##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE

SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 2001

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 |  | (I.R.S. Employer Identification No.)
|incorporation or organization)  |  |                                      |            | 

10 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 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  

  No

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 April 26, 2001
|Common Stock, $.01 par value |  |                               | 18,645,967 | 



---






---

TABLE OF CONTENTS



|                                                                                             |                                                                |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------- | -------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                               
|Item 1. Financial Statements (Unaudited)                                                    
|                                                                                             | Consolidated Balance Sheets                                   
|                                                                                             | Consolidated Statements of Operations                         
|                                                                                             | 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                          
|PART II. OTHER INFORMATION                                                                  
|Item 5. Other Information                                                                   
|Item 6. Exhibits and Reports on Form 8-K                                                    
|SIGNATURES                                                                                  



---



TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES

INDEX

|         |  |                                                                                                          |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                                          |  | Page
|         |  |                                                                                                          |  |     
|Part I.  |  | FINANCIAL INFORMATION                                                                                    |  |      |    | 
|Item 1   |  | Financial Statements (Unaudited)                                                                         |  |      |    | 
|        
|        
|        
|        
|         |  | Consolidated Balance Sheets as of September 30, 2000 and
        March 31, 2001                          |  |      | 2  | 
|        
|        
|        
|        
|         |  | Consolidated Statements of Operations For the Three and Six
        Months Ended March 31, 2000 and 2001 |  |      | 3  | 
|        
|        
|        
|        
|         |  | Consolidated Statements of Cash Flows For the Six Months Ended
        March 31, 2000 and 2001           |  |      | 4  | 
|        
|        
|        
|        
|         |  | Notes to Unaudited Condensed Consolidated Financial Statements                                           |  |      | 5  | 
|        
|        
|        
|        
|Item 2   |  | Managements Discussion and Analysis of Financial Condition
        and Results of Operations            |  |      | 8  | 
|        
|        
|        
|        
|Item 3   |  | Quantitative and Qualitative Disclosures About Market Risk                                               |  |      | 11 | 
|        
|        
|        
|        
|Part II. |  | OTHER INFORMATION                                                                                        |  |      | 12 | 
|        
|        
|        
|        
|         |  | Signatures                                                                                               |  |      | 13 | 

1



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1.  Financial Statements
(Unaudited)




TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                     |                                                                                                                                               |                                   |   |             |             |  |   |             |             | 
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | - | ----------- | ----------- |  | - | ----------- | ----------- | 
|                                     |                                                                                                                                               | September 30,                     |   | March 31,  
|                                     |                                                                                                                                               | 2000                              |   | 2001       
|                                     |                                                                                                                                               |                                   |   |            
|                                     |                                                                                                                                               |                                   |   | (Unaudited)
|                                    
|                                    
|                                    
|                                    
|Assets                               |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                    
|                                    
|                                    
|                                    
|Current Assets:                      |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                                     |                                   | $ | 34,292,555  |             |  | $ | 26,282,706  |            
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts receivable, net of allowance for doubtful accounts of
	$800,000 at September 30, 2000 and $819,000 at
	March 31, 2001                |                                   |   | 14,662,914  |             |  |   | 16,634,980  |            
|                                    
|                                    
|                                    
|                                    
|                                     | Inventory                                                                                                                                     |                                   |   | 85,967,261  |             |  |   | 81,531,915  |            
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred tax assets                                                                                                                           |                                   |   | 2,424,294   |             |  |   | 2,493,610   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses and other current assets                                                                                                     |                                   |   | 1,578,893   |             |  |   | 2,440,431   |            
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                     |                                                                                                                                               | Total current assets              |   |             | 138,925,917 |  |   |             | 129,383,642 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Investment in joint venture                                                                                                                   |                                   |   | 3,214,451   |             |  |   | 3,868,631   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Long-term investments                                                                                                                         |                                   |   | 1,653,109   |             |  |   | 4,353,721   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Property and equipment, net                                                                                                                   |                                   |   | 51,937,902  |             |  |   | 61,445,691  |            
|                                    
|                                    
|                                    
|                                    
|                                     | Other assets, net                                                                                                                             |                                   |   | 1,262,874   |             |  |   | 728,483     |            
|                                    
|                                    
|                                    
|                                    
|                                     | Goodwill, net                                                                                                                                 |                                   |   | 38,043,290  |             |  |   | 41,255,052  |            
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                     |                                                                                                                                               | Total                             |   | $           | 235,037,543 |  |   | $           | 241,035,220 | 
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|Liabilities and Stockholders Equity |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                    
|                                    
|                                    
|                                    
|Current Liabilities:                 |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt                                                                                                             |                                   | $ | 63,074      |             |  | $ | 67,245      |            
|                                    
|                                    
|                                    
|                                    
|                                     | Amount due to bank                                                                                                                            |                                   |   | 8,865,870   |             |  |   | 4,877,864   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                                              |                                   |   | 21,499,910  |             |  |   | 10,285,029  |            
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued expenses                                                                                                                              |                                   |   | 19,509,166  |             |  |   | 22,080,680  |            
|                                    
|                                    
|                                    
|                                    
|                                     | Customer deposits                                                                                                                             |                                   |   | 5,153,801   |             |  |   | 6,233,587   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred warranty                                                                                                                             |                                   |   | 294,477     |             |  |   | 679,014     |            
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                     |                                                                                                                                               | Total current liabilities         |   |             | 55,386,298  |  |   |             | 44,223,419  | 
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|Long-Term Debt:                      |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Notes payable to bank                                                                                                                         |                                   |   | 13,638      |             |  |   | 3,310       |            
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|Other Long-Term Liabilities:         |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Rent related accruals                                                                                                                         |                                   |   | 3,489,645   |             |  |   | 4,118,330   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred warranty                                                                                                                             |                                   |   | 72,504      |             |  |   | 1,356,746   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred tax liabilities                                                                                                                      |                                   |   | 1,124,656   |             |  |   | 816,342     |            
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                     |                                                                                                                                               | Total other long-term liabilities |   |             | 4,686,805   |  |   |             | 6,291,418   | 
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                     |                                                                                                                                               | Total liabilities                 |   |             | 60,086,741  |  |   |             | 50,518,147  | 
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|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;
	20,251,734 shares issued at September 30, 2000 and
	20,517,896 at March 31, 2001 |                                   |   | 202,517     |             |  |   | 205,179     |            
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid in capital                                                                                                                    |                                   |   | 144,538,059 |             |  |   | 146,559,302 |            
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated other comprehensive income                                                                                                        |                                   |   | 176,208     |             |  |   | 131,899     |            
|                                    
|                                    
|                                    
|                                    
|                                     | Retained earnings                                                                                                                             |                                   |   | 31,928,911  |             |  |   | 45,510,457  |            
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                     |                                                                                                                                               | Total                             |   |             | 176,845,695 |  |   |             | 192,406,837 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Less treasury stock: 1,879,911 shares at September 30, 2000
	and 1,872,585 shares at March 31, 2001, at cost                                  |                                   |   | (1,894,893  | )           |  |   | (1,889,764  | )          
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                     |                                                                                                                                               | Total stockholders equity        |   |             | 174,950,802 |  |   |             | 190,517,073 | 
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            
|                                     |                                                                                                                                               | Total                             |   | $           | 235,037,543 |  |   | $           | 241,035,220 | 
|                                     |                                                                                                                                               |                                   |   |             |             |  |   |            

See notes to unaudited condensed consolidated financial
statements.

2



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##### Table of Contents






TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


|                                               |              |                    |             |                  |  |      |             |            |  |   |              |            |  |   |              |             | 
|---------------------------------------------- | ------------ | ------------------ | ----------- | ---------------- |  | ---- | ----------- | ---------- |  | - | ------------ | ---------- |  | - | ------------ | ----------- | 
|                                               |              |                    |             |                 
|                                               |              | Three Months Ended |             | Six Months Ended
|                                               |              | March 31,          |             | March 31,       
|                                               |              |                    |             |                 
|                                               |              | 2000               |             | 2001             |  | 2000 |             | 2001      
|                                               |              |                    |             |                  |  |      |             |           
|Total revenue                                  |              | $                  | 86,142,495  |                  |  | $    | 117,832,704 |            |  | $ | 209,585,779  |            |  | $ | 279,801,085  |            
|                                              
|                                              
|                                              
|                                              
|Cost of sales                                  |              |                    | (54,264,080 | )                |  |      | (74,027,391 | )          |  |   | (132,060,203 | )          |  |   | (177,542,276 | )          
|                                               |              |                    |             |                  |  |      |             |            |  |   |              |            |  |   |              |            
|                                               | Gross Profit |                    |             | 31,878,415       |  |      |             | 43,805,313 |  |   |              | 77,525,576 |  |   |              | 102,258,809 | 
|                                              
|                                              
|                                              
|                                              
|Selling expenses                               |              |                    | 22,804,215  |                  |  |      | 31,510,466  |            |  |   | 49,786,164   |            |  |   | 67,899,349   |            
|                                              
|                                              
|                                              
|                                              
|Corporate, general and administrative expenses |              |                    | 4,586,196   |                  |  |      | 6,094,651   |            |  |   | 9,233,498    |            |  |   | 12,155,989   |            
|                                              
|                                              
|                                              
|                                              
|Amortization of goodwill                       |              |                    | 337,650     |                  |  |      | 480,000     |            |  |   | 669,542      |            |  |   | 960,000      |            
|                                               |              |                    |             |                  |  |      |             |            |  |   |              |            |  |   |              |            
|Income from operations                         |              |                    | 4,150,354   |                  |  |      | 5,720,196   |            |  |   | 17,836,372   |            |  |   | 21,243,471   |            
|                                              
|                                              
|                                              
|                                              
|Income from joint venture                      |              |                    | 90,985      |                  |  |      | 198,973     |            |  |   | 198,334      |            |  |   | 684,180      |            
|                                              
|                                              
|                                              
|                                              
|Interest income, net                           |              |                    | 269,246     |                  |  |      | 380,163     |            |  |   | 12,383       |            |  |   | 701,671      |            
|                                               |              |                    |             |                  |  |      |             |            |  |   |              |            |  |   |              |            
|Income before income taxes                     |              |                    | 4,510,585   |                  |  |      | 6,299,332   |            |  |   | 18,047,089   |            |  |   | 22,629,322   |            
|                                              
|                                              
|                                              
|                                              
|Income taxes                                   |              |                    | 1,804,201   |                  |  |      | 2,515,781   |            |  |   | 7,218,803    |            |  |   | 9,047,777    |            
|                                               |              |                    |             |                  |  |      |             |            |  |   |              |            |  |   |              |            
|NET INCOME                                     |              | $                  | 2,706,384   |                  |  | $    | 3,783,551   |            |  | $ | 10,828,286   |            |  | $ | 13,581,545   |            
|                                               |              |                    |             |                  |  |      |             |            |  |   |              |            |  |   |              |            
|Basic earnings per share                       |              | $                  | 0.16        |                  |  | $    | 0.20        |            |  | $ | 0.68         |            |  | $ | 0.73         |            
|                                               |              |                    |             |                  |  |      |             |            |  |   |              |            |  |   |              |            
|Diluted earnings per share                     |              | $                  | 0.15        |                  |  | $    | 0.20        |            |  | $ | 0.61         |            |  | $ | 0.71         |            
|                                               |              |                    |             |                  |  |      |             |            |  |   |              |            |  |   |              |            
|Weighted average shares outstanding:           |              |                    |             |                  |  |      |             |            |  |   |              |            |  |   |              |            
|                                              
|                                              
|                                              
|                                              
|                                               | Basic        |                    |             | 16,604,852       |  |      |             | 18,630,582 |  |   |              | 15,937,210 |  |   |              | 18,555,020  | 
|                                               |              |                    |             |                  |  |      |             |            |  |   |              |            |  |   |              |            
|                                               | Diluted      |                    |             | 18,348,423       |  |      |             | 19,132,049 |  |   |              | 17,700,307 |  |   |              | 19,191,483  | 
|                                               |              |                    |             |                  |  |      |             |            |  |   |              |            |  |   |              |            

See notes to unaudited condensed consolidated financial
statements.

3



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##### Table of Contents






TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


|                                                                                   |                                                                                            |                                                   |                                                  |            |             |            |            |             |             |             |  
|---------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------- | ------------------------------------------------ | ---------- | ----------- | ---------- | ---------- | ----------- | ----------- | ----------- | -
|                                                                                   |                                                                                            |                                                  
|                                                                                   |                                                                                            | Six months ended March 31,                       
|                                                                                   |                                                                                            |                                                  
|                                                                                   |                                                                                            | 2000                                              |                                                  | 2001      
|                                                                                   |                                                                                            |                                                   |                                                  |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                                              |                                                                                            |                                                   |                                                  |            |             |            |            |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Net income                                                                         |                                                                                            | $                                                 | 10,828,286                                       |            |             | $          | 13,581,546 |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Adjustments to reconcile net income to net cash provided by
	operating activities: |                                                                                            |                                                   |                                                  |            |             |            |            |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Depreciation and amortization                                                              |                                                   |                                                  | 3,313,169  |             |            |            | 4,945,628   |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Equity earnings in joint venture investment                                                |                                                   |                                                  | (198,334   | )           |            |            | (684,180    | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Gain on disposal of equipment                                                              |                                                   |                                                  | (20,300    | )           |            |            | (5,000      | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Provision for uncollectible accounts                                                       |                                                   |                                                  |           |             |            |            | 45,000      |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Deferred income tax benefit                                                                |                                                   |                                                  |           |             |            |            | (348,092    | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Changes in operating assets and liabilities, net of effects from
	acquisition of business: |                                                   |                                                  |            |             |            |            |             |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                                            | Increase in accounts receivable                   |                                                  |            | (4,435,583  | )          |            |             | (1,873,281  | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                                            | (Increase) decrease in inventory                  |                                                  |            | (10,301,702 | )          |            |             | 9,861,962   |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                                            | Increase in prepaid expenses and other assets     |                                                  |            | (490,379    | )          |            |             | (246,804    | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                                            | Decrease in accounts payable and accrued expenses |                                                  |            | (24,184     | )          |            |             | (10,255,729 | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                                            | Increase in customer deposits                     |                                                  |            | 1,156,674   |            |            |             | 28,747      |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                                            | Increase in deferred rent                         |                                                  |            | 227,117     |            |            |             | 628,685     |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                                            | Decrease in deferred warranty                     |                                                  |            | (379,966    | )          |            |             | (217,266    | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                                            | Decrease in other liabilities                     |                                                  |            | (261,020    | )          |            |             |            |            
|                                                                                   |                                                                                            |                                                   |                                                  |            |             |            |            |            
|                                                                                   |                                                                                            |                                                   | Net cash (used) provided by operating activities |            |             | (586,222   | )          |             |             | 15,461,216  |  
|                                                                                   |                                                                                            |                                                   |                                                  |            |             |            |            |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                                              |                                                                                            |                                                   |                                                  |            |             |            |            |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Purchase of property and equipment                                                         |                                                   |                                                  | (7,783,105 | )           |            |            | (11,502,921 | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Proceeds from sale of property and equipment                                               |                                                   |                                                  | 20,300     |             |            |            | 5,000       |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Purchase of marketable equity securities                                                   |                                                   |                                                  |           |             |            |            | (2,774,459  | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Investment in joint venture                                                                |                                                   |                                                  |           |             |            |            |            |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Acquisition of businesses                                                                  |                                                   |                                                  | (100,321   | )           |            |            | (4,828,359  | )          
|                                                                                   |                                                                                            |                                                   |                                                  |            |             |            |            |            
|                                                                                   |                                                                                            |                                                   | Net cash used in investing activities            |            |             | (7,863,126 | )          |             |             | (19,100,739 | )
|                                                                                   |                                                                                            |                                                   |                                                  |            |             |            |            |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                              |                                                                                            |                                                   |                                                  |            |             |            |            |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Increase (decrease) in amount due to bank                                                  |                                                   |                                                  | 429,632    |             |            |            | (5,063,328  | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Payments of long-term debt                                                                 |                                                   |                                                  | (5,717,827 | )           |            |            | (6,157      | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Issuance of common stock, net of issuance cost                                             |                                                   |                                                  | 60,067,269 |             |            |            | 623,268     |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Other equity transactions                                                                  |                                                   |                                                  | 679,528    |             |            |            | 75,891      |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Investment in joint venture                                                                |                                                   |                                                  | (2,745,033 | )           |            |            |            |            
|                                                                                   |                                                                                            |                                                   |                                                  |            |             |            |            |            
|                                                                                   |                                                                                            |                                                   | Net cash provided (used) by financing activities |            |             | 52,713,569 |            |             |             | (4,370,326  | )
|                                                                                   |                                                                                            |                                                   |                                                  |            |             |            |            |            
|INCREASE IN CASH AND CASH EQUIVALENTS                                              |                                                                                            |                                                   | 44,264,221                                       |            |             |            | (8,009,849 | )          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                     |                                                                                            |                                                   | 999,495                                          |            |             |            | 34,292,555 |            
|                                                                                   |                                                                                            |                                                   |                                                  |            |             |            |            |            
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                           |                                                                                            | $                                                 | 45,263,716                                       |            |             | $          | 26,282,706 |            
|                                                                                   |                                                                                            |                                                   |                                                  |            |             |            |            |            
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                 |                                                                                            |                                                   |                                                  |            |             |            |            |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Cash paid during the period for:                                                           |                                                   |                                                  |            |             |            |            |             |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                                            | Interest                                          |                                                  | $          | 343,218     |            |            | $           | 8,048       |            
|                                                                                   |                                                                                            |                                                   |                                                  |            |             |            |            |            
|                                                                                   |                                                                                            | Taxes                                             |                                                  | $          | 5,303,528   |            |            | $           | 7,958,500   |            
|                                                                                   |                                                                                            |                                                   |                                                  |            |             |            |            |            

See notes to unaudited condensed consolidated financial
statements.

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

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, 2000.

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
accruals) 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,
2001 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 30, 2001.
Tweeter typically records its highest revenue and earnings in
the first fiscal quarter.

3.  Earnings per Share

Tweeter computed earnings per share in accordance with Statement
of Financial Accounting Standards (SFAS)
No. 128, Earnings Per Share. Basic earnings per
share is calculated based on the weighted average number of
common shares outstanding. Diluted earnings per share is based
on the weighted average number of common shares outstanding,
adjusted for the nominal issuance of certain warrants and
dilutive potential common shares (common stock options and
warrants).

The following is a reconciliation of the numerators and
denominators of the basic and diluted earnings per share:

|                            |                                            |                    |            |            |  |   |            |            | 
|--------------------------- | ------------------------------------------ | ------------------ | ---------- | ---------- |  | - | ---------- | ---------- | 
|                            |                                            |                   
|                            |                                            | Three Months Ended
|                            |                                            | March 31,         
|                            |                                            |                   
|                            |                                            | 2000               |            | 2001      
|                            |                                            |                    |            |           
|Basic Earnings Per Share:   |                                            |                    |            |            |  |   |            |           
|                           
|                           
|                           
|                           
|Numerator:                  |                                            |                    |            |            |  |   |            |           
|                           
|                           
|                           
|                           
|                            | Net Income                                 |                    | $          | 2,706,384  |  |   | $          | 3,783,551  | 
|                           
|                           
|                           
|                           
|Denominator:                |                                            |                    |            |            |  |   |            |           
|                           
|                           
|                           
|                           
|                            | Weighted average common shares outstanding |                    |            | 16,604,852 |  |   |            | 18,630,582 | 
|                            |                                            |                    |            |            |  |   |            |           
|Basic earnings per share    |                                            | $                  | 0.16       |            |  | $ | 0.20       |           
|                            |                                            |                    |            |            |  |   |            |           
|Diluted Earnings Per Share: |                                            |                    |            |            |  |   |            |           
|                           
|                           
|                           
|                           
|Numerator                   |                                            | $                  | 2,706,384  |            |  | $ | 3,783,551  |           
|                           
|                           
|                           
|                           
|Denominator:                |                                            |                    |            |            |  |   |            |           
|                           
|                           
|                           
|                           
|                            | Weighted average shares outstanding        |                    |            | 16,604,852 |  |   |            | 18,630,582 | 
|                           
|                           
|                           
|                           
|                            | Potential common stock outstanding         |                    |            | 1,743,571  |  |   |            | 501,467    | 
|                            |                                            |                    |            |            |  |   |            |           
|Total                       |                                            |                    | 18,348,423 |            |  |   | 19,132,049 |           
|                            |                                            |                    |            |            |  |   |            |           
|Diluted earnings per share  |                                            | $                  | 0.15       |            |  | $ | 0.20       |           
|                            |                                            |                    |            |            |  |   |            |           

5



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##### Table of Contents



TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS  (Continued)


4.  Comprehensive Income

Comprehensive income for the three and six months ended
March 31, 2000 and March 31, 2001 was as follows:

|                                                           |  |                    |           |                  |  |      |           |      |  |   |            |  |  |   |            |  
|---------------------------------------------------------- |  | ------------------ | --------- | ---------------- |  | ---- | --------- | ---- |  | - | ---------- |  |  | - | ---------- | -
|                                                           |  |                    |           |                 
|                                                           |  | Three Months Ended |           | Six Months Ended
|                                                           |  | March 31,          |           | March 31,       
|                                                           |  |                    |           |                 
|                                                           |  | 2000               |           | 2001             |  | 2000 |           | 2001
|                                                           |  |                    |           |                  |  |      |           |     
|Net income                                                 |  | $                  | 2,706,384 |                  |  | $    | 3,783,551 |      |  | $ | 10,828,286 |  |  | $ | 13,581,545 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Change in fair value of long-term investments (net of tax) |  |                    | (142,931  | )                |  |      | 429,840   |      |  |   | 310,878    |  |  |   | (44,309    | )
|                                                           |  |                    |           |                  |  |      |           |      |  |   |            |  |  |   |            |  
|Comprehensive income                                       |  | $                  | 2,563,453 |                  |  | $    | 4,213,391 |      |  | $ | 11,139,164 |  |  | $ | 13,537,236 |  
|                                                           |  |                    |           |                  |  |      |           |      |  |   |            |  |  |   |            |  

5.  Douglas TV Acquisition

On October 2, 2000, Tweeter completed the acquisition of
the retail operations of Douglas TV, Inc. (Douglas
TV). Douglas TV has four stores in the greater Chicago
area, and reported retail revenue of approximately $30 million
for calendar 1999. This transaction is being accounted for as a
purchase. Tweeters total purchase price was $5.78 million
in cash and shares of its common stock from its shelf
registration filed on April 13, 1999 with the Securities
and Exchange Commission. The results of operations for the
acquired entity for the six months and three months ended
March 31, 2001 were not significant. Accordingly, pro forma
information has not been presented. The allocation of the
purchase price resulted in goodwill to date of approximately
$3,308,000, which is being amortized over twenty years using the
straight-line method. The approximate net assets acquired at
fair market value on October 2, 2000 were allocated as
follows:

|                                                                                                                                          |                      |   |            |           | 
|----------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | - | ---------- | --------- | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Inventory                                                                                                                                 |                      | $ | 5,427,000  |          
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Property and equipment                                                                                                                    |                      |   | 1,939,000  |          
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Accounts receivable/ Prepaids                                                                                                             |                      |   | 246,000    |          
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Other current liabilities                                                                                                                 |                      |   | (2,739,000 | )        
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Deferred Warranty                                                                                                                         |                      |   | (1,886,000 | )        
|                                                                                                                                          |                      |   |            |          
|                                                                                                                                          | Net assets purchased |   |            | 2,987,000 | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Total purchase price and related costs (including the issuance
	of 36,849 shares of common stock with a fair market value of
	$1,330,000) |                      |   | 6,295,000  |          
|                                                                                                                                          |                      |   |            |          
|                                                                                                                                          | Goodwill             |   | $          | 3,308,000 | 
|                                                                                                                                          |                      |   |            |          

6.  The Video Scene, Inc. dba Big Screen City,
Acquisition

On March 22, 2001, the Company announced it had reached in
principle an agreement to acquire The Video Scene, Inc. dba Big
Screen City, located in the greater San Diego, CA and Temecula,
CA areas. Big Screen City is a four-store specialty consumer
electronics retailer with annual sales approaching $16 million,
and has been in business in the San Diego market for
20 years. The transaction is expected to be completed on or
about May 1, 2001. Tweeter will pay approximately $4.0
million in cash and $1.0 million in stock for all of the
outstanding common stock of The Video Scene, Inc. dba Big Screen
City. The company intends to issue these shares from its shelf
registration filed on April 13, 1999, and amended on
December 23, 1999. The transaction will be accounted for as
a purchase.

6



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##### Table of Contents



TWEETER HOME ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS  (Continued)


7.  Subsequent Events

On April 6, 2001, Tweeter announced that it has reached an
agreement in principle to acquire SMK Marketing, Inc., dba Audio
Video Systems, located in the greater Charlotte, North Carolina
area. Audio Video Systems is a three-store specialty consumer
electronics retailer with annual sales of approximately $15
million, and has been in business in the Charlotte market for
13 years. The transaction is expected to be completed on or
about June 1, 2001. Tweeter expects to fund the acquisition
with a combination of cash and stock with an approximate current
value of $4.75 million for the Assets of Audio Video Systems.
The company intends to issue these shares from its shelf
registration filed on April 13, 1999, and amended on
December 23, 1999. The transaction will be accounted for as
a purchase.

On April 13, 2001, Cyberian Outpost, Inc. (COOL) the
operators of Outpost.com, announced that they are in the early
stages of evaluating restructuring options. Outpost.com is an
equity partner in a joint venture (Tweeter.Outpost.com, LLC)
that operates the companys commercial Internet effort. At
this time Tweeter does not believe such restructuring will
result in a material impact on the financial position or results
of operations of the Company.

8.  New Accounting Pronouncements

During 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS
No. 133 was not required to be implemented until fiscal
year 2000. In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of FASB
Statement No. 133  an amendment of FASB
Statement No. 133. SFAS No. 137 delayed the
original implementation date of SFAS No. 133 by one year.
In June 2000, the FASB issued SFAS 138, Accounting
for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of FASB Statement No. 133.
Tweeter implemented FASB Statement No. 133 on the first day
of fiscal 2001 and there is no effect on the consolidated
financial statements.

On December 3, 1999, the Securities and Exchange Commission
published Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition in Financial
Statements. This SAB summarizes certain of the
staffs views in applying generally accepted accounting
principles to revenue recognition in financial statements. This
SAB requires, among other things, that revenues derived from
products or services in which companies typically act as an
agent be reported on a net basis. Tweeter implemented SAB
No. 101 during the quarter ended December 31, 2000.
The net effect for the six months ended March 31, 2001 and
March 31, 2000 was a reduction in total revenues and cost
of sales of $3,331,000 and $2,362,000 and the net effect for the
three months ended March 31, 2001 and March 31, 2000 was
$1,489,000 and $993,000. The adoption of SAB No. 101 did
not have any impact on the results of operations for the six
months ended March 31, 2001.

7



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##### Table of Contents








|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
        Condition and Results of Operations

Introduction

Tweeter is a specialty retailer of mid to high-end audio and
video consumer electronics products. Tweeter currently operates
96 stores under the Tweeter and HiFi Buys names.

Results of Operations

Three Months Ended March 31, 2001 as
Compared to Three Months Ended March 31, 2000

Total Revenue.Total revenue includes delivered sales,
completed service center work orders, insurance replacement and
corporate sales. Total revenue increased $31.7 million, or
36.8%, to $117.8 million for the three months ended
March 31, 2001 from $86.1 million for the three months
ended March 31, 2000. The increase was mainly comprised of
$8.3 million from new stores, a comparable store sales increase
of $2.9 million, and $19.2 million from the United Audio Centers
and Douglas TV acquisitions. Comparable store sales, excluding
United Audio Centers and Douglas TV, increased by 3.6%. The
United Audio Centers and Douglas TV stores had a comparable
store sales decrease of 7.4%. Digital technology products
continued to drive sales in the quarter ended March 31,
2001. Digital product sales in all categories accounted for
42.8% of revenues for the quarter. Digital and digital ready
projection televisions represented over 82% of all projection TV
sales, and 17.4% of the total revenue. Unit sales of plasma
televisions more than doubled and plasma television revenues
increased 113%. Revenue from the sales of projection televisions
compared to last year was up over 28% for the quarter ended
March 31, 2001. Digital and digital ready tube televisions
accounted for over 44% of all tube televisions sold in the
quarter ended March 31, 2001, and represented 5.9% of total
revenue. Tube television revenue increased 13.8% for the quarter
compared to the same quarter last year. Digital camcorder sales
represented over 88% of the category and digital receivers
accounted for over 72% of the receiver category. The sales of
digital personal video recorders grew to over 16% of the VCR
business and unit sales increased over 224%.

Gross Profit.Cost of sales includes merchandise, net
delivery costs, distribution costs, purchase discounts, and
vendor volume rebates. Cost of sales increased $19.8 million, or
36.4%, to $74.0 million for the three months ended
March 31, 2001 from $54.3 million for the three months
ended March 31, 2000. Gross profit increased $11.9 million,
or 37.4%, to $43.8 million for the three months ended
March 31, 2001 from $31.9 million for the three months
ended March 31, 2000. The gross margin percentage increased
20 basis points, to 37.2% for the three months ended
March 31, 2001, from 37.0% for the three months ended
March 31, 2000. The increase in margin was primarily due to
the continued strength of the digital product sales. The sales
of all digital categories increased to 42.8% of total revenues
for the quarter ended March 31, 2001 compared to 24.4% for
the same period last year. Also contributing to the increase was
the labor generated from the Companys efforts to pursue
the home installation business.

Selling Expenses.Selling expenses include the
compensation of store personnel, occupancy costs, store level
depreciation, advertising expenses, pre-opening expenses and
credit card fees and excludes corporate, general and
administrative expenses. Selling expenses increased $8.7
million, or 38.2%, to $31.5 million for the three months ended
March 31, 2001 from $22.8 million for the three months
ended March 31, 2000. As a percentage of revenue, selling
expenses increased to 26.7% for the three months ended
March 31, 2001 from 26.5% for the three months ended
March 31, 2000. This increase was largely due to higher
payroll costs related to the increased infrastructure of the
home installation departments.

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 related
support functions. Corporate, general and administrative
expenses increased 32.9% to $6.1 million for the three months
ended March 31, 2001 from $4.6 million for the three months
ended March 31, 2000. As a percentage of total revenue,
corporate general and administrative expenses decreased to 5.2%
for the three months ended March 31, 2001 from 5.3% for the
three months ended March 31, 2000. This decrease was the
result of leveraging the additional sales volume of new stores
and the acquisitions of United Audio Centers and Douglas TV as
well as a deliberate effort by management to slow the growth in
these expenses.

8



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##### Table of Contents



Amortization of Goodwill. Amortization of goodwill
increased to $480,000 for the three months ended March 31,
2001 from $338,000 for the three months ended March 31,
2000. The increase was due to the completion of the United Audio
Centers acquisition on April 1, 2000 and the Douglas TV
acquisition on October 2, 2000.

Net Interest Income.Net interest income increased to
$380,000 for the three months ended March 31, 2001 from
$269,000 for the three months ended March 31, 2000. The
increase was due to the elimination of outstanding debt with the
proceeds from our follow-on offering on February 7, 2000
and investment income realized from our cash management efforts.

Income Taxes. The effective tax rate for the fiscal
quarters ended March 31, 2001 and March 31, 2000 was 40.0%.
Tweeter expects that the income tax rate for the fiscal year
ending September 30, 2001 will remain substantially
unchanged.

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 the 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 necessarily indicative of results
for the entire fiscal year.

Six Months Ended March 31, 2001 as
Compared to Six Months Ended March 31, 2000

Total Revenue. Total revenue increased $70.2 million, or
33.5%, to $279.8 million for the six months ended March 31,
2001 from $209.6 million for the six months ended March 31,
2000. The increase was mainly comprised of $21.7 million from
new stores, $4.4 million from comparable store sales growth and
$43.9 million derived by sales from the acquisitions of United
Audio Centers and Douglas TV. Comparable store sales, excluding
United Audio Centers and Douglas TV, increased by 2.3%. Digital
technology products continue to drive sales performance as it
represented 43.1% of revenues for the six months ended
March 31, 2001.

Gross Profit. Cost of sales increased $45.5 million, or
34.4% to $177.5 million for the six months ended March 31,
2001 from $132.1 million for the six months ended March 31,
2000. Gross profit increased $24.7 million, or 31.9% to $102.3
million for the six months ended March 31, 2001 from $77.5
million for the six months ended March 31, 2000. The gross
margin percentage decreased 50 basis points to 36.5% from
37.0% last year. The decrease in margin primarily occurred in
the first quarter and was attributed to three factors. The
acquisition of Douglas TV which has a higher video mix than the
other Tweeter stores. This contributed to 40 basis points of the
decline for the six months ended March 31, 2001. The
Companys overall video mix increased as a percentage of
the total product mix. The last contributing factor was higher
distribution costs, which are included in cost of sales. For the
six months ended March 31, 2001, there was a 50 basis point
negative effect on the gross margin percentage. This was mostly
attributable to the running of three distribution centers in the
Chicago marketplace as the Company transitioned from three
smaller distribution centers into one larger one. These
decreases in gross profit were offset by an increase in revenue
from the pursuit of the home installation business.

Selling Expenses. Selling expenses increased $18.1
million, or 36.4%, to $67.9 million for the six months ended
March 31, 2001 from $49.8 million for the six months ended
March 31, 2000. As a percentage of revenue, selling
expenses increased to 24.3% for the six months ended
March 31, 2001 from 23.8% in the prior year period. This
increase was primarily due to higher payroll costs associated
with increased infrastructure of the home installation
departments.

Corporate, General and Administrative Expenses.
Corporate, general and administrative expenses for the six
months ended March 31, 2001 increased 31.7% to $12.2
million from $9.2 million for the six months ended
March 31, 2000. As a percentage of total revenue, corporate
general and administrative expenses decreased to 4.3% for the
six months ended March 31, 2001 from 4.4% for the prior
year period. This decrease was the result of leveraging the
additional sales volume of new stores and the acquisitions of
United Audio Centers and Douglas TV.

9



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##### Table of Contents



Amortization of Goodwill. Amortization of goodwill
increased to $960,000 for the six months ended March 31,
2001 from $670,000 for the six months ended March 31, 2000.
The increase was due to United Audio Centers acquisition on
April 1, 2000 and the Douglas TV acquisition on
October 2, 2000.

Net Interest Income.Net interest income increased to
$702,000 for the six months ended March 31, 2001 from
$12,000 for the six months ended March 31, 2000. The
increase was due to the elimination of outstanding debt with the
proceeds from our follow-on offering on February 7, 2000
and investment income realized on our outstanding cash balances.

Income Taxes. The effective tax rate for the six months
ended March 31, 2001 and March 31, 2000 was 40.0%.
Tweeter expects that the income tax rate for the year ending
September 30, 2001 will approximate 40.0%.

Liquidity and Capital Resources

Net cash provided by operating activities was $15.4 million for
the six months ended March 31, 2001 compared to a use of
cash by operating activities for the six months ended
March 31, 2000 of $600,000. Cash provided by operations in
2001 was primarily the result of net income of $13.6 million and
a decrease in inventory of $9.9 million. Cash used from
operations included, primarily, a decrease in accounts payable
and accrued expenses of $10.3 million and an increase in
accounts receivable of $1.9 million. The adjustments to
reconcile net income to cash provided by operating activities
consist primarily of $4.9 million for depreciation and
amortization, as well as minor changes in other operating
accounts.

At March 31, 2001, working capital was $85.2 million,
compared to $83.5 million at September 30, 2000. The ratio
of current assets to current liabilities was 2.93 to 1 at
March 31, 2001 and 2.51 to 1 at September 30, 2000.

Cash used in investing activities for the six months ended
March 31, 2001 included capital expenditures of $11.5
million, primarily used for the building of new stores and the
relocation of existing stores, $4.8 million used in acquiring
businesses, and $2.8 million to purchase marketable equity
securities.

Net cash used by financing activities during the six months
ended March 31, 2001 was $4.4 million, which was
predominantly due to a decrease in amount due to bank.

Tweeter had available at March 31, 2001 a $50,000,000
revolving credit facility, and there were no balances
outstanding at March 31, 2001.

On October 2, 2000, Tweeter completed the acquisition of
certain assets and liabilities of Douglas TV. This transaction
was accounted for as a purchase and, accordingly, the results of
operations of the Companys business relating to Douglas TV
are included in the consolidated statements of operations from
the acquisition date. The total purchase price, including
acquisition costs to date, was approximately $6.3 million, $1.3
million of which was paid through the issuance of 36,849 shares
of the Companys common stock.

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. If management pursues additional
acquisitions within this period, however, such acquisitions
could strain Tweeters capital resources. Furthermore, due
to the seasonality of its business, Tweeters working
capital needs are significantly higher 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 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS
No. 133 was not required to be implemented until fiscal
year 2000. In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement
No. 133  an amendment of FASB Statement
No. 133. SFAS No. 137 delayed the original
implementation date of SFAS No. 133 by one year. In
June 2000, the FASB issued SFAS 138,

10



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##### Table of Contents





On December 3, 1999, the Securities and Exchange Commission
published Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition in Financial
Statements. This SAB summarizes certain of the
staffs views in applying generally accepted accounting
principles to revenue recognition in financial statements. This
SAB requires, among other things, that revenues derived from
products or services in which companies typically act as an
agent be reported on a net basis. Tweeter implemented SAB
No. 101 during the quarter ended December 31, 2000.
The net effect for the six months ended March 31, 2001 and
March 31, 2000 was a reduction in total revenues and cost
of sales of $3,331,000 and $2,362,000 and the net effect for the
three months ended March 31, 2001 and March 31, 2000 was
$1,489,000 and $993,000. The adoption of SAB No. 101 did
not have any impact on the results of operations for the six
months ended March 31, 2001.

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 those
relating to the income tax rate for fiscal 2001, Company growth
and acquisitions, dependence on key personnel, the need for
additional financing, competition and seasonal fluctuations, and
those referred to in Tweeters Registration Statement filed
on Form S-3 (SEC file number 333-94433) on January 11,
2000 and in the Companys Annual Report on Form 10-K
filed on December 18, 2000, 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

Tweeters credit facility provides for borrowings which
bear interest at variable rates based on either (i) the
higher of Fleet National Banks Base Rate or the Federal
Funds rate plus 0.50% or (ii) the London Interbank Offering
Rate (LIBOR) plus an applicable margin varying from 100 to 175
basis points. Tweeter had no borrowings outstanding pursuant to
the credit facility as of March 31, 2001. Tweeter believes
that the effect, if any, of reasonably possible near-term
changes in interest rates on Tweeters financial position,
results of operations, and cash flows should not be material.

At March 31, 2001, the Company had approximately $3.3
million in marketable equity securities classified as
available-for-sale. Equity market fluctuations can
impact fair values (although not earnings, unless such equity
positions are actually liquidated). A 10% fluctuation in the
value of such securities would either reduce or increase total
assets by approximately $330,000.

Currently, Tweeter does not enter into financial instrument
transactions for speculative purposes or to manage interest rate
exposure.

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PART II. OTHER INFORMATION




Item 5.  Other Information

None




Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

Exhibit          Description

None

(b)  Reports on Form 8-K.

None

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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,        
| | Chief Financial Officer

Date: April 27, 2001

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