##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 0-24091
 Tweeter Home Entertainment Group, Inc.
  Delaware
    
    04-3417513(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 40 Pequot Way
Canton, MA 02021
 781-830-3000
 þ o
  o þ o
 o þ
  TITLE OF CLASS
    

OUTSTANDING AT May 11, 2007Common Stock, $0.01 par value
    
    25,563,750




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##### 



TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PAGEPART I  FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of March 31, 2007, September 30, 2006 (Restated) and March 31, 2006 (Restated)
    
    
    2Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2007 and 2006 (Restated)
    
    
    3Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2007 and 2006 (Restated)
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    19PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    21Item 1A.
    
    Risk Factors
    
    
    21Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3.
    
    Defaults upon Senior Securities
    
    
    21Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Item 5.
    
    Other Information
    
    
    21Item 6.
    
    Exhibits
    
    
    21SIGNATURESEX-10.1 Senior Secured Revolving Credit AgreementEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements.
 
 TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands except share data)
 September 30,
    
    
    March 31,2006
    
    
    2006March 31,
    
    
    (As Restated,
    
    
    (As Restated,2007
    
    

see
Note 11)
    
    

see
Note 11)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    1,927
    
    
    $
    1,296
    
    
    $
    4,373Restricted cash
    
    
    5,654
    
    
    
    
    
    
    
    Accounts receivable, net of allowance for doubtful
accounts of $1,943, $3,766 and $1,565, respectively
    
    
    20,517
    
    
    
    20,197
    
    
    
    26,491Inventory
    
    
    80,969
    
    
    
    109,039
    
    
    
    110,955Refundable income taxes
    
    
    
    
    
    
    9,006
    
    
    
    8,897Prepaid expenses and other current assets
    
    
    11,441
    
    
    
    8,818
    
    
    
    8,850Total current assets
    
    
    120,508
    
    
    
    148,356
    
    
    
    159,566Property and equipment, net
    
    
    69,378
    
    
    
    102,072
    
    
    
    101,607Long-term investments
    
    
    3,420
    
    
    
    2,639
    
    
    
    2,715Intangible assets, net
    
    
    
    
    
    
    
    
    
    
    227Goodwill
    
    
    4,376
    
    
    
    5,251
    
    
    
    5,251Other assets, net
    
    
    2,280
    
    
    
    2,178
    
    
    
    1,968Total Assets
    
    $
    199,962
    
    
    $
    260,496
    
    
    $
    271,334LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesCurrent portion of long-term debt
    
    $
    6,905
    
    
    $
    6,480
    
    
    $
    10,129Current portion of deferred consideration
    
    
    868
    
    
    
    590
    
    
    
    477Accounts payable
    
    
    31,364
    
    
    
    37,843
    
    
    
    27,066Accrued expenses
    
    
    39,558
    
    
    
    42,112
    
    
    
    45,919Customer deposits
    
    
    16,804
    
    
    
    21,976
    
    
    
    19,987Total current liabilities
    
    
    95,499
    
    
    
    109,001
    
    
    
    103,578Long-term debt
    
    
    38,918
    
    
    
    50,362
    
    
    
    43,526Rent related accruals
    
    
    24,875
    
    
    
    25,411
    
    
    
    24,530Long-term restructuring and discontinued stores reserve
    
    
    4,054
    
    
    
    5,415
    
    
    
    Deferred consideration
    
    
    2,075
    
    
    
    2,151
    
    
    
    2,303Commitments
and ContingenciesStockholders EquityPreferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued
    
    
    
    
    
    
    
    
    
    
    Common stock, $.01 par value, 60,000,000 shares
authorized; 27,013,997, 27,013,997 and 26,749,952
shares issued, respectively
    
    
    270
    
    
    
    270
    
    
    
    268Additional paid in capital
    
    
    310,621
    
    
    
    309,937
    
    
    
    307,756Accumulated other comprehensive income
    
    
    
    
    
    
    
    
    
    
    132Accumulated deficit
    
    
    (274,756
    )
    
    
    (240,407
    )
    
    
    (209,094
    )Treasury stock, 1,450,247, 1,521,819, and 1,551,373
shares, at cost, respectively
    
    
    (1,594
    )
    
    
    (1,644
    )
    
    
    (1,665
    )Total stockholders equity
    
    
    34,541
    
    
    
    68,156
    
    
    
    97,397Total Liabilities and Stockholders Equity
    
    $
    199,962
    
    
    $
    260,496
    
    
    $
    271,334
  2




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TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands except share and per share data)
 Three Months ended
    
    
    Six Months endedMarch 31,
    
    
    March 31,2006
    
    
    
    
    
    
    2006(As Restated,
    
    
    
    
    
    
    (As Restated,2007
    
    

see
Note 11)
    
    
    2007
    
    

see Note 11)Total revenue
    
    $
    163,285
    
    
    $
    186,846
    
    
    $
    397,343
    
    
    $
    452,853Cost of sales
    
    
    99,286
    
    
    
    106,473
    
    
    
    240,702
    
    
    
    263,458Gross profit
    
    
    63,999
    
    
    
    80,373
    
    
    
    156,641
    
    
    
    189,395Selling, general and administrative expenses
    
    
    73,253
    
    
    
    78,867
    
    
    
    163,650
    
    
    
    172,207Amortization of intangibles
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    340Impairment
charges
    
    
    1,706
    
    
    
    
    
    
    
    1,706
    
    
    
    Restructuring charges
    
    
    27,159
    
    
    
    401
    
    
    
    26,730
    
    
    
    484Operating income (loss)
    
    
    (38,119
    )
    
    
    935
    
    
    
    (35,445
    )
    
    
    16,364Interest expense
    
    
    1,096
    
    
    
    1,114
    
    
    
    2,629
    
    
    
    2,500Other income
    
    
    79
    
    
    
    102
    
    
    
    249
    
    
    
    144Income (loss) from continuing operations before income taxes
    
    
    (39,136
    )
    
    
    (77
    )
    
    
    (37,825
    )
    
    
    14,008Income tax provision (benefit)
    
    
    (3,726
    )
    
    
    10
    
    
    
    (3,726
    )
    
    
    110Income (loss) from continuing operations before income from
equity investments  related parties
    
    
    (35,410
    )
    
    
    (87
    )
    
    
    (34,099
    )
    
    
    13,898Income from equity investments  related parties
    
    
    254
    
    
    
    491
    
    
    
    1,210
    
    
    
    1,186Net income (loss) from continuing operations
    
    
    (35,156
    )
    
    
    404
    
    
    
    (32,889
    )
    
    
    15,084Discontinued operations:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) from discontinued operations
    
    
    (67
    )
    
    
    20
    
    
    
    (1,460
    )
    
    
    (254
    )Net income (loss)
    
    $
    (35,223
    )
    
    $
    424
    
    
    $
    (34,349
    )
    
    $
    14,830Basic income (loss) per share:Income (loss) from continuing operations
    
    $
    (1.38
    )
    
    $
    0.02
    
    
    $
    (1.29
    )
    
    $
    0.61Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.06
    )
    
    
    (0.01
    )Basic net income (loss) per share
    
    $
    (1.38
    )
    
    $
    0.02
    
    
    $
    (1.35
    )
    
    $
    0.60Diluted income (loss) per share:Income (loss) from continuing operations
    
    $
    (1.38
    )
    
    $
    0.02
    
    
    $
    (1.29
    )
    
    $
    0.60Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.06
    )
    
    
    (0.01
    )Diluted net income (loss) per share
    
    $
    (1.38
    )
    
    $
    0.02
    
    
    $
    (1.35
    )
    
    $
    0.59Weighted average shares outstanding:Basic
    
    
    25,528,739
    
    
    
    25,038,614
    
    
    
    25,510,454
    
    
    
    24,882,751Diluted
    
    
    25,528,739
    
    
    
    25,602,697
    
    
    
    25,510,454
    
    
    
    25,191,800
  3




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TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
 Six Months EndedMarch 31,2006(As Restated, see2007
    
    

Note 11)CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (34,349
    )
    
    $
    14,830Adjustments to reconcile net (loss) income to net
cash provided by operating activities:Depreciation and amortization
    
    
    13,066
    
    
    
    12,452Asset retirement obligation accretion expense
    
    
    19
    
    
    
    120Stock-based compensation  vendor
    
    
    
    
    
    
    191Stock-based compensation  employee
    
    
    621
    
    
    
    370Income from equity investments-related parties
    
    
    (1,210
    )
    
    
    (1,186
    )Distributions from equity investment
    
    
    434
    
    
    
    417Impairment charges
    
    
    2,943
    
    
    
    Noncash
restructuring charges
    
    
    26,459
    
    
    
    Loss on disposal of property and equipment
    
    
    1,092
    
    
    
    473Allowance for doubtful accounts
    
    
    185
    
    
    
    350Recognition of deferred gain on sale leaseback
    
    
    (165
    )
    
    
    (100
    )Recognition of deferred lease incentives
    
    
    465
    
    
    
    (315
    )Changes in operating assets and liabilities:
    
    
    
    
    
    
    Accounts receivable
    
    
    (505
    )
    
    
    1,348Inventory
    
    
    28,065
    
    
    
    407Prepaid expenses and other assets
    
    
    (2,232
    )
    
    
    1,634Refundable income taxes
    
    
    9,006
    
    
    
    110Accounts payable and accrued expenses
    
    
    (8,869
    )
    
    
    (11,224
    )Customer deposits
    
    
    (5,171
    )
    
    
    (5,637
    )Rent related accruals
    
    
    (343
    )
    
    
    (60
    )Deferred consideration
    
    
    (398
    )
    
    
    (376
    )Net cash provided by operating activities
    
    
    29,113
    
    
    
    13,804CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (11,200
    )
    
    
    (8,578
    )Proceeds from sale-leaseback transaction, net of fees
    
    
    
    
    
    
    13,522Proceeds from sale of property and equipment
    
    
    29
    
    
    
    1Cost of restricted investment
    
    
    (5,654
    )
    
    
    Net cash (used in) provided by investing activities
    
    
    (16,825
    )
    
    
    4,945CASH FLOWS FROM FINANCING ACTIVITIES:Payments on term loans
    
    
    (13,000
    )
    
    
    Net proceeds from revolving credit facility
    
    
    37,448
    
    
    
    Net repayments of revolving credit facility
    
    
    (35,877
    )
    
    
    (19,093
    )Deferred financing costs incurred
    
    
    (767
    )
    
    
    Increase in amount due to bank
    
    
    425
    
    
    
    852Proceeds from options exercised
    
    
    
    
    
    
    2,409Proceeds from employee stock purchase plan
    
    
    114
    
    
    
    146Net cash used in financing activities
    
    
    (11,657
    )
    
    
    (15,686
    )INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    631
    
    
    
    3,063CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,296
    
    
    
    1,310CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    1,927
    
    
    $
    4,373
  4




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##### Table of Contents



TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
  Accounting for the
Impairment or Disposal of Long-Lived Assets
 Topic 1N, Financial Statements, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
   2.
Liquidity and Management Plans
     3. Summary of Selected Accounting Policies
 Vendor Rebates and Allowances 
  Inventory 
 5




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Prepaid Expenses and Other Current Assets
 Long-Term
Investments
  Self-Insurance Accruals
 Revenue Recognition 
    Stock-Based Compensation
  6




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Weighted-AverageNumber of
    
    ExerciseOptions
    
    PriceOutstanding at December 31, 2006
    
    
    3,523,076
    
    
    $
    5.89Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (633,722
    )
    
    
    6.53Outstanding at March 31, 2007
    
    
    2,889,354
    
    
    $
    5.74Exercisable at March 31, 2007
    
    
    1,880,343
    
    
    $
    6.36
  Weighted-AverageNumber of
    
    ExerciseOptions
    
    PriceOutstanding at September 30, 2006
    
    
    2,872,989
    
    
    $
    6.10Granted
    
    
    753,425
    
    
    
    5.01Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (737,060
    )
    
    
    6.40Outstanding at March 31, 2007
    
    
    2,889,354
    
    
    $
    5.74Exercisable at March 31, 2007
    
    
    1,880,343
    
    
    $
    6.36
  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement
109.
 7




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##### Table of Contents



Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities Fair Value Measurements.
  4. Restricted Cash
  5. Restructuring and Other Charges (Credits), net
  8




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##### Table of Contents



Accounting for Costs Associated with Exit or Disposal Activities
  LeaseTerminationand OtherRelated
    
    
    ProfessionalCharges
    
    
    Fees
    
    
    Severance
    
    
    TotalBalance as of September 30, 2006
    
    $
    5,174
    
    
    $
    151
    
    
    $
    
    
    
    $
    5,325Change in estimate  revised assumptions
2005 store closing
    
    
    (386
    )
    
    
    (43
    )
    
    
    
    
    
    
    (429
    )Payments  2005 store closing
    
    
    (869
    )
    
    
    
    
    
    
    
    
    
    
    (869
    )Subtotal
    
    
    3,919
    
    
    
    108
    
    
    
    
    
    
    
    4,027Restructuring charges  2007 store closing
    
    
    
    
    
    
    440
    
    
    
    509
    
    
    
    949Payments  2007 store closing
    
    
    
    
    
    
    (440
    )
    
    
    
    
    
    
    (440
    )Balance as of March 31, 2007
    
    $
    3,919
    
    
    $
    108
    
    
    $
    509
    
    
    $
    4,536
  6. Discontinued Operations
 Accounting for the Impairment or
Disposal of Long-Lived Assets
    9




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##### Table of Contents



LeaseTerminationand OtherRelated
    
    
    ProfessionalCharges
    
    
    Fees
    
    
    TotalBalance as of September 30, 2006
    
    $
    1,719
    
    
    $
    46
    
    
    $
    1,765Change in estimate
    
    
    272
    
    
    
    
    
    
    
    272Payments
    
    
    (525
    )
    
    
    
    
    
    
    (525
    )Balance as of March 31, 2007
    
    $
    1,466
    
    
    $
    46
    
    
    $
    1,512
  7. Debt
    8. Income Taxes
 Accounting for Income Taxes
   10




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##### Table of Contents



9. Earnings (Loss) per Share
   10. Related-Party Transactions
      11.
Restatement and Reclassifications
 Deferred
Compensation Plan
  11




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Discontinued
Operations and Application of SAB 108
   Balance Sheet Information
 September 30, 2006As Previously
    
    Restatement
    
    Reclassification
    
    As Restated andReported
    
    Amounts
    
    Amounts
    
    ReclassifiedPrepaid expenses and other
current assets
    
    $
    6,895
    
    
    $
    1,923
    
    
    $
    
    
    
    $
    8,818Current Assets
    
    
    146,433
    
    
    
    1,923
    
    
    
    
    
    
    
    148,356Total Assets
    
    
    258,573
    
    
    
    1,923
    
    
    
    
    
    
    
    260,496Accrued expenses
    
    
    40,189
    
    
    
    1,923
    
    
    
    
    
    
    
    42,112Current Liabilities
    
    
    107,078
    
    
    
    1,923
    
    
    
    
    
    
    
    109,001Total Liabilities and
Stockholders Equity
    
    
    258,573
    
    
    
    1,923
    
    
    
    
    
    
    
    260,496
 March 31, 2006As Previously
    
    Restatement
    
    Reclassification
    
    As Restated andReported
    
    Amounts
    
    Amounts
    
    ReclassifiedPrepaid expenses and other
current assets
    
    $
    7,000
    
    
    $
    1,850
    
    
    $
    
    
    
    $
    8,850Current Assets
    
    
    157,716
    
    
    
    1,850
    
    
    
    
    
    
    
    159,566Total Assets
    
    
    269,484
    
    
    
    1,850
    
    
    
    
    
    
    
    271,334Accrued expenses
    
    
    44,069
    
    
    
    1,850
    
    
    
    
    
    
    
    45,919Current Liabilities
    
    
    101,728
    
    
    
    1,850
    
    
    
    
    
    
    
    103,578Rent related accruals
    
    
    21,279
    
    
    
    
    
    
    
    3,251
    
    
    
    24,530Accumulated deficit
    
    
    (205,843
    )
    
    
    
    
    
    
    (3,251
    )
    
    
    (209,094
    )Total stockholders equity
    
    
    100,648
    
    
    
    
    
    
    
    (3,251
    )
    
    
    97,397Total Liabilities and
Stockholders Equity
    
    
    269,484
    
    
    
    1,850
    
    
    
    
    
    
    
    271,334
  Statements
of Operations Information
 Three Months Ended March 31, 2006As Previously
    
    Restatement
    
    Reclassification
    
    As Restated andReported
    
    Amounts
    
    Amounts
    
    ReclassifiedTotal revenue
    
    $
    187,235
    
    
    $
    
    
    
    $
    (389
    )
    
    $
    186,846Cost of sales
    
    
    106,643
    
    
    
    
    
    
    
    (170
    )

    
    
    106,473Gross profit
    
    
    80,592
    
    
    
    
    
    
    
    (219
    )
    
    
    80,373Selling, general and administrative expenses
    
    
    79,147
    
    
    
    102
    
    
    
    (382
    )
    
    
    78,867Operating income (loss)
    
    
    874
    
    
    
    (102
    )

    
    
    163
    
    
    
    935Other income
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    102Income (loss) from continuing operations before
income taxes
    
    
    (240
    )
    
    
    
    
    
    
    163
    
    
    
    (77
    )Income (loss) from continuing operations before
income from equity investments  related parties
    
    
    (250
    )

    
    
    
    
    
    
    163
    
    
    
    (87
    )Net income (loss) from continuing operations
    
    
    241
    
    
    
    
    
    
    
    163
    
    
    
    404Discontinued operations:Net income (loss) from discontinued operations
    
    
    91
    
    
    
    
    
    
    
    (71
    )
    
    
    20Net income (loss)
    
    
    332
    
    
    
    
    
    
    
    92
    
    
    
    424Basic income (loss) per share:Income (loss) from continuing operations
    
    $
    0.01
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    0.02Basic net income (loss) per share
    
    $
    0.01
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    0.02Diluted income (loss) per share:Income (loss) from continuing operations
    
    $
    0.01
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    0.02Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    0.02
 Six Months Ended March 31, 2006As Previously
    
    Restatement
    
    Reclassification
    
    As Restated andReported
    
    Amounts
    
    Amounts
    
    ReclassifiedTotal revenue
    
    $
    453,755
    
    
    $
    
    
    
    $
    (902
    )
    
    $
    452,853Cost of sales
    
    
    263,926
    
    
    
    
    
    
    
    (468
    )

    
    
    263,458Gross profit
    
    
    189,829
    
    
    
    
    
    
    
    (434
    )
    
    
    189,395Selling, general and administrative expenses
    
    
    172,808
    
    
    
    144
    
    
    
    (745
    )
    
    
    172,207Operating income (loss)
    
    
    16,197
    
    
    
    (144
    )

    
    
    311
    
    
    
    16,364Other income
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    144Income (loss) from continuing operations before
income taxes
    
    
    13,697
    
    
    
    
    
    
    
    311
    
    
    
    14,008Income (loss) from continuing operations before
income from equity investments  related parties
    
    
    13,587
    
    
    
    
    
    
    
    311
    
    
    
    13,898Net income (loss) from continuing operations
    
    
    14,773
    
    
    
    
    
    
    
    311
    
    
    
    15,084Net income (loss) from discontinued operations
    
    
    (128
    )
    
    
    
    
    
    
    (126
    )
    
    
    (254
    )Net income (loss)
    
    
    14,645
    
    
    
    
    
    
    
    185
    
    
    
    14,830Basic income (loss) per share:Income (loss) from continuing operations
    
    $
    0.60
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    0.61Basic net income (loss) per share
    
    $
    0.59
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    0.60Diluted income (loss) per share:Income (loss) from continuing operations
    
    $
    0.59
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    0.60Diluted net income (loss) per share
    
    $
    0.58
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    0.59
  12




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Statement of Cash Flow Information
 Six Months Ended March 31, 2006As Previously
    
    Restatement
    
    Reclassification
    
    As Restated andReported
    
    Amounts
    
    Amounts
    
    ReclassifiedNet income
    
    $
    14,645
    
    
    $
    
    
    
    $
    185
    
    
    $
    14,830Changes in operating assets and liabilities:Prepaid expenses and other assets
    
    
    1,996
    
    
    
    (252
    )
    
    
    (110
    )
    
    
    1,634Refundable income taxes
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    110Accounts payable and accrued expenses
    
    
    (11,476
    )
    
    
    252
    
    
    
    
    
    
    
    (11,224
    )Rent related accruals
    
    
    125
    
    
    
    
    
    
    
    (185
    )
    
    
    (60
    )
  
 Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations.
 INTRODUCTION
     RESULTS OF OPERATIONS
 THREE MONTHS ENDED MARCH 31, 2007 AS COMPARED TO THREE MONTHS ENDED MARCH 31, 2006
 Total Revenue 
  13




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Cost of Sales and Gross Profit  ,
 Selling, General and Administrative Expenses 
 14




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Amortization of Intangibles 
 Impairment Charges 
 Restructuring Charges  .
 Interest Expense, net 
 Income Tax Expense  Accounting for Income Taxes
 Income from Equity Investment 
 Discontinued Operations 
 SIX MONTHS ENDED MARCH 31, 2007 AS COMPARED TO SIX MONTHS ENDED MARCH 31, 2006
 Total Revenue 
 15




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Cost of Sales and Gross Profit  ,
 Selling, General and Administrative Expenses 
 16




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Amortization of Intangibles 
 Impairment Charges 
 Restructuring Charges  .
 Interest Expense, net 
 Income Tax Expense  Accounting for Income Taxes
 Income from Equity Investment 
 Discontinued Operations 
 LIQUIDITY AND CAPITAL RESOURCES
   17




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18




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FORWARD-LOOKING STATEMENTS
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control over Financial Reporting.
 19




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20




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  We
Will Need Additional Capital to Fund Our Operations
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
      21




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SIGNATURES
  TWEETER HOME ENTERTAINMENT GROUP, INC.By:
    /s/ Gregory W. HuntGregory W. HuntSenior Vice President and Chief Financial
Officer