<PAGE>


                                                                      Exhibit 13


Boston Acoustics builds world class audio products that people enjoy owning and
recommend to others. We strive to earn the respect and support of our customers
and firmly believe that the best relationships are long term.

                                                               [GRAPHIC OMITTED]

To our shareholders:

Net sales for Fiscal 2000 were $108 million, 8% less than Fiscal 1999. Net
income was $6.6 million, down 41%, and diluted earnings per share decreased 42%,
to $1.25 per share.

The Reason

The decline in sales was directly attributable to a $14.4 million decrease in
OEM sales to Gateway.

As in previous years, we supplied Gateway with speakers for their "better" and
"best" computers - generally priced at $1,500 and up. Computer prices have
dropped sharply and Gateway, along with other PC makers, sold more computers
priced under $1,500 last year, and fewer of the more expensive models.

The Good News

The good news is that a healthy economy and lower PC prices mean that people
have more money to spend on other things, including Boston Acoustics' products.
Sales in our core products grew.

Looking forward, we see opportunities. Virtually all computers sold today have
the potential to deliver CD quality sound - "with" the right speakers. There is
a large potential for aftermarket multimedia speaker system sales.

To capitalize on that market, we are now working with two distributors of
computer-related products, D&H Distributing and Tech Data Corporation. We are
also now selling products in the stores of two of America's leading computer
retailers, CompUSA and MicroCenter, and through retailers in other countries
around the world.

We have made changes in our OEM relationship with Gateway. In late June 2000, we
began to supply speakers for Gateway's entry level computers. We now expect to
supply all of their speakers - at least through January 2001, when a new
purchasing cycle will begin. "Stay tuned."


                                                                               1
<PAGE>

New Products, More Technology

Fiscal 2000 was a very big year for new product introductions. We introduced new
systems for home, auto and multimedia applications - all incorporating
technologies developed entirely by us.

[GRAPHIC OMITTED]

  o The VR975 and VR965 are new members of our award-winning Lynnfield VR line.
    These sleek speakers combine the unrivaled performance of a floorstanding
    speaker with the bass impact of a built-in powered subwoofer. MSRP for the
    VR975 is $1,600 a pair; $1,000 a pair for the VR965.

  o The VR-M50 and VR-M60 are elegant monitor-quality speakers that look great
    in any environment. They are the best bookshelf speakers we've ever made.
    The VR-M50 is priced at $700 a pair; the VR-M60 is $1,000 a pair.

  o The new PowerVent(R) Powered Subwoofer line gives consumers four performance
    and price options while delivering the dynamic bass foundation that is
    essential for superior home theater and music sound reproduction. Suggested
    retail prices range from $300 to $1,200.

  o The System 10k is a set of five high performance satellite speakers that can
    be combined with a state-of-the-art Boston powered-vent subwoofer to provide
    all of the performance of top-rated floor standing speakers in a very
    unobtrusive set of small packages. The 10k MSRP is $1,500.

[GRAPHIC OMITTED]

  o Our new indoor/outdoor Voyager(R) line speakers are designed to withstand
    immersion in salt water, high wind conditions and freezing temperatures.
    Shells are high-tech resin and drivers are made from high-tech plastics,
    rubbers and other synthetics. Bass units and tweeters are rear-mounted for
    total protection. MSRPs for four models range from $220 to $700 per pair.

  o In December, we unveiled our new SST - Slimline Speaker Technology(R) - flat
    panel for speakers that require less power and have higher fidelity than
    those designed with other flat speaker technologies. Efficiency, power
    handling and sonic performance are on a par with conventional speakers - in
    a speaker that's less than one inch thick. We have a patent pending.

  o The first SST technology product is the BA 7500, specially designed for all
    desktop audio applications, including DVDs and PC games. It can reproduce
    stereo, MP3, Dolby(R) Digital 5.1 surround sound and four-channel gaming


2
<PAGE>

                                                               [GRAPHIC OMITTED]

    surround sound. A three-piece version is being sold through Gateway's direct
    retail channel, and we are marketing a five-piece system through our own
    retail channels. MSRP is $300.

  o The digital BA735 is the world's first multimedia stereo system with a
    digital S/PDIF (Sony/Philips Digital Interface Format) input. It's an ultra
    compact three-piece system that preserves all of the digital data stream
    from the computer, so that the signal is converted to analog within the
    speaker system rather than in the electrically noisy PC. The bottom line is
    much cleaner audio than with conventional speaker systems - from sources
    that can include DVD, the Internet or CD-ROM.

                                                               [GRAPHIC OMITTED]

  o The DigitalTheater(TM) 7000 system is a complete Dolby Digital surround
    sound system that eliminates the confusion of purchasing separate
    amplifiers, decoders, speakers and connection cables. Like the
    DigitalTheater 6000 we introduced the previous year, it is designed for
    extraordinary ease of use: it detects digital input signals and switches
    to the correct mode automatically. All speaker and hookup cables are
    included, so there is nothing extra to buy and the hookup cables are
    color-coded for "mistake-proof" connection. MSRP is $1000.

  o For the automotive market, we introduced two new series of subwoofer systems
    aimed at the "enthusiast" automotive audio aftermarket. Drawing on patented
    technology developed for the widely acclaimed ProSeries, the new Competitor
    Series subwoofers provide unprecedented performance in an unexpectedly small
    amount of space - allowing them to be placed virtually anywhere in a
    vehicle. Their MSRPs range from $200 to $280 each.

                                                               [GRAPHIC OMITTED]

  o Our new Generator Series subwoofer systems offer clean, deep bass in very
    compact enclosures. They can also be placed virtually anywhere in a car and
    are available in six different configurations, at MSRPs ranging from $120 to
    $180.

Honors for Design and Engineering

Five of our new products were honored with Innovations 2000 awards for new
product design and engineering excellence at the International Winter Consumer
Electronics Show in Las Vegas.


                                                                               3
<PAGE>

The award winners included the Lynnfield VR965 floorstanding speaker, the
DigitalTheater(TM) 7000 home theater system, the Competitor Series Automotive
Subwoofer System C110, the PowerVent(R) PV1000 powered subwoofer and the new
Digital BA7500 multimedia sound system.

Upgrading Facilities

To accommodate our constantly growing technology base, we are expanding the
engineering space in our Peabody headquarters by 9,600 square feet. This will
allow us to move engineers from an offsite location, and to add to the staff as
needed.

To help meet growing demand for core products, we have installed a new
state-of-the-art automated woofer manufacturing line. The new line not only
allows us to expand production; it will also reduce manufacturing costs.

A New Chief Operating Officer

On April 25, 2000, Moses Gabbay was named Chief Operating Officer. He has been
with the company since 1981, most recently serving as Vice President,
Engineering.

[GRAPHIC OMITTED]

The aggressive promotion of our automotive speaker lines continued this year
with the creation of the SEMA award winning Boston Audi TT


4
<PAGE>

                                                               [GRAPHIC OMITTED]

Looking Ahead

To the best of our knowledge, based on information currently available from our
OEM customer, we anticipate that our OEM sales will be slightly higher in Fiscal
2001.

Looking to the longer term, we are in excellent shape. We have a steady stream
of exciting new products and even more in the pipeline. We have created new
technologies and new applications for existing technologies, and we will
continue to come up with innovative solution-oriented products.

We are financially solid - even though our capital expenditures reached $4
million in Fiscal 2000, we were still able to reduce our debt by $7 million,
bringing it down to approximately $6.5 million. We repurchased a total of
172,500 shares of common stock during the fiscal year, and we paid quarterly
dividends of $ .085 per share.

                                                               [GRAPHIC OMITTED]

The challenges we faced during Fiscal 2000 have spurred us to develop new and
better ways to grow. We are looking ahead with optimism.


Sincerely,


/s/ Andy

Andrew G. Kotsatos
Chairman and Chief Executive Officer


                                                               [GRAPHIC OMITTED]


                                                                               5
<PAGE>

Management's Discussion and Analysis
of Financial Condition and results of Operation

Results of Operations

The following table sets forth the results of operations as a percentage of
sales for the years ended March 25, 2000, March 27, 1999, and March 28, 1998
expressed as percentages of net sales.

<TABLE>
<CAPTION>
                                           March 25,     March 27,     March 28,
For the Years Ended                            2000          1999          1998
--------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>
Net sales                                   100.0%        100.0%        100.0%

Cost of goods sold                           68.8          66.8          61.1
                                         ---------------------------------------
Gross profit                                 31.2          33.2          38.9

Selling and
 marketing expenses                          10.3           8.7           9.9

General and
 administrative expenses                      4.8           4.2           4.8

Engineering and
 development expenses                         5.5           4.3           4.3
                                         ---------------------------------------
                                             20.6          17.2          19.0
                                         ---------------------------------------
Income from operations                       10.6          16.0          19.9

Interest income
 (expense), net                              (0.6)         (0.6)         (1.0)

Income before provision
 for income taxes                            10.0          15.4          18.9

Provision for income taxes                    3.9           5.9           7.3
                                         ---------------------------------------
Net income                                    6.1%          9.5%         11.6%
                                         =======================================

</TABLE>

Fiscal 2000 Compared with Fiscal 1999

Net Sales decreased 8%, from approximately $118.0 million to $108.0 million. The
overall sales decrease was due to a $14.4 million decrease in the OEM sales of
multimedia speaker systems to Gateway, Inc. ("Gateway"), a leading global direct
marketer of PC products. This decrease was partially offset by increased sales
of our core products and sales that resulted from our entry into the Multimedia
retail and distribution channels during the latter part of the fiscal year. OEM
sales to Gateway included the Digital BA735 subwoofer/ satellite system
introduced in the first quarter of Fiscal 2000, the Digital MediaTheater(TM)
three-piece system, the DigitalTheater(TM) 6000, a complete Dolby(R) Digital 5.1
Channel Home Theater System and the BA7500 thin panel audio system designed for
desktop theater applications such as DVDs and PC games. These products are
available either as a component of certain pre-configured computer systems
offered by Gateway, or as an upgrade option on those configurations that do not
include Boston Acoustics' products as standard. The quantity of product sold as
an upgrade option could fluctuate significantly from quarter to quarter and have
an impact on the unit volume of OEM multimedia products.

During the fiscal year, growth in the Company's core business sales was
primarily the result of successful new product introductions. The VR-M50 and
VR-M60 monitor speaker systems with suggested retail prices per pair of $700 and
$1,000 are the Company's first real wood bookshelf speakers. Four new
PowerVent,(R) powered subwoofer systems contributed to the overall sales
increase by addressing the consumer's desire for physically smaller high
performance subwoofers. With suggested retail prices ranging from $300 to $1,200
they replaced three discontinued models.

The new Competitor Series and Generator Series of subwoofers for the automotive
audio aftermarket were introduced during Fiscal 2000. The Competitor Series
subwoofers are available in 15-inch, 12-inch, 10-inch and 8-inch sizes and are
priced between $280 and $200 each MRSP. The Generator Series are high
performance units with retail prices from $120 to $180. During the fiscal year,
the Company enlarged its offering of audio systems with the DigitalTheater(TM)
7000. Retailing for $1,000, this six-piece Dolby, Digital system provides cinema
quality sound and easy setup. The Company also introduced new multimedia
products to its retail offerings. The BA4800 is an analog five-piece, 4 channel
surround speaker system ideal for 4-channel PC gaming or any enhanced audio
application at the desktop. Retailing for $200, the BA4800 provides theater-like
thunder at a reasonable price.

The Company's gross margin decreased as a percentage of net sales from 33.2% to
31.2% due to a combination of increased manufacturing overhead expenses
associated with new product introductions, additional rent expense associated
with temporary offsite warehouse space during the fiscal year, along with
planned closeout sales of discontinued models.


6
<PAGE>

Total operating expenses increased as a percentage of net sales from 17.2% to
20.6% during Fiscal 2000. Selling and marketing expenses have increased in
absolute dollars primarily due to increased salaries and benefits relating to
additional personnel and increased licensed royalty fees. General and
administrative expenses have increased in both absolute dollars and as a
percentage of net sales primarily due to the $500,000 charge recorded as a
result of the resignation of the Company's former President/COO effective April
3, 2000. Engineering and development expenses increased in absolute dollars
primarily due to increased salaries and benefits relating to additional
personnel and increased expenses associated with new product development.

Net interest expense for the fiscal year remained stable as a percentage of net
sales compared to the corresponding period a year ago, primarily due to the
utilization of working capital and repayments of a certain portion of the
Company's line of credit obligations.

The Company's effective income tax rate increased slightly during the
twelve-month period ended March 25, 2000 from 38.2% to 38.6% primarily due to a
smaller proportion of the Company's income being derived outside the US thereby
reducing the tax benefits associated with the Company's foreign sales
corporation.

Net income decreased 41% to approximately $6.6 million, while diluted earnings
per share decreased 42% to $1.25 per share for the same period a year ago. The
decrease in net income is primarily the result of the decrease in net sales and
gross profit and the increase in operating expenses as compared to the same
period a year ago.

Fiscal 1999 Compared with Fiscal 1998

Net Sales increased 43%, from approximately $82.4 million to $118.0 million. The
overall sales increase was primarily due to an increase in the OEM sales of
multimedia speaker systems to Gateway, Inc. ("Gateway"), a leading global direct
marketer of PC products. These products included the BA635 three-piece system,
the Digital MediaTheater(TM) three-piece system, and the DigitalTheater(TM)
6000, a complete Dolby(R) Digital 5.1 Channel Home Theater System.

During the fiscal year, the Company's core business of home, Designer Series and
automotive product sales increased approximately 10 percent. Contributing to the
overall increase were sales of new products introduced during the fiscal year.
The Company added a new model to its successful Lynnfield VR(R) Tower Series of
floorstanding speakers. The VR940 with a suggested retail price of $500 per pair
uses an innovative new bass driver designed and built by Boston Acoustics that
delivers exceptional performance from a sleek enclosure. The System8000, a
complete six-speaker home theater package with a suggested retail price of $699
per system was launched during Fiscal 1999. The CR4 and CR5 models, with
suggested retails of $100 per pair and $150 per pair, respectively, were added
to the line of Compact Reference Series bookshelf speakers. The Designer Series
of products were complimented with the introduction of the DX Pro in-wall
diffuse-field surround speaker. The DX Pro has a suggested retail of $500 per
pair. In addition to the DX Pro, the Company supplemented the Designer Series
with three additional models. The Model 251 and Model 261 are flush mounted wall
speakers with suggested retail prices of $200 and $250 per pair, respectively.
The third introduction was the Model 315, a ceiling mounted speaker with a
suggested retail price of $150 per pair. During the fiscal year, the Company
introduced a new generation of the Company's flagship ProSeries automotive
speaker systems. The ProSeries .5 component speakers can be installed in most
stock factory locations without modifying car interiors and have suggested
retail prices ranging from $400 to $750 per system. In addition to the component
speakers, the Company introduced its redesigned 8-inch, 10-inch and 12-inch
ProSeries .5 subwoofers with suggested retail prices of $220, $270 and $300
each, respectively.

The Company's gross margin increased in absolute dollars but decreased as a
percentage of net sales from 38.9% to 33.2% due primarily to a shift in the
sales mix to loudspeaker models with lower margins, particularly the Company's
OEM multimedia speaker systems.


                                                                               7
<PAGE>

Management's Discussion and Analysis
of Financial Condition and results of Operation

Total operating expenses increased in absolute dollars from approximately
$15,645,000 to $20,277,000 but decreased as a percentage of net sales from 19.0%
to 17.2% during Fiscal 1999. Selling and marketing expenses have increased in
absolute dollars primarily due to increased salaries and benefits relating to
additional personnel, increased licensed royalty fees and the increased
marketing expenses associated with the direct-to-consumer program for the
Company's multimedia products. General and administrative expenses have
increased in absolute dollars primarily due to increased depreciation expenses
relating to updated computer systems. As a percentage of net sales, general and
administrative expenses decreased slightly during the fiscal year ended March
27, 1999 as compared to the same period a year ago. Engineering and development
expenses increased in absolute dollars primarily due to increased salaries and
benefits relating to additional personnel and increased expenses associated with
new product development.

Net interest expense has decreased during the twelve-month period ended March
27, 1999. The decrease is primarily due to lower interest expense as a result of
the Company's repayments on the Company's line of credit borrowings during the
year.

The Company's effective income tax rate decreased slightly during the
twelve-month period ended March 27, 1999 from 38.5% to 38.2% primarily due to
lower state income taxes offset by a smaller proportion of the Company's income
being derived outside the US thereby reducing the tax benefits associated with
the Company's foreign sales corporation.

Net income increased 18% to approximately $11.3 million, while diluted earnings
per share increased 23% to $2.14 per share for the same period a year ago.

Liquidity and Capital Resources

During Fiscal 2000 and 1999, the Company financed its growth with cash generated
from operations and bank borrowings. As of March 25, 2000, the Company's working
capital was approximately $24,828,000, a decrease of approximately $4,642,000
from March 27, 1999. The decrease in working capital was primarily due to
decreases in inventory and borrowings on the Company's line of credit as well as
increases in accounts payable, accrued payroll and other accrued expenses. At
March 25, 2000 the Company's inventory decreased by approximately $2,318,000
compared to March 27, 1999 levels primarily as a result of decreased inventory
purchases. Cash and cash equivalents decreased by approximately $590,000,
compared to levels at the end of Fiscal 1999 primarily due to the purchase of
land adjacent to the Company's corporate headquarters facility, tooling
expenditures related to new products, costs related to the Company's new
state-of-the art automated woofer assembly line, and the repayments made on the
Company's line of credit borrowings. Current liabilities increased by
approximately $2,475,000 to approximately $11,341,000 primarily as a result of
increases in accounts payable related to the timing of payments, increased
accrued payroll expenses and other accrued expenses, offset by decreased accrued
income taxes and bank borrowings. Long-term debt decreased by $5,650,000 as a
result of repayments of the Company's line of credit during Fiscal 2000. The
Company has two lines of credit with two banking institutions totaling
$26,500,000. At March 25, 2000 the Company had borrowings totaling $6,250,000
under its $25 million revolving credit agreement.

Net cash decreased in Fiscal years 2000, 1999 and 1998 by $590,000, $1,774,000
and $1,067,000 respectively. Net cash provided by operating activities in Fiscal
years 2000, 1999 and 1998 was approximately $15,061,000, $3,282,000, and
$9,710,000, respectively. Differences in cash flows from operating activities
over this three-year period were primarily related to significant year-to-year
changes in accounts receivable, inventories and accounts payable. Net cash
provided by (used in) investing activities for Fiscal years 2000, 1999 and 1998
were approximately ($4,483,000), ($4,439,000), and $2,002,000, respectively. Net
cash used in investing activities in Fiscal 2000 was for improvements to the
existing facility and purchases of property and equipment. Net cash used in
investing activities in Fiscal 1999 was due to purchases of property and
equipment relating to production tooling and computer equipment. Net cash
provided by investing activities in Fiscal 1998 was primarily the result of the
sale of marketable securities, partially offset by capital equipment purchases.
Net cash used in financing activities in Fiscal years 2000, 1999 and 1998 were
approximately $11,167,000, $617,000, and $12,779,000, respectively. In Fiscal
2000, net cash used in financing activities included $7,300,000 of repayments of
borrowings under one of the Company's credit facilities. In addition, during
Fiscal 2000, the Company repurchased 172,500 shares of common stock for
$2,428,344.

The Company believes that its current resources are adequate to meet its
requirements for working capital and capital expenditures at least through
Fiscal 2001.


8
<PAGE>

New Accounting Standards

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement, as amended by SFAS No. 137,
Deferral of the Effective Date of the FASB Statement No. 133, is effective for
all Fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No.
133 establishes accounting and reporting disclosure standards for derivative
instruments including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The
Company does not expect adoption of this statement to have a material impact on
its consolidated financial position or results of operations.

The Securities and Exchange Commission issued Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition, in December 1999. The Company believes that
compliance with the guidance provided in SAB No. 101 will not have a material
impact on future operating results.

In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation - an Interpretation of APB Opinion No.
25 in certain situations as defined. The interpretation is effective July 1,
2000, but covers certain events during the period after December 15, 1998 but
before the effective date. The Company expects that the adoption of this
interpretation would not have any effect on the accompanying financial
statements.

Quantitative and Qualitative Disclosures about Market Risk

A Derivative Financial Instruments, Other Financial Instruments, and Derivative
Commodity Instruments.

As of March 25, 2000, the Company did not participate in any derivative
financial instruments, or other financial and commodity instruments for which
fair value disclosure would be required under SFAS No. 107. All of the Company's
investments are considered cash equivalents money market accounts that are
carried on the Company's books at amortized cost, which approximates fair market
value. Accordingly, the Company has no quantitative information concerning the
market risk of participating in such investments.

B Primary Market Risk Exposures

The Company's primary market risk exposures are in the areas of interest rate
risk and foreign currency exchange rate risk. The Company's investment portfolio
of cash equivalents is subject to interest rate fluctuations, but the Company
believes this risk is immaterial due to the short-term nature of these
investments.

The Company's exposure to currency exchange rate fluctuations has been and is
expected to continue to be modest due to the fact it currently sells its
products primarily in United States dollars. At March 25, 2000 the Company had
not engaged in any foreign currency hedging activities.

Significant Customers

The Company's financial results for the fiscal year ended March 25, 2000 include
significant OEM sales of multimedia speaker systems to Gateway. The terms of
these sales are governed by the Master Supply Agreement between Gateway and the
Company. On July 19, 1999, the Company entered into a new three year Master
Supply Agreement with Gateway. Since this Master Supply Agreement with Gateway
does not contain minimum or scheduled purchase requirements, purchase orders by
Gateway may fluctuate significantly from quarter to quarter over the terms of
the agreement. Based on information currently available from our OEM customer,
the Company anticipates that our OEM sales should reflect a slight increase in
sales during the fiscal year ending March 31, 2001. The loss of Gateway as a
customer or any significant portion of orders from Gateway could have a material
adverse affect on the Company's business, results of operations and financial
condition. In addition, the Company also could be materially adversely affected
by any substantial work stoppage or interruption of production at Gateway or if
Gateway were to reduce or cease conducting operations.


                                                                               9
<PAGE>

Management's Discussion and Analysis
of Financial Condition and results of Operation

International Operations

Export sales accounted for approximately 17%, 14% and 19% of the Company's net
sales during Fiscal 2000, 1999 and 1998, respectively, with sales concentrations
in Europe, Asia and Canada. The Company also distributes its products through
two foreign subsidiaries. The Company obtains a substantial supply of inventory
from manufacturers located in foreign countries. The Company has no long-term,
fixed price contracts or arrangements for inventory supplied by such foreign
manufacturers. The Company could readily obtain such inventory from other
sources, but there can be no assurance that it would not be at some delay. Any
substantial delay in obtaining inventory from another supplier could have an
adverse effect on the Company's business, results of operation and financial
condition. A number of factors beyond the control of the Company, including, but
not limited to, changes in world politics, unstable governments in foreign
customer and manufacturer nations and inflation, may affect the operations or
financial condition of the Company's foreign customers and manufacturers, as
well as the timing of orders and deliveries of Boston Acoustics' products by
such customers and manufacturers.

Year 2000 Compliance

To date, the Company's internal business systems have experienced no adverse
impact from the transition to the Year 2000. In addition, the Company is not
aware of any Year 2000 related issues with any of its customers, suppliers or
other third parties with whom it has business relationships. The Company does
not expect to incur any significant additional costs relating to Year 2000
issues.

Possible Adverse Effect of Euro Conversion

On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies and a new
common currency called the "euro." This represented an initial step in a process
expected to culminate in the replacement of the existing currencies with the
euro. The conversion to the euro will have operational and legal implications
for some of our international business activities. The Company has begun
evaluating these implications, but the Company has yet to estimate the potential
impact on our business, operating results and financial condition. The Company's
preliminary judgment, however, is that the nature of the Company's business and
customers makes a material impact unlikely.

Cautionary Statements

The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by the Company or statements made by its directors, officers, or
employees may contain "forward-looking" information which involve risk and
uncertainties. Any statements in this report that are not statements of
historical fact are forward-looking statements (including, but not limited to,
statements concerning the characteristics and growth of the Company's market and
customers, the Company's objectives and plans for future operations, the
Company's expected liquidity and capital resources and the Company's ability and
the Company's suppliers' and customers' ability to replace, modify or upgrade
computer programs in ways to adequately address the Year 2000 issue). Such
forward-looking statements are based on a number of assumptions and involve a
number of risks and uncertainties, and accordingly, actual results could differ
materially. Factors that may cause such differences include, but are not limited
to: the continued and future acceptance of the Company's products, the rate of
growth in the audio industry; the presence of competitors with greater technical
marketing and financial resources; the Company's ability to promptly and
effectively respond to technological change to meet evolving consumer demands;
capacity and supply constraints or difficulties; and the Company's ability to
successfully integrate new operations. The words "believe," "expect,"
"anticipate," "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made. For a further discussion of these and other significant factors to
consider in connection with forward-looking statements concerning the Company,
reference is made to Exhibit 99 of the Company's Form 8-K filed on July 18,
1996.


10
<PAGE>

                                                     Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                March 25, 2000   March 27, 1999
-----------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>
Assets
Current Assets:
 Cash and cash equivalents                                        $ 1,506,741      $ 2,096,246
 Accounts receivable, net of allowance for doubtful accounts
  of approximately $345,000 and $463,000, respectively             12,632,632       12,586,919
 Inventories                                                       19,333,515       21,651,847
 Deferred income taxes                                              1,545,000        1,524,000
 Prepaid expenses and other current assets                          1,151,536          478,174
                                                                 ------------------------------
    Total current assets                                           36,169,424       38,337,186
                                                                 ------------------------------

Property and Equipment, at Cost:
 Machinery and equipment                                           13,517,432       10,890,563
 Building and improvements                                          7,925,701        7,113,384
 Office equipment and furniture                                     4,131,718        3,862,578
 Land                                                               1,815,755        1,433,365
 Motor vehicles                                                       259,319          360,963
                                                                 ------------------------------
                                                                   27,649,925       23,660,853

 Less--Accumulated depreciation and amortization                   12,035,891        9,699,448
                                                                 ------------------------------
                                                                   15,614,034       13,961,405
                                                                 ------------------------------
Other Assets, Net                                                   1,080,569          940,226
                                                                 ------------------------------
                                                                  $52,864,027      $53,238,817
                                                                 ==============================

Liabilities and Shareholders' Equity
Current Liabilities:
 Accounts payable                                                 $ 6,002,158      $ 2,465,201
 Accrued payroll and payroll-related expenses                       2,148,272        1,553,933
 Dividends payable                                                    417,201          425,967
 Other accrued expenses                                             1,171,200          796,795
 Accrued income taxes                                                      --          359,689
 Current maturity of line of credit                                 1,602,287        3,265,018
                                                                 ------------------------------
    Total current liabilities                                      11,341,118        8,866,603
                                                                 ------------------------------

Line of Credit, net of current portion                              4,850,000       10,500,000
                                                                 ------------------------------

Commitments (Note 8)

Shareholders' Equity:
 Common stock, $0.01 par value-
  Authorized--8,000,000 shares
  Issued--5,080,764 and 5,011,700 shares in 2000
   and 1999, respectively                                              50,807           50,117
 Additional paid-in capital                                           918,534          636,581
 Retained earnings                                                 38,131,912       33,185,516
                                                                 ------------------------------
                                                                   39,101,253       33,872,214
Less--Treasury stock, 172,500 shares, at cost                       2,428,344               --
                                                                 ------------------------------
    Total shareholders' equity                                     36,672,909       33,872,214
                                                                 ------------------------------
                                                                  $52,864,027      $53,238,817
                                                                 ==============================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                                                              11
<PAGE>

Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                   For the Years Ended
                                                --------------------------------------------------------
                                                March 25, 2000       March 27, 1999       March 28, 1998
--------------------------------------------------------------------------------------------------------
<S>                                              <C>                  <C>                  <C>
Net Sales                                        $107,997,650         $117,968,407         $ 82,399,284

Cost of Goods Sold                                 74,248,866           78,787,500           50,344,605
                                                --------------------------------------------------------
 Gross profit                                      33,748,784           39,180,907           32,054,679
                                                --------------------------------------------------------

Selling and Marketing Expenses                     11,166,266           10,220,020            8,144,786

General and Administrative Expenses                 5,182,270            4,951,075            3,986,437

Engineering and Development Expenses                5,935,690            5,106,001            3,513,321
                                                --------------------------------------------------------
 Total operating expenses                          22,284,226           20,277,096           15,644,544
                                                --------------------------------------------------------
 Income from operations                            11,464,558           18,903,811           16,410,135

Interest Income                                       111,941               89,012              220,430

Interest and Other Expense                           (754,982)            (762,397)          (1,059,330)
                                                --------------------------------------------------------
 Income before provision for income taxes          10,821,517           18,230,426           15,571,235

Provision for Income Taxes                          4,175,000            6,966,000            5,995,000
                                                --------------------------------------------------------
 Net income                                      $  6,646,517         $ 11,264,426         $  9,576,235
                                                ========================================================

Net Income per Share:
  Basic                                          $       1.32         $       2.26         $       1.83
                                                ========================================================
  Diluted                                        $       1.25         $       2.14         $       1.74
                                                ========================================================

Weighted Average Common Shares
 Outstanding (Note 2):
  Basic                                             5,016,954            4,987,730            5,232,341
                                                ========================================================
  Diluted                                           5,302,734            5,254,744            5,512,179
                                                ========================================================

Dividends per Share                              $        .34         $        .34         $        .33
                                                ========================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


12
<PAGE>

                                 Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
                                         Common Stock
                                   -----------------------     Additional                                           Total
                                    Number of     $.01 Par        Paid-in        Retained        Treasury    Shareholders'
                                       Shares        Value        Capital        Earnings           Stock          Equity
--------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>          <C>            <C>             <C>             <C>
Balance March 29, 1997              6,904,432       69,044      4,950,394      38,322,082      (4,432,515)     38,909,005

  Exercise of stock options            31,896          319        397,330              --              --         397,649
  Purchase of 1,347,302 shares
    of common stock                        --           --             --              --     (23,914,602)    (23,914,602)
  Issuance of restricted
    common stock                           --           --             --              --         105,000         105,000
  Dividends                                --           --             --      (1,653,040)             --      (1,653,040)
  Issuance of common
    stock warrants                         --           --        484,000              --              --         484,000
  Net income                               --           --             --       9,576,235              --       9,576,235
                                   ---------------------------------------------------------------------------------------
Balance March 28, 1998              6,936,328       69,363      5,831,724      46,245,277     (28,242,117)     23,904,247

  Exercise of stock options            40,254          403        392,126              --              --         392,529
  Dividends                                --           --             --      (1,688,988)             --      (1,688,988)
  Retirement of
    treasury stock                 (1,964,882)     (19,649)    (5,587,269)    (22,635,199)     28,242,117              --
  Net income                               --           --             --      11,264,426              --      11,264,426
                                   ---------------------------------------------------------------------------------------
Balance March 27, 1999              5,011,700    $  50,117    $   636,581    $ 33,185,516    $         --    $ 33,872,214

  Exercise of stock options
    and warrants                       69,064          690        281,953              --              --         282,643
  Dividends                                --           --             --      (1,700,121)             --      (1,700,121)
  Purchase of 172,500 shares
    of common stock                        --           --             --              --      (2,428,344)     (2,428,344)
  Net income                               --           --             --       6,646,517              --       6,646,517
                                   ---------------------------------------------------------------------------------------
Balance March 25, 2000              5,080,764    $  50,807    $   918,534    $ 38,131,912    $ (2,428,344)   $ 36,672,909
                                   =======================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                                                              13
<PAGE>

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                    For the Years Ended
                                                      ------------------------------------------------
                                                       March 25, 2000  March 27, 1999  March 28, 1998
------------------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>             <C>
Cash Flows from Operating Activities:
  Net income                                            $  6,646,517    $ 11,264,426    $  9,576,235
  Adjustments to reconcile net income to net cash
    provided by operating activities-
      Depreciation and amortization                        2,740,763       2,716,454       1,779,143
      Deferred income taxes                                  (72,000)       (377,000)       (345,000)
      Compensation expense related to issuance
       of restricted stock and warrants                           --              --         589,000
      Changes in assets and liabilities,
       net of acquisitions-
         Accounts receivable                                 (45,713)       (959,199)     (2,110,297)
         Inventories                                       2,318,332      (8,673,052)     (3,076,320)
         Prepaid expenses and other current assets          (673,362)         (6,069)        414,674
         Accounts payable                                  3,536,957        (833,356)      2,204,062
         Accrued payroll and other accrued expenses          968,745         (34,825)        604,840
         Accrued income taxes                               (359,689)        184,526          73,940
                                                      ------------------------------------------------
           Net cash provided by operating activities      15,060,550       3,281,905       9,710,277
                                                      ------------------------------------------------

Cash Flows from Investing Activities:
  Purchases of property and equipment, net                (4,090,642)     (4,356,459)     (1,578,291)
  Proceeds from sale of held -to-maturity investments             --              --       3,616,618
  Increase in other assets                                  (392,093)        (82,384)        (36,282)
                                                      ------------------------------------------------
           Net cash (used in)
            provided by investing activities              (4,482,735)     (4,438,843)      2,002,045
                                                      ------------------------------------------------

Cash Flows from Financing Activities:
  Proceeds from exercise of stock options                    282,643         392,529         397,649
  Net (payments) proceeds from line of credit             (7,312,731)        667,393      12,500,000
  Purchases of Treasury stock                             (2,428,344)             --     (23,914,602)
  Dividends paid                                          (1,708,888)     (1,677,307)     (1,762,032)
                                                      ------------------------------------------------
           Net cash used in financing activities         (11,167,320)       (617,385)    (12,778,985)
                                                      ------------------------------------------------

Net Decrease in Cash and Cash Equivalents                   (589,505)     (1,774,323)     (1,066,663)
Cash and Cash Equivalents, beginning of year               2,096,246       3,870,569       4,937,232
                                                      ------------------------------------------------
Cash and Cash Equivalents, end of year                  $  1,506,741    $  2,096,246    $  3,870,569
                                                      ================================================

Supplemental Disclosure of Noncash
  Financing Activities:
    Dividends payable                                   $    417,201    $    425,967    $    414,287
                                                      ================================================
    Retirement of Treasury stock                        $         --    $ 28,242,117    $         --
                                                      ================================================

Supplemental Disclosure of Cash
  Flow Information:
    Cash paid for income taxes                          $  5,446,130    $  7,127,792    $  6,265,799
                                                      ================================================
    Cash paid for interest                              $    768,878    $    785,763    $  1,059,330
                                                      ================================================

Supplemental Disclosure of Noncash
  Items related to Acquisition of
  Boston Acoustics Deutschland:
    Fair value of assets acquired, excluding cash       $         --    $    639,750    $         --
                                                      ================================================
    Post-acquisition adjustment to intangible assets    $         --    $    236,477    $         --
                                                      ================================================
    Liabilities and debt assumed                        $         --    $    876,227    $         --
                                                      ================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


14
<PAGE>

                                      Notes to Consolidated Financial Statements

1. Operations and Significant Accounting Policies

Boston Acoustics, Inc. and subsidiaries (the Company) engineers, manufactures
and markets home loudspeakers, automotive speakers, and speakers for multimedia
environments. The Company's products are principally marketed in the United
States, Canada, Europe, and Asia through selected audio and audio-video
specialty dealers and distributors.

The accompanying consolidated financial statements reflect the operations of the
Company and its wholly owned subsidiaries. All significant intercompany amounts
have been eliminated in consolidation.

The accompanying consolidated financial statements reflect the application of
the following significant accounting policies:

a Revenue Recognition

Revenue is recognized when products are shipped to customers, provided that
there are no uncertainties regarding customer acceptance, there is persuasive
evidence of an arrangement, the sales price is fixed or determinable, and
collection of the related receivable is probable.

b Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of
90 days or less to be cash equivalents.

c Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:

                                                     March 25,         March 27,
                                                         2000              1999
--------------------------------------------------------------------------------
Raw materials and work-in-process                 $10,547,363       $ 9,425,814

Finished goods                                      8,786,152        12,226,033
                                                 -------------------------------
                                                  $19,333,515       $21,651,847
                                                 ===============================

Work-in-process and finished goods inventories consist of materials, labor, and
manufacturing overhead.

d Depreciation and Amortization

The Company provides for depreciation and amortization using both the
straight-line and accelerated methods by charges to operations in amounts
estimated to allocate the cost of the assets over their estimated useful lives,
as follows:

Asset Classification                                       Estimated Useful Life
--------------------------------------------------------------------------------
Machinery and equipment                                                3-5 years

Building and improvements                                               39 years

Office equipment and furniture                                         3-5 years

Motor vehicles                                                           3 years

e Warranty Costs

Warranty costs are estimated and recorded by the Company at the time of product
shipment. During the years ended March 25, 2000, March 27, 1999, and March 28,
1998, warranty costs recorded by the Company were approximately $221,000,
$241,000, and $193,000, respectively.

f Foreign Currency Translation

In accordance with SFAS No. 52, Foreign Currency Translation, the Company has
determined that the functional currency of its foreign subsidiaries is the U.S.
dollar. Accordingly, all monetary assets and liabilities for these entities are
translated at year-end exchange rates, while nonmonetary items are translated at
historical rates. Income and expense accounts are translated at the average
rates in effect during the year. Gains or losses from changes in exchange rates
are recognized in consolidated income in the year of occurrence. During the
three-year period ended March 25, 2000, foreign currency exchange gains and
losses were not significant.

g Income Taxes

The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities.

h Postretirement and Postemployment Benefits

The Company has no obligation for postretirement or postemployment benefits.

i Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.

j Concentration of Credit Risk

SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign


                                                                              15
<PAGE>

Notes to Consolidated Financial Statements

exchange contracts, option contracts, or other foreign hedging arrangements. The
Company maintains the majority of its cash balances with three financial
institutions. The Company's accounts receivable credit risk is not concentrated
within any geographic area and does not represent a significant credit risk to
the Company. During Fiscal 2000, two customers represented 54% of the Company's
net sales. During Fiscal 1999 and 1998, one customer represented 53% and 34%,
respectively, of the Company's net sales. As of March 25, 2000, four customers
represented 46% of the Company's accounts receivable balance. As of March 27,
1999, three customers represented 43% of the Company's accounts receivable
balance. The Company maintains an allowance for potential credit losses, but
historically it has not experienced any significant losses related to individual
customers or groups of customers in any particular industry or geographic area.

k Financial Instruments

SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure about fair value of financial instruments. Financial instruments
consist of cash equivalents, accounts receivable, accounts payable, and debt.
The estimated fair value of these financial instruments approximates their
carrying value and, except for accounts receivable and accounts payable, is
based primarily on market quotes. The Company's cash equivalents are generally
obligations of the federal government or investment-grade corporate or municipal
issuers. The Company, by policy, limits the amount of credit exposure to any one
financial institution.

l Impairment of Long-Lived Assets

The Company follows the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
SFAS No. 121 addresses accounting and reporting requirements for impairment of
long-lived assets based on their fair market values. The carrying value of
intangible assets, principally goodwill, is periodically reviewed by the Company
based on the expected future undiscounted operating cash flows of the related
business unit. Based on its most recent analysis, the Company believes that no
material impairment of intangible assets exists as of March 25, 2000.

m Comprehensive Income

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. The
Company adopted SFAS No. 130 effective March 29, 1998. There was no impact to
the Company as a result of adopting SFAS No. 130, as there were no differences
between net income and comprehensive income for all periods presented.

n Recent Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting disclosure standards for derivative instruments including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133, as amended by SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of
the Effective Date of FASB Statement No. 133, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company does not
expect adoption of this statement to have a material impact on its consolidated
financial position or results of operations.

The Securities and Exchange Commission issued Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition, in December 1999. The Company believes that the
guidance provided in SAB No. 101 will not have a material impact on future
operating results.

In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation - an Interpretation of APB Opinion No.
25 in certain situations, as defined. The interpretation is effective July 1,
2000, but covers certain events during the period after December 15, 1998 but
before the effective date. The Company expects that the adoption of this
interpretation will not have any effect on the accompanying financial
statements.

2 Net Income per Share

The Company follows the provisions of SFAS No. 128, Earnings per Share. This
standard requires presentation of both basic and diluted earnings per share on
the face of the statements of income. These financial statements have been
prepared and presented based on this standard. For the year ended March 25, 2000
and March 28, 1998, 213,600 and 1,929 shares, respectively, have been excluded
from the weighted average number of common and dilutive potential shares
outstanding, as their effect would be antidilutive. For the year ended March 27,
1999, no antidilutive shares have been excluded from the weighted average number
of common and dilutive potential common shares outstanding.


16
<PAGE>

The computation of basic and diluted shares outstanding, as required by SFAS No.
128, is as follows:

<TABLE>
<CAPTION>

For the Year Ended                     March 25,       March 27,       March 28,
                                           2000            1999            1998
--------------------------------------------------------------------------------
<C>                                  <S>             <S>             <S>
Basic weighted
 average common
 shares outstanding                   5,016,954       4,987,730       5,232,431

Dilutive effect of
 assumed exercise
 of stock options
 and warrant                            285,780         267,014         279,748
                                     -------------------------------------------
Weighted average
 common shares
 outstanding
 assuming dilution                    5,302,734       5,254,744       5,512,179
                                     ===========================================

</TABLE>

3 Income Taxes

The components of the Company's deferred tax assets consist of the tax effects
of temporary differences between the financial reporting and tax bases of assets
and liabilities. A valuation allowance has not been provided, as the Company
expects to realize all deferred tax amounts.

The approximate tax effect of each temporary difference is as follows:

<TABLE>
<CAPTION>
                                                      March 25,        March 27,
                                                          2000             1999
--------------------------------------------------------------------------------
<S>                                                <C>              <C>
Current deferred tax asset-

 Accruals not currently deductible                  $  527,000       $  803,000

 Receivable reserves                                   418,000          362,000

 Inventory reserves                                    600,000          359,000
                                                   -----------------------------
                                                     1,545,000        1,524,000

Noncurrent deferred tax asset-

 Depreciation                                          283,000          232,000
                                                   -----------------------------
 Total deferred tax assets                          $1,828,000       $1,756,000
                                                   =============================

</TABLE>

The noncurrent deferred income taxes are included in other assets in the
accompanying consolidated balance sheets.

The components of the provision for income taxes shown in the accompanying
consolidated statements of income consist of the following:

<TABLE>
<CAPTION>
                                   March 25,         March 27,         March 28,
                                       2000              1999              1998
--------------------------------------------------------------------------------
<S>                            <C>               <C>               <C>
Current-

Federal                         $ 3,467,000       $ 6,089,000       $ 4,776,000

State                               780,000         1,254,000         1,564,000
                               -------------------------------------------------
                                  4,247,000         7,343,000         6,340,000
                               -------------------------------------------------
Deferred-

Federal                             (60,000)         (348,000)         (297,000)

State                               (12,000)          (29,000)          (48,000)
                               -------------------------------------------------
                                    (72,000)         (377,000)         (345,000)
                               -------------------------------------------------
Provision for
 income taxes                   $ 4,175,000       $ 6,966,000       $ 5,995,000
                               =================================================

</TABLE>

The effective income tax rate varies from the amount computed using the
statutory U.S. income tax rate, as follows:

<TABLE>
<CAPTION>
                                                March 25,  March 27,  March 28,
                                                    2000       1999       1998
--------------------------------------------------------------------------------
<S>                                                <C>        <C>        <C>
Federal statutory rate                              34.1%      34.4%      34.3%

Increase in taxes resulting
from state income taxes,
net of federal income
tax benefit                                          4.9        4.3        5.0

Municipal bond interest                               --         --        (.2)

Foreign sales corporation                           (1.1)       (.7)      (1.5)

Other                                                 .7         .2         .9
                                                   -----------------------------
                                                    38.6%      38.2%      38.5%
                                                   =============================

</TABLE>

4 Shareholders' Equity

a Stock Split

On August 17, 1998, the stockholders approved a 3-for-2 split of the Company's
common stock, effected in the form of a stock dividend. The effect of the stock
split has been retroactively reflected in the accompanying consolidated
financial statements.

b Stock Options

The Company maintained an incentive stock option plan (the 1986 Plan), which
expired in October 1996. The Company has 29,650 options outstanding under the
1986 Plan as of March 25, 2000. In February 1996, the Board of Directors
approved a new incentive stock option plan (the 1996 Plan) authorizing the
issuance of incentive stock options and nonqualified stock options for the
purchase of 300,000 shares of common stock. The 1996 Plan is administered by the
Board of Directors, and options are granted at not less than the fair market
value of the Company's common stock on the date of grant. As of March 25, 2000,
the Company has 273,500 options outstanding under the 1996 Plan.

In May 1997, the Board of Directors approved a new stock option plan (the 1997
Plan) authorizing the issuance of incentive stock options and nonqualified stock
options for the purchase of 450,000 shares of common stock. The 1997 Plan
permits the granting of nonqualified stock options and incentive stock options.
As of March 25, 2000, the Company has 332,483 options outstanding under the 1997
Plan.


                                                                              17
<PAGE>

Notes to Consolidated Financial Statements

The following is a summary of all stock option activity:

<TABLE>
<CAPTION>
                                                                        Weighted
                                              Number                     Average
                                          of Options        Price Range    Price
--------------------------------------------------------------------------------
<S>                                         <C>         <C>               <C>
Outstanding at March 29, 1997                238,000     11.33 -  13.00    12.37

 Granted                                     303,750     14.67 -  19.89    16.49

 Exercised                                   (31,896)    11.33 -  13.00    12.47

 Canceled                                     (8,000)    11.67 -  13.00    12.33
                                            ------------------------------------
Outstanding at March 28, 1998                501,854     11.33 -  19.89    14.86

 Granted                                      63,750              20.25    20.25

 Exercised                                   (40,254)    11.33 -  18.08    13.15

 Canceled                                     (1,100)             18.08    18.08
                                            ------------------------------------
Outstanding at March 27, 1999                524,250     11.67 -  20.25    15.64

 Granted                                     127,375     11.63 -  12.88    11.80

 Exercised                                   (11,500)    11.67 -  13.00    12.71

 Canceled                                     (4,492)    13.00 -  20.25    17.84
                                            ------------------------------------
Outstanding at March 25, 2000                635,633    $11.63 - $20.25   $14.90
                                            ====================================
Exercisable at March 25, 2000                359,164    $11.63 - $20.25   $14.68
                                            ====================================
Exercisable at March 27, 1999                211,953    $11.67 - $19.89   $14.30
                                            ====================================
Options available for future
grants at March 25, 2000                     114,717
                                            =========

</TABLE>

The Company follows the provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, which requires the measurement of the fair value of stock options
and warrants to be included in the statement of income or, for options to
employees, to be disclosed in the notes to the financial statements. The Company
has determined that it will continue to account for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and elect the disclosure-only alternative under SFAS No.
123 for options granted after January 1, 1996 using the Black-Scholes option
pricing model prescribed by SFAS No. 123. The weighted average assumptions used
are as follows:

<TABLE>
<CAPTION>

                                        March 25,       March 27,      March 28,
                                            2000            1999           1998
--------------------------------------------------------------------------------
<S>                                  <C>                 <C>            <C>
Risk-free interest rate               6.03%-6.78%           4.18%          6.15%

Expected dividend
 yield (per share)                        $ 0.34          $ 0.34         $ 0.33

Expected lives (years)                      5-10             5-7           5-10

Expected volatility                           48%             52%            26%

</TABLE>

The weighted average grant date fair value per share of options granted during
the years ended March 25, 2000, March 27, 1999 and March 28, 1998 under these
plans is $5.02, $9.23 and $5.72, respectively.

As of March 25, 2000, March 27, 1999, and March 28, 1998, the weighted average
remaining contractual life of outstanding options under these plans is 6.09
years, 6.80 years, and 7.25 years, respectively.

Had compensation cost for these plans been determined consistent with SFAS No.
123, the Company's net income and basic and diluted net income per share would
have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>

                                         March 25,      March 27,      March 28,
                                             2000           1999           1998
--------------------------------------------------------------------------------
<S>                                  <C>            <C>            <C>
Net income-

  As reported                         $ 6,646,517    $11,264,426    $ 9,576,235

  Pro forma                             5,795,414     10,455,893      9,031,049

Net income per share,
 as reported-

  Basic                               $      1.32    $      2.26    $      1.83

  Diluted                                    1.25           2.14           1.74

Net income per share,
 pro forma-

  Basic                               $      1.16    $      2.10    $      1.73

  Diluted                                    1.09           1.99           1.64

</TABLE>

c Warrant

In connection with a supply agreement entered into in March 1997, the Company
granted a customer a fully exercisable warrant to purchase up to 150,000 shares
of common stock at an exercise price of $11.67 per share. In accordance with
SFAS No. 123, the Company calculated the value of these warrants at $484,000,
which was charged to operations during Fiscal 1998, as product was shipped to
the customer. In July 1999, the customer exercised all outstanding warrants
through a cashless exercise, resulting in the issuance of 57,564 shares of
common stock.

d Issuance of Restricted Common Stock

In July 1997, the Company issued 7,500 shares of restricted common stock to an
officer at no cost. The shares vested immediately. The Company recorded the fair
value of the restricted common stock as a charge to operations in Fiscal 1998.

e Purchase of Common Stock

On June 13, 1997, the Company entered into an agreement with the estates of its
founder and former chief executive officer and his spouse. Under the terms of
the agreement, the Company acquired approximately 1,347,000 shares of the
Company's common stock owned by the estate for approximately $23,915,000. The
Company obtained a $25,000,000 unsecured line of credit with a bank to finance
this transaction.

5 Line of Credit

In June 1997, the Company entered into a unsecured revolving loan agreement with
a bank for $25,000,000. The loan matures on July 1, 2002. Interest is charged at
LIBOR on the first day of the interest period plus a fixed-rate spread based on
certain financial ratios (6.54% as of March 25,


18
<PAGE>

2000). As of March 25, 2000, $6,250,000 was outstanding under this revolving
loan agreement, of which $1,500,000 has been classified as short-term, as the
Company expects to repay this amount during Fiscal 2001. In connection with this
agreement, the Company must comply with certain restrictive covenants, including
maintaining minimum levels of profitability. As of March 25, 2000, the Company
was in compliance with all covenants.

The Company also has a $1,500,000 unsecured line of credit with another bank
available for letters of credit, bankers' acceptances and direct advances.
Interest on letters of credit and bankers' acceptances is based on the
prevailing rate (1.5% at March 25, 2000). Direct advances accrue interest at the
bank's commercial base rate (9.0% at March 25, 2000). No amounts were
outstanding under the line of credit at March 25, 2000 and March 27, 1999.

During Fiscal 1999, the Company entered in a line of credit with a German bank
denominated in deutschemarks. At March 25, 2000, there was DM 204,768
outstanding under this line of credit.

6 Segment Reporting

The Company has determined it has two reportable segments: core, and original
equipment manufacturer (OEM) and multimedia. The Company's reportable segments
are strategic business units that sell the Company's products to distinct
distribution channels. Both segments derive their revenues from the sale of
audio systems. They are managed separately because each segment requires
different selling and marketing strategies as the class of customers within each
segment is different. The Company's disclosure of segment performance is based
on the way that management organizes the segments within the enterprise for
making operating decisions and assessing performance.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company does not allocate
operating expenses between its two reportable segments. Accordingly, the
Company's measure of profit for each reportable segment is based on gross
profit.

<TABLE>
<CAPTION>

                                                        OEM and
2000                                      Core       Multimedia            Total
--------------------------------------------------------------------------------
<S>                              <C>              <C>              <C>
Net sales                         $ 58,797,803     $ 49,199,847     $107,997,650
                                  ==============================================
Gross profit                        21,633,212       12,115,572       33,748,784
                                  ==============================================
Depreciation
 and amortization                 $    988,573     $    148,701     $  1,137,274
                                  ==============================================
Capital expenditures              $  3,466,081     $    624,561     $  4,090,642
                                  ==============================================

                                                        OEM and
1999                                      Core       Multimedia            Total
--------------------------------------------------------------------------------
Net sales                         $ 55,484,371     $ 62,484,036     $117,968,407
                                  ==============================================
Gross profit                        23,968,152       15,212,755       39,180,907
                                  ==============================================
Depreciation
 and amortization                 $    753,611     $     58,236     $    811,847
                                  ==============================================
Capital expenditures              $  4,076,372     $    280,087     $  4,356,459
                                  ==============================================

                                                        OEM and
1998                                      Core       Multimedia            Total
--------------------------------------------------------------------------------
Net sales                         $ 51,703,187     $ 30,696,097     $ 82,399,284
                                  ==============================================
Gross profit                        21,141,874       10,912,805       32,054,679
                                  ==============================================
Depreciation and
 amortization                     $    656,342     $     22,818     $    679,160
                                  ==============================================
Capital expenditures              $  1,427,154     $    151,137     $  1,578,291
                                  ==============================================

</TABLE>

Total assets specifically identifiable within each reportable segment are as
follows:

                                                  March 25,            March 27,
                                                      2000                 1999
--------------------------------------------------------------------------------
Core                                           $45,808,922          $43,974,112

OEM and Multimedia                               7,055,105            9,264,705
                                              ----------------------------------
                                               $52,864,027          $53,238,817
                                              ==================================

The following table identifies sales by geographic region. Sales are attributed
to countries based on location of customer:

<TABLE>
<CAPTION>

                                   March 25,         March 27,         March 28,
For the Years Ended                    2000              1999              1998
--------------------------------------------------------------------------------
<S>                           <C>               <C>               <C>
United States                  $ 89,638,049      $101,452,830      $ 66,743,420

Other                            18,359,601        16,515,577        15,655,864
                              --------------------------------------------------
                               $107,997,650      $117,968,407      $ 82,399,284
                              ==================================================

</TABLE>

No individual country included in "Other" accounted for more than 10% of net
sales for the fiscal years presented above.

7 Employee Benefit Plan

The Company has a 401(k) Retirement Plan (the 401(k) Plan). The 401(k) Plan is a
defined contribution plan established under the provisions of Section 401(k) of
the Internal Revenue Code. The Company may make a matching contribution of 25%
of each participant's contribution, up to a maximum of 5% of a participant's
compensation for the plan year. The Company contributed approximately $84,000,
$73,000, and $58,000 to the 401(k) Plan during Fiscal 2000, 1999, and 1998,
respectively.

8 Commitments

The Company has leased certain of its facilities under operating lease
agreements that expire in Fiscal 2001. The leases require payments of
approximately $175,000 through 2001. Total rent expense for Fiscal 2000, 1999,
and 1998 was $388,000, $218,000, and $143,000, respectively.


                                                                              19
<PAGE>

Report of Independent Public Accountants

To Boston Acoustics, Inc.:

We have audited the accompanying consolidated balance sheets of Boston
Acoustics, Inc. (a Massachusetts corporation) and subsidiaries as of March 25,
2000 and March 27, 1999 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended March 25, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Boston Acoustics, Inc. and
subsidiaries as of March 25, 2000 and March 27, 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
March 25, 2000 in conformity with accounting principles generally accepted in
the United States.

                                                             Arthur Andersen LLP

                                                           Boston, Massachusetts

                                                                    May 10, 2000

Five Year Selected Financial Data

<TABLE>
<CAPTION>
                                           2000       1999       1998       1997       1996
-------------------------------------------------------------------------------------------
<S>                                    <C>        <C>        <C>        <C>        <C>
Income Statement Data
 Net Sales                             $107,998   $117,968   $ 82,399   $ 50,309   $ 46,325
 Net Income                               6,647     11,264      9,576      5,485      6,631
 Basic Earnings Per Share                  1.32       2.26       1.83       0.85       1.01
 Diluted Earnings Per Share                1.25       2.14       1.74       0.82       1.01
 Weighted Average Shares Outstanding
  Basic                                   5,017      4,988      5,232      6,427      6,530
  Diluted                                 5,303      5,255      5,512      6,684      6,532
 Dividends Per Share                   $   0.34   $   0.34   $   0.33   $   0.33   $   0.33

Balance Sheet Data
 Working Capital                       $ 24,828   $ 29,471   $ 20,319   $ 24,681   $ 26,083
 Total Assets                            52,864     53,239     42,499     42,230     43,124
 Shareholders' Equity                    36,673     33,872     23,904     38,909     39,893
</TABLE>

Quarterly Financial Data

<TABLE>
<CAPTION>
                                 First     Second      Third     Fourth
                               Quarter    Quarter    Quarter    Quarter       Year
----------------------------------------------------------------------------------
<S>                           <C>        <C>        <C>        <C>        <C>
Year Ended March 25, 2000
 Net Sales                    $ 21,845   $ 28,680   $ 30,567   $ 26,906   $107,998
 Gross Profit                    7,040      8,638     10,409      7,662     33,749
 Net Income                      1,139      1,673      2,800      1,035      6,647
 Basic Earnings Per Share         0.23       0.33       0.55       0.21       1.32
 Diluted Earnings Per Share       0.21       0.31       0.51       0.19       1.25

----------------------------------------------------------------------------------
Year Ended March 27, 1999
 Net Sales                    $ 21,500   $ 26,350   $ 37,306   $ 32,812   $117,968
 Gross Profit                    7,510      8,888     12,235     10,548     39,181
 Net Income                      2,019      2,563      3,953      2,729     11,264
 Basic Earnings Per Share         0.41       0.51       0.79       0.55       2.26
 Diluted Earnings Per Share       0.39       0.48       0.75       0.52       2.14
</TABLE>


20
<PAGE>

                                                         Shareholder Information

Boston Acoustic, Inc. encourages investors to become informed about its
business. Additional information, copies of this report and the Company's Form
10-K filed with the Securities and Exchange Commission may be obtained by
writing to Debra A. Ricker-Rosato, Vice President - Finance.

Dividend Policy

In August of 1992 the Company authorized a 50% increase in its annual dividend
rate from $.133 to $.20 per share. In February 1993 the Company authorized an
increase to $.267 per share and in February 1995 authorized an increase to $.333
per share. In August 1998, after announcing a 3:2 stock split, the Company
authorized an increase to $.34 per share. Dividends are declared and paid
quarterly. Four quarterly dividends totalling $.34 were declared during Fiscal
2000.

Stock Market Activity

The common stock of Boston Acoustics, Inc. has been listed on the NASDAQ
National Market System under the symbol BOSA since its initial public offering
on December 12, 1986. The following table sets forth high and low closing prices
by quarter reported by NASDAQ:

Fiscal 2000                                                High              Low
--------------------------------------------------------------------------------
First Quarter                                            19.313           15.938
Second Quarter                                           23.625           14.750
Third Quarter                                            16.500           11.063
Fourth Quarter                                           15.250           11.875

Fiscal 1999                                                High              Low
--------------------------------------------------------------------------------
First Quarter                                            27.170           20.000
Second Quarter                                           31.000           21.000
Third Quarter                                            26.500           20.250
Fourth Quarter                                           30.500           18.000

There were 141 shareholders of record as of March 25, 2000. Shareholders who
beneficially own common stock held in nominee of street name are not included in
the number of shareholders of record.

Corporate Information

Corporate Headquarters
Boston Acoustics, Inc.
300 Jubilee Drive
Peabody, MA 01960
Telephone: (978) 538-5000
Fax: (978) 538-5091
Website: www.bostonacoustics.com

Auditors
Arthur Andersen LLP
Boston, Massachusetts

Legal Counsel
Peabody & Arnold LLP
Boston, Massachusetts

Transfer Agent
BankBoston
c/o Boston EquiServe, LP
Boston, Massachusetts

Board of Directors

Andrew G. Kotsatos
Chairman, Chief Executive Officer and Treasurer
Boston Acoustics, Inc.

Moses A. Gabbay
Chief Operating Officer
Boston Acoustics, Inc.

George J. Markos
Senior Vice President
and General Counsel
Yell-O-Glow Corporation

Lisa M. Mooney

Executive Officers

Andrew G. Kotsatos
Chairman, Chief Executive Officer and Treasurer

Moses A. Gabbay
Chief Operating Officer

Michael B. Chass
Vice President - Multimedia Products Group

Martin J. Harding
Vice President - Marketing

Paul F. Reed
Vice President - Administrative Services

Debra A. Ricker-Rosato
Vice President - Finance

Michael J. Rudd
Vice President - New Technology

Robert L. Spaner
Vice President - Sales
<PAGE>

Boston
BostonAcoustics.com

Boston Acoustics, Inc.
300 Jubilee Drive
Peabody, MA 01960
(978) 538-5000
www.bostonacoustics.com