                                                                                                                             |                           |             |               |             |           |             |             
|                                     |                                                                                                                                             | Total liabilities         |             |               | 161,267,396 |           |             |              | 163,968,141 | 
|Stockholders Equity                 |                                                                                                                                             |                           |             |               |             |           |             |             
|                                     | Preferred stock, $.01 par value, 10,000,000 shares authorized, no
shares issued                                                             |                           |             |              |             |           |             |             |            
|                                     | Common stock, $.01 par value, 60,000,000 shares authorized;
25,378,308 shares issued at September 30, 2002 and 25,396,586
at March 31, 2003 |                           |             | 253,783       |             |           |             | 253,966      |            
|                                     | Additional paid in capital                                                                                                                  |                           |             | 292,464,945   |             |           |             | 292,707,367  |            
|                                     | Accumulated other comprehensive income                                                                                                      |                           |             | 49,280        |             |           |             | 49,329       |            
|                                     | Accumulated deficit                                                                                                                         |                           |             | (116,305,296  | )           |           |             | (113,561,888 | )          
|                                     |                                                                                                                                             |                           |             |               |             |           |             |             
|                                     |                                                                                                                                             | Total                     |             |               | 176,462,712 |           |             |              | 179,448,774 | 
|                                     | Less treasury stock: 1,818,503 shares at September 30, 2002 and
1,772,671 shares at March 31, 2003, at cost                                 |                           |             | (1,851,907    | )           |           |             | (1,819,825   | )          
|                                     |                                                                                                                                             |                           |             |               |             |           |             |             
|Total stockholders equity           |                                                                                                                                             |                           | 174,610,805 |               |             |           | 177,628,949 |             
|                                     |                                                                                                                                             |                           |             |               |             |           |             |             
|Total                                |                                                                                                                                             | $                         | 335,878,201 |               |             | $         | 341,597,090 |             
|                                     |                                                                                                                                             |                           |             |               |             |           |             |             

See notes to unaudited condensed consolidated financial statements.

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Tweeter Home Entertainment Group, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)

|                                               |         |                                   |              |                    |            |                  |              |            |            |      |              |            |             |   |              |            |             | 
|---------------------------------------------- | ------- | --------------------------------- | ------------ | ------------------ | ---------- | ---------------- | ------------ | ---------- | ---------- | ---- | ------------ | ---------- | ----------- | - | ------------ | ---------- | ----------- | 
|                                               |         |                                   |              | Three Months Ended |            | Six Months Ended
|                                               |         |                                   |              | March 31,          |            | March 31,       
|                                               |         |                                   |              |                    |            |                 
|                                               |         |                                   |              | 2002               |            | 2003             |              | 2002       |            | 2003
|                                               |         |                                   |              |                    |            |                  |              |            |            |     
|Total revenue                                  |         | $                                 | 185,822,422  |                    |            | $                | 181,970,524  |            |            | $    | 437,735,369  |            |             | $ | 431,620,401  |           
|Cost of sales                                  |         |                                   | (119,459,995 | )                  |            |                  | (117,296,324 | )          |            |      | (279,470,570 | )          |             |   | (279,930,389 | )         
|                                               |         |                                   |              |                    |            |                  |              |            |            |      |              |            |             |   |              |           
|                                               |         | Gross Profit                      |              |                    | 66,362,427 |                  |              |            | 64,674,200 |      |              |            | 158,264,799 |   |              |            | 151,690,012 | 
|Selling expenses                               |         |                                   | 51,177,133   |                    |            |                  | 57,286,706   |            |            |      | 109,661,596  |            |             |   | 123,743,800  |           
|Corporate, general and administrative expenses |         |                                   | 9,895,046    |                    |            |                  | 10,481,697   |            |            |      | 19,905,451   |            |             |   | 21,809,811   |           
|Amortization of intangibles                    |         |                                   | 415,635      |                    |            |                  | 170,000      |            |            |      | 790,885      |            |             |   | 340,000      |           
|                                               |         |                                   |              |                    |            |                  |              |            |            |      |              |            |             |   |              |           
|                                               |         | Income (loss) from operations     |              |                    | 4,874,613  |                  |              |            | (3,264,203 | )    |              |            | 27,906,867  |   |              |            | 5,796,401   | 
|Income from joint venture                      |         |                                   |             |                    |            |                  |             |            |            |      | 71,952       |            |             |   |             |           
|Interest expense, net                          |         |                                   | 551,045      |                    |            |                  | 834,238      |            |            |      | 1,149,838    |            |             |   | 1,220,914    |           
|                                               |         |                                   |              |                    |            |                  |              |            |            |      |              |            |             |   |              |           
|                                               |         | Income (loss) before income taxes |              |                    | 4,323,568  |                  |              |            | (4,098,441 | )    |              |            | 26,828,981  |   |              |            | 4,575,487   | 
|Income tax expense (benefit)                   |         |                                   | 1,731,760    |                    |            |                  | (1,637,493   | )          |            |      | 10,733,926   |            |             |   | 1,832,079    |           
|                                               |         |                                   |              |                    |            |                  |              |            |            |      |              |            |             |   |              |           
|NET INCOME (LOSS)                              |         | $                                 | 2,591,808    |                    |            | $                | (2,460,948   | )          |            | $    | 16,095,055   |            |             | $ | 2,743,408    |           
|                                               |         |                                   |              |                    |            |                  |              |            |            |      |              |            |             |   |              |           
|Basic earnings (loss) per share                |         | $                                 | 0.11         |                    |            | $                | (0.10        | )          |            | $    | 0.69         |            |             | $ | 0.12         |           
|                                               |         |                                   |              |                    |            |                  |              |            |            |      |              |            |             |   |              |           
|Diluted earnings (loss) per share              |         | $                                 | 0.11         |                    |            | $                | (0.10        | )          |            | $    | 0.66         |            |             | $ | 0.12         |           
|                                               |         |                                   |              |                    |            |                  |              |            |            |      |              |            |             |   |              |           
|Weighted average shares outstanding:           |         |                                   |              |                    |            |                  |              |            |            |      |              |            |             |   |              |           
|                                               | Basic   |                                   |              | 23,364,781         |            |                  |              | 23,596,396 |            |      |              | 23,190,794 |             |   |              | 23,580,726 |            
|                                               |         |                                   |              |                    |            |                  |              |            |            |      |              |            |             |   |              |           
|                                               | Diluted |                                   |              | 24,371,799         |            |                  |              | 23,596,396 |            |      |              | 24,341,117 |             |   |              | 23,763,801 |            
|                                               |         |                                   |              |                    |            |                  |              |            |            |      |              |            |             |   |              |           

See notes to unaudited condensed consolidated financial statements.

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Tweeter Home Entertainment Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                  |             |             |            |   |             |  
|-------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------------------- | -------------------------------------------------------- | --------- | ---------------- | ----------- | ----------- | ---------- | - | ----------- | -
|                                                   |                                                                               |                                              |                                                                     |                                                          |           | Six Months Ended
|                                                   |                                                                               |                                              |                                                                     |                                                          |           | March 31,       
|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                 
|                                                   |                                                                               |                                              |                                                                     |                                                          |           | 2002             |             | 2003       
|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|CASH FLOWS FROM OPERATING ACTIVITIES:              |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|                                                   | Net income                                                                    |                                              | $                                                                   | 16,095,055                                               |           |                  | $           | 2,743,408   |           
|                                                   | Adjustments to reconcile net income to net cash used by
operating activities: |                                              |                                                                     |                                                          |           |                  |             |             |           
|                                                   |                                                                               | Depreciation and amortization                |                                                                     |                                                          | 8,523,327 |                  |             |             | 10,339,374 |  
|                                                   |                                                                               | Income from joint venture                    |                                                                     |                                                          | (71,952   | )                |             |             |           |  
|                                                   |                                                                               | (Gain) loss on disposal of equipment         |                                                                     |                                                          | (6,950    | )                |             |             | 383,695    |  
|                                                   |                                                                               | Provision for uncollectible accounts         |                                                                     |                                                          | 334,071   |                  |             |             | 62,100     |  
|                                                   |                                                                               | Deferred income tax provision                |                                                                     |                                                          | (566,413  | )                |             |             | (755,285   | )
|                                                   |                                                                               | Changes in operating assets and liabilities: |                                                                     |                                                          |           |                  |             |             |            |  
|                                                   |                                                                               |                                              |                                                                     | Increase in accounts receivable                          |           |                  | (2,395,262  | )           |            |   | (432,737    | )
|                                                   |                                                                               |                                              |                                                                     | Increase in inventory                                    |           |                  | (24,126,513 | )           |            |   | (676,786    | )
|                                                   |                                                                               |                                              |                                                                     | (Increase) decrease in prepaid expenses and other assets |           |                  | (1,608,446  | )           |            |   | 1,508,026   |  
|                                                   |                                                                               |                                              |                                                                     | Decrease in accounts payable and accrued expenses        |           |                  | (15,788,859 | )           |            |   | (21,850,247 | )
|                                                   |                                                                               |                                              |                                                                     | Increase in customer deposits                            |           |                  | 1,240,914   |             |            |   | 172,801     |  
|                                                   |                                                                               |                                              |                                                                     | Increase in deferred rent                                |           |                  | 41,596      |             |            |   | 149,327     |  
|                                                   |                                                                               |                                              |                                                                     | Decrease in deferred warranty                            |           |                  | (474,536    | )           |            |   | (275,083    | )
|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|                                                   |                                                                               |                                              |                                                                     | Net cash used by operating activities                    |           |                  | (18,803,968 | )           |            |   | (8,631,407  | )
|CASH FLOWS FROM INVESTING ACTIVITIES:              |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|                                                   | Purchase of property and equipment                                            |                                              |                                                                     | (28,893,692                                              | )         |                  |             | (16,709,517 | )         
|                                                   | Net proceeds from sale of property and equipment                              |                                              |                                                                     | 6,950                                                    |           |                  |             | 28,088      |           
|                                                   | Sale of investments                                                           |                                              |                                                                     | 63,519                                                   |           |                  |             |            |           
|                                                   | Cash paid for acquisitions                                                    |                                              |                                                                     | (3,799,969                                               | )         |                  |             |            |           
|                                                   | Distibutions from joint venture                                               |                                              |                                                                     | 1,033,175                                                |           |                  |             |            |           
|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|                                                   |                                                                               |                                              |                                                                     | Net cash used in investing activities                    |           |                  | (31,590,017 | )           |            |   | (16,681,429 | )
|CASH FLOWS FROM FINANCING ACTIVITIES:              |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|                                                   | Increase in amount due to bank                                                |                                              |                                                                     | 23,357,643                                               |           |                  |             | 6,744,937   |           
|                                                   | Net proceeds from revolving credit facility                                   |                                              |                                                                     | 24,674,558                                               |           |                  |             | 17,758,977  |           
|                                                   | Proceeds from options excercised                                              |                                              |                                                                     | 1,925,685                                                |           |                  |             | 70,751      |           
|                                                   | Proceeds from employee stock purchase plan                                    |                                              |                                                                     | 170,473                                                  |           |                  |             | 203,936     |           
|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|                                                   |                                                                               |                                              |                                                                     | Net cash provided by financing activities                |           |                  | 50,128,359  |             |            |   | 24,778,601  |  
|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|DECREASE IN CASH AND CASH EQUIVALENTS              |                                                                               |                                              | (265,626                                                            | )                                                        |           |                  | (534,235    | )          
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     |                                                                               |                                              | 3,277,969                                                           |                                                          |           |                  | 2,282,635   |            
|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|CASH AND CASH EQUIVALENTS, END OF PERIOD           |                                                                               | $                                            | 3,012,343                                                           |                                                          |           | $                | 1,748,400   |            
|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|                                                   | Cash paid during the period for:                                              |                                              |                                                                     |                                                          |           |                  |             |             |           
|                                                   |                                                                               | Interest                                     |                                                                     | $                                                        | 1,144,549 |                  |             | $           | 715,595    |  
|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|                                                   |                                                                               | Taxes                                        |                                                                     | $                                                        | 6,602,777 |                  |             | $           | 561,000    |  
|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            
|                                                   | Noncash
investing activities:                                                 |                                              |                                                                     |                                                          |           |                  |             |             |           
|                                                   |                                                                               |                                              | Issuance of common stock and assumption of options for acquisitions |                                                          | $         | 1,000,016        |             |             | $          |  |            
|                                                   |                                                                               |                                              |                                                                     |                                                          |           |                  |             |            

See notes to unaudited condensed consolidated financial statements.

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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

The unaudited condensed consolidated financial statements of Tweeter Home
Entertainment Group, Inc. and its subsidiaries (Tweeter or the Company),
included herein, should be read in conjunction with the consolidated financial
statements and notes thereto included in Tweeters Annual Report on Form 10-K
for the fiscal year ended September 30, 2002.

2. Accounting Policies

The unaudited consolidated financial statements of Tweeter have been
prepared in accordance with accounting principles generally accepted in the
United States of America. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation of the interim consolidated financial statements have been
included. Operating results for the six-month period ended March 31, 2003 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 2003. Tweeter typically records its highest revenue
and earnings in its first fiscal quarter.

Stock-based compensation Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, addresses the
financial accounting and reporting standards for stock or other equity-based
compensation arrangements. The Company provides disclosures based on the fair
value as permitted by SFAS No. 123. Stock or other equity-based compensation
for non-employees must be accounted for under the fair value-based method as
required by SFAS No. 123 and Emerging Issues Task Force (EITF) No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services, and other related
interpretations. Under this method, the equity-based instrument is valued at
either the fair value of the consideration received or the equity instrument
issued on the date of grant. The resulting compensation cost is recognized and
charged to operations over the service period, which is usually the vesting
period.

For purposes of determining the disclosures required by SFAS No. 123, the
fair value of each stock option granted in the three and six months ended March
31, 2002 and March 31, 2003 under the Companys stock option plan was estimated
on the date of grant using the Black-Scholes option-pricing model. Key
assumptions used to apply this pricing model were as follows:

|                                        |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|--------------------------------------- |  | ------------------ | ----- | ---------------- |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                                        |  | Three Months Ended |       | Six Months Ended
|                                        |  | March 31,          |       | March 31,       
|                                        |  |                    |       |                 
|                                        |  | 2002               |       | 2003             |  | 2002 |       | 2003
|                                        |  |                    |       |                  |  |      |       |     
|Risk free interest rate                 |  |                    | 4.18  | %                |  |      | 2.84  | %    |  |  | 4.12  | % |  |  | 2.71  | %
|Expected life of options grants         |  |                    | 5.4   |                  |  |      | 5.4   |      |  |  | 5.4   |   |  |  | 5.4   |  
|Expected volatility of underlying stock |  |                    | 96.53 | %                |  |      | 94.62 | %    |  |  | 94.40 | % |  |  | 90.17 | %

Had compensation cost for the Companys stock option plans been determined
consistent with SFAS No. 123, pro forma net income (loss) and pro forma diluted
earnings (loss) per share would have been:

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|                                                                                                                                    |  |                    |            |                  |  |      |            |      |  |   |            |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | ---------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                                    |  | Three Months Ended |            | Six Months Ended
|                                                                                                                                    |  | March 31,          |            | March 31,       
|                                                                                                                                    |  |                    |            |                 
|                                                                                                                                    |  | 2002               |            | 2003             |  | 2002 |            | 2003
|                                                                                                                                    |  |                    |            |                  |  |      |            |     
|Net net income (loss) as reported                                                                                                   |  | $                  | 2,591,808  |                  |  | $    | (2,460,948 | )    |  | $ | 16,095,055 |   |  | $ | 2,743,408  |  
|Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects |  |                    | (1,268,585 | )                |  |      | (1,238,738 | )    |  |   | (2,527,461 | ) |  |   | (2,476,547 | )
|                                                                                                                                    |  |                    |            |                  |  |      |            |      |  |   |            |   |  |   |            |  
|Pro forma net income (loss)                                                                                                         |  | $                  | 1,323,223  |                  |  | $    | (3,699,686 | )    |  | $ | 13,567,594 |   |  | $ | 266,861    |  
|                                                                                                                                    |  |                    |            |                  |  |      |            |      |  |   |            |   |  |   |            |  
|Earnings (loss) per share                                                                                                           |  |                    |            |                  |  |      |            |      |  |   |            |   |  |   |            |  
|Basic  as reported                                                                                                                 |  | $                  | 0.11       |                  |  | $    | (0.10      | )    |  | $ | 0.69       |   |  | $ | 0.12       |  
|                                                                                                                                    |  |                    |            |                  |  |      |            |      |  |   |            |   |  |   |            |  
|Basic  pro forma                                                                                                                   |  | $                  | 0.06       |                  |  | $    | (0.16      | )    |  | $ | 0.59       |   |  | $ | 0.01       |  
|                                                                                                                                    |  |                    |            |                  |  |      |            |      |  |   |            |   |  |   |            |  
|Diluted  as reported                                                                                                               |  | $                  | 0.11       |                  |  | $    | (0.10      | )    |  | $ | 0.66       |   |  | $ | 0.12       |  
|                                                                                                                                    |  |                    |            |                  |  |      |            |      |  |   |            |   |  |   |            |  
|Diluted  pro forma                                                                                                                 |  | $                  | 0.05       |                  |  | $    | (0.16      | )    |  | $ | 0.56       |   |  | $ | 0.01       |  
|                                                                                                                                    |  |                    |            |                  |  |      |            |      |  |   |            |   |  |   |            |  

3. Earnings per Share

The weighted average shares used in computing basic and diluted net income
per share are presented in the table below. Certain options are not included in
the earnings per share calculation when the exercise price is greater than the
average market price for the period. The number of options excluded in each
period is reflected in the table.

|                                                                     |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |            | 
|-------------------------------------------------------------------- | ------------------------------------------ | - | ------------------ | ---------- | ---------------- | - | ----------------- | ---------- | ---- | - | ------------------ | ---------- |  | - | ---------------- | ---------- | 
|                                                                     |                                            |   | Three Months Ended |            | Six Months Ended
|                                                                     |                                            |   | March 31,          |            | March 31,       
|                                                                     |                                            |   |                    |            |                 
|                                                                     |                                            |   | 2002               |            | 2003             |   | 2002              |            | 2003
|                                                                     |                                            |   |                    |            |                  |   |                   |            |     
|Basic Earnings (Loss) Per Share:                                     |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           
|Numerator:                                                           |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           
|                                                                     | Net income (loss)                          |   | $                  | 2,591,808  |                  |   | $                 | (2,460,948 | )    |   | $                  | 16,095,055 |  |   | $                | 2,743,408  | 
|Denominator:                                                         |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           
|                                                                     | Weighted average common shares outstanding |   |                    | 23,364,781 |                  |   |                   | 23,596,396 |      |   |                    | 23,190,794 |  |   |                  | 23,580,726 | 
|                                                                     |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           
|Basic earnings (loss) per share                                      |                                            | $ | 0.11               |            |                  | $ | (0.10             | )          |      | $ | 0.69               |            |  | $ | 0.12             |           
|                                                                     |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           
|Diluted Earnings (Loss) Per Share:                                   |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           
|Numerator:                                                           |                                            | $ | 2,591,808          |            |                  | $ | (2,460,948        | )          |      | $ | 16,095,055         |            |  | $ | 2,743,408        |           
|Denominator:                                                         |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           
|                                                                     | Weighted average shares outstanding        |   |                    | 23,364,781 |                  |   |                   | 23,596,396 |      |   |                    | 23,190,794 |  |   |                  | 23,580,726 | 
|                                                                     | Potential common stock outstanding         |   |                    | 1,007,018  |                  |   |                   |           |      |   |                    | 1,150,323  |  |   |                  | 183,075    | 
|                                                                     |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           
|Total                                                                |                                            |   | 24,371,799         |            |                  |   | 23,596,396        |            |      |   | 24,341,117         |            |  |   | 23,763,801       |           
|                                                                     |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           
|Diluted earnings (loss) per share                                    |                                            | $ | 0.11               |            |                  | $ | (0.10             | )          |      | $ | 0.66               |            |  | $ | 0.12             |           
|                                                                     |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           
|Anti dilutive options not included in Earnings
per share calculation |                                            |   | 136,500            |            |                  |   | 1,856,467         |            |      |   | 502,600            |            |  |   | 906,538          |           
|                                                                     |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           
|Price Range                                                          |                                            |   | $25.04 to $32.125  |            |                  |   | $0.305 to $32.125 |            |      |   | $23.125 to $32.125 |            |  |   | $6.90 to $32.125 |           
|                                                                     |                                            |   |                    |            |                  |   |                   |            |      |   |                    |            |  |   |                  |           

4. Comprehensive Income

Comprehensive income (loss) for the three and six months ended March 31,
2002 and March 31, 2003 was as follows:

|                                                           |  |                    |           |                  |  |      |            |      |  |   |            |  |  |   |           | 
|---------------------------------------------------------- |  | ------------------ | --------- | ---------------- |  | ---- | ---------- | ---- |  | - | ---------- |  |  | - | --------- | 
|                                                           |  | Three Months Ended |           | Six Months Ended
|                                                           |  | March 31,          |           | March 31,       
|                                                           |  |                    |           |                 
|                                                           |  | 2002               |           | 2003             |  | 2002 |            | 2003
|                                                           |  |                    |           |                  |  |      |            |     
|Net income (loss)                                          |  | $                  | 2,591,808 |                  |  | $    | (2,460,948 | )    |  | $ | 16,095,055 |  |  | $ | 2,743,408 | 
|Change in fair value of
long-term investments (net
of tax) |  |                    | (5,387    | )                |  |      | (495       | )    |  |   | 803        |  |  |   | 49        | 
|                                                           |  |                    |           |                  |  |      |            |      |  |   |            |  |  |   |           | 
|Comprehensive income (loss)                                |  | $                  | 2,586,421 |                  |  | $    | (2,461,443 | )    |  | $ | 16,095,858 |  |  | $ | 2,743,457 | 
|                                                           |  |                    |           |                  |  |      |            |      |  |   |            |  |  |   |           | 

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5. Intangible Assets

The financial information for acquired intangible assets is as follows:

|                                                                  |  |                          |           |                      |  |                |         |              |  |  |           |  |  |  |           | 
|----------------------------------------------------------------- |  | ------------------------ | --------- | -------------------- |  | -------------- | ------- | ------------ |  |  | --------- |  |  |  | --------- | 
|                                                                  |  | As of September 30, 2002 |           | As of March 31, 2003
|                                                                  |  |                          |           |                     
|                                                                  |  | Gross Carrying           |           | Accumulated          |  | Gross Carrying |         | Accumulated 
|                                                                  |  | Amount                   |           | Amortization         |  | Amount         |         | Amortization
|                                                                  |  |                          |           |                      |  |                |         |             
|Amortized intangible assets Non
compete agreements and tradenames |  |                          | 3,400,000 |                      |  |                | 793,333 |              |  |  | 3,400,000 |  |  |  | 1,133,333 | 

For the six months ended March 31, 2003, the aggregate amortization
expense was $340,000. For each of the fiscal years 2003 through 2005, the
amortization expense is estimated to be approximately $680,000 and for fiscal
year 2006, the amortization expense is estimated to be approximately $567,000.

6. Amended Senior Credit Facility

On January 29, 2003, Tweeter signed an amendment to its existing $100
million senior credit facility that, among other revisions, waived one of the
financial covenants to match Tweeters forecasts for the balance of the year.
The interest rate on the amended credit facility increased 25 basis points
effective with the amendment. The credit facility had a maturity date of July
31, 2004 and was secured by inventory and certain other assets. The unpaid
balances under this agreement bore interest at the lenders base rate plus .25%,
or Eurodollar Pricing plus 1.75% if the Company committed the balances
for a period of thirty days or more. The principal balance outstanding at March
31, 2003 was $67,810,000. This amended credit facility was replaced on April
16, 2003 by the credit facility discussed below under Subsequent Events.

7. Reclassifications

Certain 2002 reclassifications have been made to conform to the 2003
presentation.

8. New Accounting Pronouncements

During the quarter ended March 31, 2003, Tweeter adopted EITF 02-16,
Accounting by a Customer for Certain Consideration Received from a Vendor,
which addresses how and when to reflect consideration received from vendors in
the consolidated financial statements. The adoption of EITF 02-16 had no
effect on the consolidated financial statements of the Company.

9. Subsequent Events

On April 16, 2003, Tweeter concluded arrangements with Fleet National Bank
and Fleet Retail Finance Inc., on behalf of themselves and other co-lenders,
for a new three-year senior secured revolving credit facility in the amount of
$110 million. The facility replaces a $100 million line of credit which was due
to expire in 2004. Availability under the credit facility will be based on a
borrowing base tied to a percentage of eligible inventory, receivables and real
estate. The interest rate on the new facility ranges from 2.00% to 2.50% over
LIBOR, provided Tweeter commits the balances for a period of thirty days or
more, or 0% to .25% over the prime rate. The line is secured by substantially
all of the assets of Tweeter and its subsidiaries and contains various
covenants and restrictions. The borrowers under the credit facility will be
subsidiaries of Tweeter, and Tweeter will be a guarantor of any amounts
borrowed. In addition, there is a commitment fee for the unused portion of
the line of .375%.

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

INTRODUCTION

Tweeter Home Entertainment Group, Inc. (Tweeter or the Company) is a
specialty retailer of mid- to high-end audio and video consumer electronics
products. Tweeter currently operates 177 stores under the Tweeter, HiFi Buys,
Sound Advice, Bang & Olufsen, Electronic Interiors, Showcase Home Entertainment
and Hillcrest names in the New England, Mid-Atlantic, Southeast, Texas,
Southern California, Chicago, Florida and Phoenix markets.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2003 AS COMPARED TO THREE MONTHS ENDED MARCH 31, 2002

Total Revenue.Total revenue includes delivered merchandise, labor, net
commissions on service contracts sold, completed service center work orders,
insurance replacement and corporate sales. Total revenue decreased $3.9
million, or 2.1%, to $182.0 million for the three months ended March 31, 2003
from $185.8 million for the three months ended March 31, 2002. Comparable store
sales decreased $20.6 million or 12.0%. This excludes revenues for January and
February for the two Hillcrest stores acquired in March 2002. The comparable
store sales decrease was offset by $15.0 million in sales generated from new
stores that have not been opened for a twelve-month period and are therefore
not yet includable in the comparable store sales base. Additionally there was a
$1.5 million increase in sales generated from stores that were relocated and
have not been in operation at the new location for a twelve-month period. For
the quarter ended March 31, 2003, 99.3% of projection television sales were
High Definition and High Definition ready projection sets. Sales of flat panel
Plasma and LCD TVs were up 220% for the March 31, 2003 quarter compared to the
same quarter last year. The category represented 11.6% of total revenue for the
quarter ended March 31, 2003 as compared to 5.2% for the quarter ended March
31, 2002. Satellite ready car head sales increased over 56% in dollars and over
83% in units compared to the same period last year. Total digital sales
represented over 56% of total revenue for the quarter ended March 31, 2003 as
compared to 52% for the quarter ended March 31, 2002.

Gross Profit.Cost of sales includes merchandise costs, net delivery
costs, distribution costs, home installation labor costs, purchase discount and
vendor allowances. Cost of sales decreased $2.2 million, or 1.8%, to $117.3
million for the three months ended March 31, 2003 from $119.5 million for the
three months ended March 31, 2002. Gross profit decreased $1.7 million, or
2.5%, to $64.7 million for the three months ended March 31, 2003 from $66.4
million for the three months ended March 31, 2002. The gross margin percentage
decreased 20 basis points to 35.5% for the three months ended March 31, 2003
from 35.7% for the three months ended March 31, 2002. Pure product margins and
net home installation revenue increased during the quarter ended March 31,
2003. Due to sales being below plan with a number of vendors, we received less
in vendor allowances, which resulted in our missing several sales incentive
goals.

Selling Expenses.Selling expenses include the compensation of store
personnel, occupancy costs, store level depreciation, advertising expenses,
pre-opening expenses and credit card fees. Selling expenses increased $6.1
million, or 11.9%, to $57.3 million for the three months ended March 31, 2003
from $51.2 million for the three months ended March 31, 2002. As a percentage
of revenue, selling expenses increased to 31.5% for the three months ended
March 31, 2003 from 27.5% for the three months ended March 31, 2002. This was
driven by declines in comparable store sales and increases in fixed costs as a
percentage of sales. Occupancy, depreciation and insurance expenses together as
a percentage of revenue increased 230 basis points for the three months ended
March 31, 2003 compared to the three months ended March 31, 2002. Net
advertising and compensation costs increased 240 basis points for the three
months ended March 31, 2003 compared to the same period in 2002. Offsetting
these increases were credit card fees, which decreased 20 basis points for the
three months ended March 31, 2003 compared to the same period last year.

Corporate, General and Administrative Expenses.Corporate, general and
administrative expenses include the costs of executive officers, finance,
merchandising, marketing, information systems, human resources, training, and

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related support functions. Corporate, general and administrative expenses
increased 5.9% to $10.5 million for the three months ended March 31, 2003 from
$9.9 million for the three months ended March 31, 2002. As a percentage of
total revenue, corporate general and administrative expenses increased to 5.8%
for the three months ended March 31, 2003 from 5.3% for the three months ended
March 31, 2002. The majority of this increase was due to increases in
compensation costs.

Amortization of Intangibles.Amortization of intangibles decreased to
$170,000 for the three months ended March 31, 2003 from $416,000 for the three
months ended March 31, 2002. This was due to the write off of intangible assets
of $3,425,000 recorded in the period ended September 30, 2002.

Net Interest Expense.Net interest expense increased to $834,000 for the
three months ended March 31, 2003 compared to $551,000 for the three months
ended March 31, 2002. This increase is due to the additional borrowings on our
revolving credit agreement during the three months ended March 31, 2003
compared to the balances borrowed during the three months ended March 31, 2002.

Income Taxes.The effective tax rate for the three months ended March 31,
2003 and March 31, 2002 was 40.0%.

Seasonality.Tweeters operations, in common with other retailers, are
subject to seasonal influences. Historically, Tweeter has realized more of its
revenue and net earnings in its first fiscal quarter, which includes the
holiday season, than in any other fiscal quarter. The net earnings of any
interim quarter are seasonally disproportionate to net sales since certain
selling expenses and administrative expenses are relatively fixed during the
year. Therefore, interim results should not be relied upon as indicative of
results for the entire fiscal year.

SIX MONTHS ENDED MARCH 31, 2003 AS COMPARED TO SIX MONTHS ENDED MARCH 31, 2002

Total Revenue.Total revenue decreased $6.1 million, or 1.4%, to $431.6
million for the six months ended March 31, 2003 from $437.7 million for the six
months ended March 31, 2002. Comparable store sales decreased by $44.9 million
or 11.1%, excluding acquired stores. Sales from new and relocated stores were
$39.5 million to offset this decrease. Digital technology products continue to
drive sales performance as they represented over 57% of revenues for the six
months ended March 31, 2003 compared to 53% for the six months ended March 31,
2002. In addition, net home installation labor continued to increase as a
percentage of our revenues to 1.4% for the six months ended March 31, 2003 from .8% for the six months ended March 31, 2002.

Gross Profit.Cost of sales increased $460,000, or .2%, to $279.9 million
for the six months ended March 31, 2003 from $279.5 million for the six months
ended March 31, 2002. Gross profit decreased $6.6 million, or 4.2% to $151.7
million for the six months ended March 31, 2003 from $158.3 million for the six
months ended March 31, 2002. The gross margin percentage decreased 110 basis
points to 35.1% from 36.2% last year. The main component of this decrease was
lower vendor allowances due to sales not meeting plan.

Selling Expenses.Selling expenses increased $14.1 million, or 12.8%, to
$123.7 million for the six months ended March 31, 2003 from $109.7 million for
the six months ended March 31, 2002. As a percentage of revenue, selling
expenses increased 3.6% to 28.7% for the six months ended March 31, 2003 from
25.1% in the prior year period. Declines in comparable store sales and
increases in fixed costs as a percentage of sales contributed to this increase.
Occupancy costs, depreciation, utilities and insurance
increased 200 basis points for the six months ended March 31, 2003 compared to
the six months ended March 31, 2002. Net advertising and compensation costs
increased 160 basis points for the six months ended March 31, 2003 compared to
the same period last year.

Corporate, General and Administrative Expenses.Corporate, general and
administrative expenses for the six months ended March 31, 2003 increased 9.6 %
to $21.8 million from $19.9 million for the six months ended March 31, 2002. As
a percentage of total revenue, corporate general and administrative expenses
increased to 5.1% for the six months ended March 31, 2003 from 4.5% for the
prior year period. This increase was due to higher compensation costs and
professional fees.

Amortization of Intangibles.Amortization of intangibles decreased to
$340,000 for the six months ended March 31, 2003 from $791,000 for the six
months ended March 31, 2002. The decrease was due to the write off of
intangible assets of $3,425,000 recorded in the period ended September 30,
2002.

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Net Interest Expense.Net interest expense increased slightly to $1.2
million for the six months ended March 31, 2003 from $1.1 million for the six
months ended March 31, 2002.

Income Taxes.The effective tax rate for the six months ended March 31,
2003 and March 31, 2002 was 40.0%.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used by operating activities was $8.6 million for the six months
ended March 31, 2003 compared to $18.8 million for the six months ended March
31, 2002. The decrease in cash used by operating activities for the six months
ended March 31, 2003 was primarily a result of a decrease in accounts payable
and accrued expenses of $21.9 million. This was offset by a decrease in
prepaid expenses and other current assets of $1.5 million. The adjustments to
reconcile net income to net cash used by operating activities consisted
primarily of $10.3 million for depreciation and amortization, as well as other
minor items.

At March 31, 2003, working capital was $102.8 million, compared to $89.3
million at September 30, 2002. The ratio of current assets to current
liabilities was 2.20 to 1 at March 31, 2003 and 1.89 to 1 at September 30,
2002.

Net cash used in investing activities for the six months ended March 31,
2003 predominantly consisted of capital expenditures of $16.7 million,
primarily used for the building of new stores and the relocation of existing
stores.

Net cash provided by financing activities during the six months ended
March 31, 2003 was $24.8 million, which was primarily due to borrowings of
long-term debt of $17.8 million and an increase in amount due to bank of $6.7
million.

As of March 31, 2003, Tweeter had a three-year senior credit facility,
which provided the Company the ability to borrow up to $100 million. The
Company had $32.2 million available under this revolving credit facility and
$67.8 million outstanding at March 31, 2003.

On January 29, 2003, Tweeter signed an amendment to this $100 million
senior credit facility that, among other revisions, waived a breach of one of
the financial covenants and adjusted the same financial covenant to match
Tweeters forecasts. The interest rate on the amended credit facility increased
25 basis points effective with the amendment. The credit facility had a
maturity date of July 31, 2004 and was secured by inventory and certain other
assets.

On April 16, 2003, Tweeter concluded arrangements with Fleet National Bank
and Fleet Retail Finance Inc., on behalf of themselves and other co-lenders,
for a new three-year senior secured revolving credit facility in the amount of
$110 million. The facility replaces a $100 million line of credit which was due
to expire in 2004. Availability under the credit facility will be based on a
borrowing base tied to a percentage of eligible inventory, receivables and real
estate. The interest rate on the new facility ranges from 2.00% to 2.50% over
LIBOR, provided Tweeter commits the balances for a period of thirty days or
more, or 0% to .25% over the prime rate. The line is secured by substantially
all of the assets of Tweeter and its subsidiaries and contains various
covenants and restrictions. The borrowers under the credit facility will be
subsidiaries of Tweeter, and Tweeter will be a guarantor of any amounts
borrowed. In addition, there is a commitment fee for the unused portion of the
line of .375%.

Tweeter believes that its existing cash, together with cash generated by
operations and available borrowings under its credit facility, will be
sufficient to finance its working capital and capital expenditure requirements
for at least the next twelve months. Furthermore, due to the seasonality of its
business, Tweeters working capital needs are significantly higher in the
fiscal third and fourth quarters and there is the possibility that this could
cause unforeseen capital constraints in the future.

New Accounting Pronouncements

During the quarter ended March 31, 2003, Tweeter adopted EITF 02-16,
Accounting by a Customer for Certain Consideration Received from a Vendor,
which addresses how and when to reflect consideration received from vendors in
the consolidated financial statements. The adoption of EITF 02-16 had no
effect on the consolidated financial statements of the Company.

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FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q,
including, without limitation, statements containing the words expects,
anticipates, believes and words of similar import, constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
various risks and uncertainties, including Company growth and acquisitions,
dependence on key personnel, the need for additional financing, competition and
seasonal fluctuations, and those referred to in the Companys Annual Report on
Form 10-K filed on December 17, 2002, that could cause actual future results
and events to differ materially from those currently anticipated. Readers are
cautioned not to place undue reliance on these forward-looking statements.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our financial instruments and in our financial
position is the potential for loss arising from adverse changes in interest
rates. We do not enter into financial instruments for trading purposes.

At March 31, 2003, the Company had $67.8 million of variable rate
borrowings outstanding under its revolving credit agreements, which
approximates fair value. A hypothetical 10% adverse change in interest rates
for this variable rate debt would have an approximate $230,000 annual impact on
the Companys earnings and cash flows.




ITEM 4. CONTROLS AND PROCEDURES

The Companys chief executive officer and chief financial officer, after
evaluating the effectiveness of the Companys disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)
and 15-d-14(c)) as of March 31, 2003 (the Evaluation Date), have concluded
that as of the Evaluation Date, the Companys disclosure controls and
procedures were adequate and designed to ensure that material information
relating to the Company (including its consolidated subsidiaries) is made known
to them by others within the Company. There were no significant changes in the
Companys internal controls or, to the Companys knowledge, in other factors
that could significantly affect the Companys disclosure controls and
procedures subsequent to the Evaluation Date.

12



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##### Table of Contents






PART II. OTHER INFORMATION




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

On January 21, 2003, the Company held its Annual Meeting of Stockholders.
At the meeting, the stockholders elected as directors Samuel Bloomberg (with
15,580,944 affirmative votes and 4,431,236 votes withheld) and Michael Cronin
(with 19,373,546 affirmative votes and 638,634 votes withheld). The
stockholders also approved the designation of Deloitte & Touche LLP to audit
the books and records of the Company for the fiscal year ending September 30,
2003 (with 19,172,528 shares voting for, 832,492 against and 7,160 abstaining).




ITEM 5. OTHER INFORMATION

(a)  Subsequent Event

On April 16, 2003, Tweeter concluded arrangements with Fleet National Bank
and Fleet Retail Finance Inc., on behalf of themselves and other co-lenders,
for a new three-year senior secured revolving credit facility in the amount of
$110 million. The facility replaces a $100 million line of credit which was due
to expire in 2004. Availability under the credit facility will be based on a
borrowing base tied to a percentage of eligible inventory, receivables and real
estate. The interest rate on the new facility ranges from 2.00% to 2.50% over
LIBOR, provided Tweeter commits the balances for a period of thirty days or
more, or 0% to .25% over the prime rate. The line is secured by substantially
all of the assets of Tweeter and its subsidiaries and contains various
covenants and restrictions. The borrowers under the credit facility will be
subsidiaries of Tweeter, and Tweeter will be a guarantor of any amounts
borrowed. In addition, there is a commitment fee for the unused portion of the
line of .375%.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

99.1 Certification pursuant to 18 U.S.C. Section 1350, As adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002

99.2 Certification pursuant to 18 U.S.C. Section 1350, As adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K.



| |  |  | None
| |  |  | ----




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.

|                   |  |                                                  
|------------------ |  | -------------------------------------------------
|                   |  | TWEETER HOME ENTERTAINMENT GROUP, INC.           
|                   |  |                                                  
|                   |  | By: /s/ Joseph McGuire                           
|                   |  | Joseph McGuire,                                  
|                   |  | Senior Vice President and Chief Financial
Officer
|                   |  |                                                  
|Date: May 14, 2003 |  |                                                  

13



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##### Table of Contents






CERTIFICATIONS

I, Jeffrey S. Stone, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Tweeter Home
Entertainment Group, Inc.;                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |                                      
|------------------ |  | -------------------------------------
|Date: May 14, 2003 |  | /s/ Jeffrey S. Stone                 
|                   |  | President and Chief Executive Officer

14



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##### Table of Contents



I, Joseph G. McGuire, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Tweeter Home
Entertainment Group, Inc.;                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |                                                  
|------------------ |  | -------------------------------------------------
|Date: May 14, 2003 |  |                                                  
|                   |  | /s/ Joseph G. McGuire                            
|                   |  | Senior Vice President and Chief Financial Officer

15