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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|(Mark One)                                                       |                                                                                         
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                                | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended January 31, 2003                      
|or                                                              
|o                                                                | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                                to

Commission file number 0-22532

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ULTIMATE ELECTRONICS, INC.(Exact Name of Registrant as Specified in its Charter)

|Delaware(State of Incorporation
or Organization)                                |  | 84-0585211(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------- |  | ----------------------------------------------
|321 W. 84th Avenue, Suite A
Thornton, CO(Address of principal executive office) |  | 80260(Zip Code)                               
|Registrant's telephone number, including area code:(303) 412-2500              
|Securities registered pursuant to Section 12(b) of the Act:None                

Securities registered pursuant to Section 12(g) of the Act:Common Stock, $.01 Par Value Per
Share

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  ý    No  o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    o

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

The
aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $190,182,720 as of July 31, 2002,
based on the closing price of the shares on the Nasdaq Stock Market of $15.25 on that date.

The
number of shares of Common Stock outstanding as of May 14, 2003 was 14,582,016.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection
with the 2003 Annual Meeting of Stockholders are incorporated by reference in Part III of this Report on Form 10-K.

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TABLE OF CONTENTS



|         |  |                                                                                               
|-------- |  | ----------------------------------------------------------------------------------------------
|ITEM 1:  |  | BUSINESS                                                                                      
|ITEM 2:  |  | PROPERTIES                                                                                    
|ITEM 3:  |  | LEGAL PROCEEDINGS                                                                             
|ITEM 4:  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                           
|ITEM 5:  |  | MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                         
|ITEM 6:  |  | SELECTED CONSOLIDATED FINANCIAL DATA                                                          
|ITEM 7:  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS         
|ITEM 8:  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                   
|ITEM 9:  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE          
|ITEM 10: |  | DIRECTORS AND CERTAIN EXECUTIVE OFFICERS OF ULTIMATE ELECTRONICS, INC.                        
|ITEM 11: |  | EXECUTIVE COMPENSATION                                                                        
|ITEM 12: |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|ITEM 13: |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                
|ITEM 14: |  | CONTROLS AND PROCEDURES                                                                       
|ITEM 15: |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                              

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We own or have applied for various trademarks, copyrights and trade names used in our business, including Ultimate Electronics, Audio King, Fast Trak, Simple
Solution, SoundTrack, Experience More and Big Blue Sale. This annual report also includes trademarks and trade names of other companies.

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PART I

ITEM 1:    Business

References to fiscal years in this report refer to the 12 months ended January 31 of that year; e.g. "fiscal 2003" refers to
the 12 months ended January 31, 2003.

Overview

Ultimate Electronics is a leading specialty retailer of consumer electronics and home entertainment products in the Rocky Mountain, Midwest and Southwest regions
of the United States. We focus on mid- to high-end audio, video, television and mobile electronics products sold by a highly trained, knowledgeable, commissioned sales force.
We offer over 3,800 stock keeping units (SKU's) at a wide range of price points representing approximately 130 brands, including a broad presentation of the most popular names and a large selection of
limited-distribution, upscale brands and lines. We emphasize products with the latest technology by dedicating significant resources to their promotion, advertising, merchandising and related product
training. We believe our commitment to technologically advanced products, combined with our highly trained sales force, allows us to capitalize on the growing demand for consumer electronics products,
which is being driven by digital technologies.

We
showcase our consumer electronics products in an upscale, demonstration-oriented store format (an average of 30,750 square feet in size), which enables customers to sample and compare
features and functions of the many products we offer. We also provide a complete menu of value-added services, including home installation of consumer electronic equipment by our own technicians. We
believe our differentiating characteristics, together with our parity pricing strategy and satisfaction guarantees, often make us the preferred retailer for consumer electronics.

We
operate 58 stores in Arizona, Colorado, Idaho, Illinois, Iowa, Minnesota, Missouri, Nevada, New Mexico, Oklahoma, South Dakota, Texas and Utah. We opened 12 stores in fiscal 2003 and
plan to continue our store expansion program by opening seven stores during fiscal 2004.

Business Strategy

Our objective is to enhance our position as a leading specialty retailer of consumer electronics and home entertainment products. Key elements of this strategy
include:

Offering an Extensive Selection of Products at a Wide Range of Price Points, with the Focus on Mid- to High-End
Audio and Video Products.Our broad merchandise mix of widely distributed brands includes a significant variety of high-end SKU's that are not
generally available at our major competitors. In addition, a significant portion of the approximately 130 brands that we offer are mid- to high-end names, such as Definitive
Technology, Pioneer Elite, Denon, Krell, Kef, Mitsubishi and Sony ES, and have limited distribution through select retailers. We believe that customers make better informed buying decisions when they
are presented with a broad selection of competitively priced products and are educated at our stores about the features and benefits of the products. Through our Simple Solution program, we highlight
our broad selection to our customers and simplify the purchase decision for them by offering complete system packages. In addition, our parity pricing strategy and satisfaction guarantees are designed
to remove pricing and other concerns from the purchase decision and allow the customer and the sales staff to focus on product features, quality and our unique menu of services.

Being a Leader in Offering the Best Selection of New Technology for In-Home and Mobile
Entertainment.We are recognized by consumers and vendors as a leader in presenting the best selection of the latest technology. We devote significant resources to
marketing and substantial floor space to displaying new technologies to achieve increased market share of the newest and most sought after consumer electronics products. For example, we sold the first
HDTV for residential use in the United States in July 1998, and we are currently taking a leadership position in marketing and displaying LCD and plasma televisions. We believe that showcasing
the latest technology differentiates us from less specialized competitors and stimulates the sales of other products and services. We provide our sales associates with specialized training so that
they can present the advantages of new technology

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to
our customers. We also frequently hold special events at our stores to introduce and promote new products.

Training and Developing a Premier Sales and Installation Team.We conduct an extensive ongoing
training program designed to ensure that our sales associates are equipped with the most up-to-date sales techniques and product knowledge. We believe that the quality and
knowledge of our sales associates and installation technicians is critical to our success and
represents a significant competitive advantage. We also believe that our ongoing, specialized training creates a superior customer experience that stimulates sales of our products.

Providing "Red Carpet" Customer Service.We support our product sales by providing many important
customer services, including home delivery and set-up, home theater and audio design and installation, home digital broadcast satellite ("DBS") installation, mobile electronics
installation and regional service centers that offer in-home and carry-in repair services. We also provide in-store product instruction and, upon request, will
provide follow-up instruction at a customer's home. In addition, we offer a 30-day money-back satisfaction guarantee on most products and an in-stock
guarantee on advertised products.

Providing an Upscale, Demonstration-Oriented Store Format.We have developed an upscale,
demonstration-oriented store format that showcases our merchandise and encourages customers to fully experience our products. We believe that this format assists our customers in understanding the
benefits of upscale products and new technologies. Our stores have acoustically designed home audio and car stereo demonstration rooms, fully furnished home theater rooms and displays to showcase the
latest mobile video and security products. Carpeted and hardwood floors, soft lighting and high quality merchandise fixtures further enhance the appeal of our stores.

Growth Strategy

In addition to our business strategy that is focused on generating comparable store sales increases, we intend to grow our business by opening additional stores
in existing markets, entering new markets that meet our criteria and relocating or expanding existing stores to enhance sales and profitability.

Capturing Large Market Opportunity in Consumer Electronics.We have identified a national opportunity
of more than 240 potential sites in new and existing markets that meet our criteria for potential store development. We have a proven ability to open new stores in our existing markets as well as to
successfully enter new markets with the simultaneous opening of multiple stores. We believe that we are well positioned to execute a disciplined growth strategy over the next several years. We also
believe that we have the necessary distribution and management information systems, as well as management experience and depth, to support our targeted expansion plans. Our store development strategy
is predicated on a detailed market analysis that includes a comparison of the demographics of our existing customers with the demographics of the target market and a review of competitors' positions
in the market and economic data. Based on this market analysis, we believe that there are significant opportunities for new store growth both in new and existing markets.

Opening Stores in New Markets.During the past three years, we entered four new markets. During
fiscal 2001 and 2002, we entered the Phoenix metropolitan area with eight stores, the Oklahoma City market with two stores and the St. Louis market with four stores. During fiscal 2003, we expanded
into the Dallas/Fort Worth market with 10 stores and opened two additional stores in the St. Louis market. In fiscal 2004, we plan to enter the Kansas City, Missouri and Wichita, Kansas markets with
four stores and the Austin, Texas market with two stores. We intend to continue to expand into select metropolitan areas in the Midwest and Southwest regions.

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Expanding Our Presence in Existing Markets.We believe that there are opportunities to increase our
presence in a number of our existing markets, either through opening new stores or through relocating or expanding existing stores. We periodically analyze the competitor, demographic and economic
data in our existing markets in order to take advantage of additional growth opportunities. We plan to open one additional store in the Minneapolis/St. Paul, Minnesota market in fiscal 2004, two
additional stores in the Kansas City market in fiscal 2005 and one additional store in the Austin, Texas market in fiscal 2005. We relocated our Rochester, Minnesota store in March 2003. We
currently plan to relocate up to four stores in fiscal 2005. We intend to continue to open or relocate new stores within existing markets in order to increase market share and leverage our
advertising, distribution and other fixed expenses to create operating efficiencies. Since 1994, we have successfully relocated and expanded eight smaller stores to conform to the size and format of
our current prototype. We anticipate relocating or expanding up to 10 of our smaller, older stores in the future (up to five in the Minneapolis/St. Paul, Minnesota market, one in Cedar Rapids, Iowa,
one in Des Moines, Iowa, two in the Denver, Colorado market and one in Colorado Springs, Colorado).

Store Operations

Stores.We operate 58 stores, including 11 stores in Colorado under the trade name SoundTrack, 40
stores in Arizona, Idaho, Illinois, Iowa, Minnesota, Missouri, Nevada, New Mexico, Oklahoma, South Dakota, Texas and Utah under the trade name Ultimate Electronics and seven stores in Minnesota under
the trade name Audio King. We plan to rename our seven Audio King stores as Ultimate Electronics in the fall of 2003. Of these 58 stores, 45 are large format stores and the balance are smaller stores.
While our 45 larger stores vary in size from 29,000 to 51,000 square feet, our current prototype large format store generally ranges from 26,000 to 34,000 square feet, with approximately 60% of the
square footage devoted to selling space. The remaining space is dedicated to a car audio installation facility, a store warehouse, general office space and, in selected stores, a service facility and
extra space for deliverable products such as big screen televisions.

Our
13 smaller stores average approximately 18,200 square feet, with approximately 55% of the square footage devoted to selling space. In certain smaller markets, we may open stores as
small as 20,000
square feet. These stores generally contain the same products available at our large format stores except that they typically contain fewer large screen televisions and fewer demonstration rooms for
home and mobile electronics. We plan to relocate or expand up to 10 of our existing smaller stores as opportunities become available.

Our
stores feature an extensive selection of over 3,800 SKU's with products in the following categories:



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Our
stores emphasize mid- to high-end products and feature multiple home audio and car demonstration rooms, multiple home theater settings, extensive portable
electronics displays and an area displaying up to 50 projection televisions. During fiscal 2004, we expect to decrease the number of projection televisions on display by approximately 20% as we
discontinue the sale of analog projection televisions and continue to increase our selection of plasma and LCD televisions. Each of our stores has displays designed to provide the customer with a full
spectrum of our products upon entering the store, including the best selection of the latest technology such as LCD and plasma televisions. All of our locations offer home installation of audio, video
and satellite products, as well as car audio, car satellite and mobile video installations.

Site Selection.We typically locate our prototype stores in power centers or freestanding locations
near shopping malls and other major retail shopping areas. We select locations for future stores based on our evaluation of individual site economics, market conditions and our customer demographics.

With
the help of an independent site selection consultant, we evaluate a number of criteria, including the following:



In
choosing specific sites in a new or existing market, we apply site selection criteria taking into account numerous factors, including the following:



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Store Economics.We believe that we benefit from attractive store level economics. Our average
investment for the 22 large format stores we opened in the past two years was approximately $3.4 million including leasehold improvements, fixtures and equipment, inventory (net of payables)
and preopening expenses. Our large format stores have typically been profitable on a store operating basis within their first 12 months of operation and, on average, return our investment in
three years or less.

The
cost of our new large format stores is anticipated to average approximately $3.4 million per store, which includes leasehold improvements, fixtures and equipment, inventory
(net of payables) and preopening expenses. Leasehold improvements, fixtures and equipment are expected to average approximately $2.2 million per store, depending on tenant allowances.
Preopening expenses for these stores are expected to average approximately $350,000, and include costs for advertising prior to opening and recruitment and training of new employees. The inventory
requirement for our new stores is expected to average approximately $1.6 million, of which $750,000 is typically financed through trade credit from our vendors. For relocations of existing
stores, preopening costs are expected to average approximately $150,000 and will be higher if we terminate existing store leases prior to their maturity.

Training.We provide new sales associates with a minimum of three weeks of intensive classroom
training. Our sales associates also receive additional weekly training at the store, weekly self-study programs and testing. Our training program begins with an orientation by one or more
of our executive officers and continues with instruction in areas such as technical knowledge by product category, selling techniques and our policies and procedures. We provide ongoing sales and
product training through a customized series of DVD based training videos. We test our associates' retention upon completion of each video. In addition, we conduct role playing exercises to allow
sales associates to practice new selling techniques and their product knowledge prior to customer contact. We have similar programs for our installation, delivery and support staff.

Store Personnel.An average large format store is generally staffed with a store manager, two sales
managers (one for home electronics and one for mobile electronics), 25 to 35 sales associates, an installation supervisor, six to eight installers, an operations manager and seven support personnel,
including four warehouse employees and three customer service representatives. All of our store managers have been promoted from within the company. The staffing of our smaller stores generally
follows the same format as our larger stores but with fewer employees in each area and no operations manager. We provide opportunities for advancement through participation in Ultimate University, an
in-depth training program designed to prepare selected candidates for future management positions.

Store Personnel Compensation.Our compensation plan is designed to incentivize our sales associates
to sell more than one product to a customer. Our sales associates are compensated based on a flexible incentive pay plan with commissions determined on the basis of sales, gross margins and attachment
selling. Installers are also paid on a commission basis. Store managers receive a base salary and monthly and quarterly bonuses. Sales managers similarly receive a small base salary, bonuses and
earned commissions. Bonuses are calculated on a store-by-store basis. Our support staff is typically paid an hourly wage plus bonuses and may also earn commissions.

Services.We support our product sales by providing many important customer services, including the
following:



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We
provide our customers with expedited repair service through our Fast Trak service program. Virtually all merchandise purchased from us may be taken to any of our stores for repair,
whether or not the product is currently under the manufacturer's warranty or an extended warranty contract. Our large depot repair service facilities, located in metropolitan Denver, Colorado;
Minneapolis, Minnesota; Phoenix, Arizona; and Dallas, Texas; provide complete repair service capability for our customers and provide support for our regional repair service centers. We have regional
repair service centers in Albuquerque, New Mexico; Boise, Idaho; Des Moines, Iowa; Las Vegas, Nevada; Salt Lake City, Utah; St. Louis, Missouri and Tulsa, Oklahoma. We employ approximately 250
employees in connection with our repair service business. In addition, we operate a fleet of approximately 330 customer service vehicles to provide in-home repair and delivery,
installation and setup of home DBS systems, home theater components and televisions, as well as installation of structured wiring for a variety of home builders.

We
offer private label and manufacturer sponsored credit cards, which are financed, operated and serviced by third party finance companies on a non-recourse basis. We have
entered into agreements with finance companies whereby they retain all credit risk associated with these credit cards. These arrangements permit us to provide our customers with financing promotions,
including interest-free financing and deferred payments, without using our working capital. During fiscal 2003, approximately 33% of our total sales were to customers who financed their
purchases using our private label or manufacturer sponsored credit cards.

Merchandising and Inventory

Products.We offer our customers a comprehensive selection of high quality, brand name television,
audio, video and mobile electronics. We emphasize depth of product selection within key product categories as follows:

|Category       |  | Products                                                                                                                                                                             |  | Selected Brands                                                                                                                                                                               
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Television/DBS |  | Conventional televisions, combination televisions, digital broadcast satellite systems, front projection televisions, LCD televisions, plasma televisions and projection televisions |  | Apex, DirecTV, Draper, Hitachi, JVC, Mitsubishi, Panasonic, Pioneer, Pioneer Elite, RCA, Samsung, Sharp, Sony, Sony XBR, Sylvania and Zenith                                                  
|Audio          |  | Audio components, audio systems, compact disc players, portable audio electronics and speakers                                                                                       |  | Audiovox, Bose, Definitive Technology, Denon, Infinity, JVC, Kef, Kenwood, Klipsch, Krell, Monster Cable, Niles, Panasonic, Philips, Pioneer, Pioneer Elite, Sony, Sony ES, Sunfire and Yamaha
|               |  |                                                                                                                                                                                      |  |                                                                                                                                                                                               

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|Video/DVD          |  | Camcorders, digital cameras, DVD players, editing equipment, personal video recorders, VCRs and video printers                             |  | Apex, Canon, Denon, Go Video, Hitachi, JVC, Kenwood, Mitsubishi, Monster Cable, Olympus, Panasonic, Philips, Pioneer, Samsung, Sony and Yamaha                                                                                                                                                 
|------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Mobile Electronics |  | Car stereo components, car stereo speakers, mobile phones, mobile video, satellite radio, wireless communications                          |  | Alpine, AT&T wireless, Audiovox, Boston Acoustics, Clifford, Cobra, Directed Electronics, ESCORT, Infinity, Jensen, Kenwood, Monster Cable, Motorola, Nokia, Panasonic, Pioneer, Rockford Fosgate, Samsung, Sanyo, Sirius Satellite Radio, Sprint PCS,
Sony, TERK, XM Satellite Radio and XTANT
|Home Office        |  | Computers, computer peripherals, fax machines, personal digital assistants and telephones                                                  |  | AT&T, Canon, General Electric, Monster Cable, Palm, Panasonic, Siemens, Sony and vtech                                                                                                                                                                                                         
|Other              |  | Audio and video furniture, batteries, blank tapes, delivery, extended warranty contracts, gaming, installation services and product repair |  | Bell'O International, Boltz, Furniture Works, Laurier, Omnimount, Panasonic, Sanus, Sony, TDK, Techcraft and Warrantech                                                                                                                                                                        

We
offer customers a wide range of price points within each product category, with the greatest depth in mid- to high-end products. Within our product categories,
we carry and actively promote new models as they become available. We do not carry home appliances or music, video or computer software.

We
assist our customers in making larger and more complex consumer electronics purchases with our Simple Solution program. Our Simple Solution program provides customers with complete
packages that make home theater, car audio and computer purchase decisions simpler. This program also offers the consumer an excellent value when compared with purchasing the same components
separately. Our Simple Solution product packages generally range across several price points in each product category. We negotiate special purchases from manufacturers for our Simple Solution program
to provide lower prices to our customers while achieving attractive gross margins on the products.

The
following table shows the approximate percentage of sales for each major product category for the last three fiscal years.

Fiscal Year Ended January 31,Product Category2001

2002

2003Television/DBS

33
%
38
%
41
%Audio

22
%
20
%
19
%Video/DVD

18
%
17
%
15
%Mobile Electronics

10
%
9
%
9
%Home Office

5
%
4
%
3
%Other

12
%
12
%
13
%


We
sell extended warranty contracts on behalf of a fully-insured unrelated party. The contracts extend beyond the normal manufacturer's warranty period, usually with terms of coverage
(including

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the
manufacturer's warranty period) between 12 and 60 months. The extended warranty contracts are administered by a third party and all performance obligations and risk of loss with respect to
such contracts are the responsibility of such administrator and other parties. Effective February 1, 2000, we restructured our extended warranty master contract with the administrator. For
extended warranty contracts entered into after February 1, 2000, we are a non-obligor and, therefore, we recognize commissions from the sale of these non-obligor
contracts as revenues at the time of sale to customers. We are deemed to be the obligor under the extended warranty contracts entered into prior to February 1, 2000, and we recognize revenues
over the term of these obligor contracts.

Pricing.We emphasize competitive pricing on all items and reinforce this strategy with extensive
advertising of our 60 day price guarantee and our 30 day satisfaction guarantee. Our 60 day price guarantee allows our customers to receive 110% of the difference between the
original purchase price and any verified locally available lower price for the identical product under the same purchase conditions. This guarantee applies to all products which are covered by a
30 day price guarantee. Our 30 day satisfaction guarantee allows our customers to return most products within 30 days for a full refund. Camcorders, car multimedia and radar
detectors have a 30 day money-back or 30 day exchange guarantee. Our price guarantee and our satisfaction guarantee are designed to remove pricing and suitability concerns
from the purchase decision and allow the customer and the sales staff to focus on product functionality, performance and quality. In addition, we offer an in-stock guarantee on advertised
products.

Purchasing.We purchase substantially all of our products directly from the manufacturers. Each of
our buyers has responsibility for specified product categories. Buyers are assisted by a management information system that provides them with our current inventory quantity, price and sales
information by item, thus allowing them to react quickly to market changes.

We
have been one of the largest members of the Progressive Retailers' Organization, a volume buying group. Membership in this organization had helped us to obtain additional volume
rebates, special buys and access to closeout and final production items. During the fourth quarter of fiscal 2003, we resigned from the Progressive Retailers' Organization. We believe that based on
our current size, we have been able, and will continue to be able, to obtain independently most of the benefits provided by membership in the Progressive Retailer's Organization.

During
fiscal 2003, our 10 largest suppliers accounted for approximately 72% of the merchandise we purchased. Three of our suppliers, Sony, Panasonic and Mitsubishi, each accounted for
more than 10% and collectively accounted for approximately 45% of our merchandise mix. The master agreements
under which we operate with each of our suppliers are normally terminable upon 0 to 60 days' notice by either party. As is customary in the industry, we do not have purchase commitments of
longer than one year with the majority of our product suppliers. We believe that our relationships with our vendors are excellent and that our focused merchandising and high degree of customer service
makes us an important distribution channel, particularly for the introduction of new products.

Distribution.We currently distribute virtually all of our merchandise to our stores from a 226,000
square foot warehouse and distribution center located in Thornton, Colorado, a suburb of Denver. All of our stores in Colorado are located within 75 miles of this center. For stores more than 75 miles
from this facility, we use contract carriers for distribution. Our warehouse and distribution center reduces our inventory requirements at individual stores, while preserving the benefits of volume
purchasing and facilitating centralized inventory and accounting controls.

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Advertising and Marketing

Our marketing program is designed to create public awareness of our comprehensive selection of mid- to high-end brands at competitive
prices. Our advertising strategy primarily uses newspaper, television, radio and targeted direct mail media. We present a blend of aggressive promotional price points on products sold by our
competitors as well as an extensive selection of mid- to high-end products that may not be offered by our competitors. We primarily advertise through newspaper advertisements
in every market we serve, producing 4- to 28-page full color weekly inserts. We also conduct a direct mail campaign, the cornerstone of which is a 108- to
120-page full color catalog, which is published four times a year and emphasizes the breadth of our selection and new technology. The catalog educates our customers on the features and
benefits of the latest consumer electronics products and advertises the full array of products and services available at our stores. We mail our catalog to 950,000 to 1.3 million current and
600,000 to 1.0 million prospective customers in our markets. We build top-of-mind awareness through an ongoing television and radio advertising campaign that
specifically targets our core customers. We also hold special events at our stores to introduce or promote new products. We produce prominent and colorful in-store signage that describes
differentiating product features, new technology and promotional information.

The
specific allocation of advertising dollars among the various types of advertising media is reviewed from time to time by management and, if necessary, adjusted to reflect our
assessment of advertising results and market conditions.

Our
web site,www.ultimateelectronics.com, is designed to provide a company overview and stockholder information. We have not made the
investment to enable us to conduct sales through our web site, primarily because a significant number of our major and high-end manufacturers currently restrict the sale of their products
via the Internet.

Management Information System

During fiscal 2002, we implemented a warehouse management system to manage our warehouse and distribution center in Thornton, Colorado. During fiscal 2003, we
continued to refine this system and began to realize its benefits. This warehouse management system was interfaced with our existing management information system, which is an on-line
system that we have been using
since 1990 and connects all of our facilities and allows sales associates to determine the location of our inventory at any time and our merchandising department to change pricing immediately in
response to competitor pricing.

In
fiscal 2002, we began implementing a new management information system comprised of Oracle's E-business suite of products (to manage our administrative applications) and
Tomax's retail suite of applications (to create a new infrastructure for managing our operations). We believe this new management information system will provide us with a powerful
web-enabled solution for supporting the critical functions of our business. This project is designed to upgrade the majority of our internal software systems, thereby increasing
productivity and supporting the further expansion of our company. By implementing this fully integrated, end-to-end solution, we plan to provide comprehensive,
easy-to-use applications for our sales associates and enhance our customer's shopping experience. We have completed the initial phase of the project, which included
installation of Oracle's financial modules. We are proceeding with the implementation of the remaining portions of our new management information system and expect to complete the process during the
summer of 2003. If we do not complete the implementation of our new management information system by the end of summer 2003, we would delay the final phase of implementation until spring 2004.

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Competition

We operate in a highly competitive and price sensitive industry. The principal competitive factors in the consumer electronics industry are breadth of product
selection, price, store location and customer service. We face competition from large national chains, numerous smaller specialty stores and consumer electronics departments of many department,
discount and home improvement stores. We consider our primary competitors to include consumer electronics retailers such as Best Buy and Circuit City as well as mass merchants such as
Wal-Mart, Sam's Club, Costco, Target and Sears and specialty retailers such as Car Toys and Tweeter Home Entertainment. We compete with Circuit City in each of our markets except Sioux
Falls, South Dakota and our three stores in Iowa. We compete with Best Buy in each of our markets. Our primary competitors have financial and other resources greater than ours. Our operating results
may be adversely affected by such increased competition. In addition, if such competitors seek to gain or retain market share by reducing prices, we may be required to reduce our prices, thereby
reducing gross margins and profits. Also, as we expand into markets where our name may not be recognized, our success will depend in part on our ability to compete with established and future
competitors in such markets.

We
also compete with retailers of consumer electronics who market their merchandise on the Internet. We believe that competition from the Internet will increase in the future.

Intellectual Property

We believe our trademark and service mark portfolio includes marks that have developed public recognition and are of significant value. ULTIMATE ELECTRONICS
(Stylized), AFFORDABLE PORTABLE (Stylized), AUDIO KING and FAST TRAK are all federally registered on the Principal Register of the U.S. Patent and Trademark Office in the name of Ultimate
Electronics, Inc. These registrations have received incontestable status. The marks ULTIMATE ELECTRONICS, BIG NAMES. LITTLE PRICES. GUARANTEED., SIMPLE SOLUTION and SOUNDTRACK are also
federally registered on the Principal Register of the U.S. Patent and Trademark Office in the name of Ultimate Electronics, Inc. Further, we have an application pending before the U.S. Patent
and Trademark Office for ULTIMATE ELECTRONICS EXPRESS, ULTIMATE BUY, BIG BLUE SALE, and EXPERIENCE MORE; and a Colorado State registration for the mark THE ULTIMATE SOUNDTRACK. We control the nature
and quality of the goods and services offered under our portfolio of marks to maintain our proprietary intellectual property rights in the portfolio. We are not aware of any adverse claims concerning
our trademarks and service marks.

Employees

As of April 1, 2003, we employed approximately 3,375 full and part-time employees, approximately 2,935 of whom were store, customer delivery or
service employees and approximately 440 of whom were main warehouse or corporate personnel. We consider our employee relations to be good. Most employees, other than corporate and store support
personnel, are paid pursuant to a flexible pay plan. We believe that we provide working conditions and wages that compare favorably with those of other retail companies within our industry. None of
our employees are covered by collective bargaining agreements.

Seasonality

Our business is affected by seasonal consumer buying patterns. As is the case with many other retailers, our sales and profits have been greatest in the fourth
quarter (which includes the holiday selling season). Due to the importance of the holiday selling season, any factors negatively impacting the holiday selling season could have a material adverse
impact on the our financial condition and results of operations. In addition, we believe the adoption of new accounting guidance for vendor

10

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allowances
(EITF 02-16) will increase the seasonality of our business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Corporate Information

Ultimate Electronics, Inc. is a Delaware corporation. We opened our first store in 1968. We grew to nine stores in Colorado by 1993 and then adopted an
expansion strategy to enter new markets in the Rocky Mountain, Midwest and Southwest regions. By the end of fiscal 1997, we had grown to 18 stores. In June 1997, we acquired Audio King
Corporation, a consumer electronics specialty retailer with 11 retail stores in Minnesota, Iowa and South Dakota. We then opened one store in fiscal 1998, one store in fiscal 2000, five stores in
fiscal 2001, ten stores in fiscal 2002 and 12 stores in fiscal 2003.

Information Available on Our Web Site

We make available free of charge through our Internet web site our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our Internet address is http://www.ultimateelectronics.com. Our Internet web site and the information contained therein or connected thereto are not intended to be incorporated
into this report.

RISK FACTORS

Our business is subject to the risks set forth below. If any of the following risks, or other risks not presently known to us or that we currently believe not to
be significant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected.

Our Success Depends in Large Part on Our Ability to Open and Profitably Operate New Stores in Existing and New Geographic Markets

We plan to open seven new stores in fiscal 2004. We may not be able to open all of these stores, and any new stores that we open may not be profitable, either of
which could have a material adverse impact on our financial results.

There
are a number of factors that could affect our ability to open and operate new stores consistent with our business plan. These factors include, but are not limited to:



11

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These
factors may also affect the ability of any newly opened stores to achieve sales and profitability levels comparable with our existing stores or to become profitable at all.

We May Not Be Able to Achieve and Manage Planned Expansion

We face many business risks associated with rapidly growing companies, including the risk that our existing management, information systems and financial controls
will be inadequate to support our planned expansion. Our growth plans will require us to expend significant management time and effort and additional resources to ensure the continuing adequacy of our
financial controls, operating procedures, information systems, product purchasing, warehousing and distribution systems and employee training programs. We cannot predict whether we will be able to
effectively manage these increased demands or respond on a timely basis to the changing demands that our planned expansion will impose on our management, information systems and financial controls. If
we fail to continue to add management personnel or to improve our management information systems and financial controls or if we encounter unexpected difficulties during expansion, our business,
financial condition, operating results or cash flows could be materially adversely affected.

Furthermore,
we may seek to acquire businesses that are complementary to ours. To do so successfully, we would need to identify suitable acquisition candidates, obtain financing on
acceptable terms, and negotiate acceptable acquisition terms. Even if we are successful in completing acquisitions, they may have a material adverse effect on our operating results, particularly in
the fiscal quarters immediately following the completion of an acquisition, while the acquired business is being integrated into our operations. We do not currently have any definitive agreements
regarding an acquisition.

We May Be Unable to Fund Our Significant Future Capital Needs, and We May Need Additional Funding Sooner than Anticipated

We will need substantial capital to finance our expansion plans, including funds for capital expenditures, working capital, preopening costs and potential initial
operating losses related to new store openings. We may not be able to obtain additional financing on acceptable terms. If adequate funds are not available, we will have to curtail projected growth,
which could materially adversely affect our business, financial condition, operating results or cash flows.

We
estimate that capital expenditures during fiscal 2004 will be between $35 and $40 million and that capital expenditures during future years may exceed this amount. Although we
expect that the funds available under our line of credit and cash flows from operations will be sufficient to fund our capital requirements at least through fiscal 2005, this may not be the case. We
may be required to seek additional capital earlier than anticipated if:



12

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A Decline in General Economic Conditions, Terrorist Attacks or Acts of War May Seriously Harm our Business

Consumer spending patterns, particularly discretionary spending for products such as consumer electronics, are affected by, among other things, prevailing
economic conditions, wage rates, interest rates and inflation, new housing starts, consumer credit availability, consumer confidence and consumer perception of economic conditions. General economic,
political and market conditions, such as recessions, wars and potential terrorist attacks, may adversely affect our business results and the market price of our common stock. The threat of terrorist
attacks in the Unites States since September 11, 2001 continues to create many economic and political uncertainties. The potential for future terrorist attacks, the national and international
responses to terrorist attacks, and other acts of war or hostility may cause greater uncertainty and cause our business to suffer in ways that we currently cannot predict. The military action taken by
the United States and its allies against the government of Iraq has had a short term and could have a long term negative economic impact upon the financial markets and our business in general. In
addition, events such as those referred to above could cause or contribute to a general decline in equity valuations, which in turn could reduce the market value of your investment in
our company. These factors adversely affected our business in fiscal 2003. There is no assurance that the economy or consumer confidence will improve or that these factors will not continue to have an
adverse effect on our operating results and financial conditions.

We Face Significant Competition from National, Regional and Local Consumer Electronics Retailers

The retail consumer electronics industry is highly competitive. We currently compete against a diverse group of retailers, including several national retailers,
such as Best Buy and Circuit City, and regional and local merchants, who sell, among other products, audio and video consumer electronics products similar and often identical to those we sell. Each of
our stores competes directly with either a Best Buy or a Circuit City, and over ninety percent of our stores compete with both. We also compete in particular markets with a substantial number of
retailers that specialize in one or more types of consumer electronics products that we sell. Some of our competitors have financial resources that are substantially greater than ours and may be able
to purchase inventory at lower costs, initiate and sustain predatory price competition and better sustain economic downturns. In addition, appliance/electronic superstores, warehouse clubs, home
improvement retailers and mass merchants selling consumer electronics, such as Wal-Mart, Sam's Club, Costco, Target and Sears, are continuing to expand their selection of consumer
electronics products, and such expansion may increase price competition and reduce gross margins within our markets. We also compete with retailers of consumer electronics who market products through
store catalogs and the Internet, which may increase price competition for certain of our products.

A
number of different competitive factors could have a material adverse effect on our results of operations and financial condition, including:



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If New Products are Not Introduced or Consumers Do Not Accept New Products, Our Sales May Decline

Our historical growth rate has been directly related to our ability to be a leader in sales of new technology products. We depend to a large extent on the
periodic introduction and availability of new products and technologies. Many products that incorporate the newest technologies, such as DVD and HDTV, are subject to significant technological changes
and pricing limitations, and are subject to the actions and cooperation of third parties such as television broadcasters and movie distributors, all of which could impact our ability to continue to
deliver new consumer electronic technologies to our customers. The HDTV market, for example, could be adversely affected by a significant delay in the broadcast of HD signal. It is possible that
products such as HDTV or other new products will never achieve widespread consumer acceptance. Significant deviation from the projected demand for products we sell may have a material adverse effect
on our results of operations and financial condition, either from lost sales or lower margins due to the need to mark down excess inventory.

Any Failure of Our Information Technology Infrastructure Could Harm Our Business

The capacity, reliability and security of our information technology hardware and software infrastructure and our ability to expand and update this infrastructure
in response to our growth and changing needs are important to the operation of our business. In connection with our growth, we are continually updating our information technology infrastructure. We
are currently implementing a new management information system comprised of Oracle's E-business suite of products (to manage our administrative applications) and Tomax's retail suite of
applications (to create a new infrastructure for managing our operations). This project is designed to upgrade the majority of our internal software systems, thereby increasing productivity and
supporting the further expansion of our company. We have incurred significant costs and have expended significant management and other resources in implementing these programs. We are systematically
implementing portions of our new management information system and expect to complete the process in the summer of 2003. We expended approximately $18.9 million as of January 31, 2003
and expect to spend an additional approximately $4.0 million during fiscal 2004 to complete the implementation of our new management information system. We expect to incur one-time
costs of approximately $1.2 million
during the quarter in which we complete the implementation of our new management information system. If we do not complete the implementation of our new management information system by the end of
summer 2003, we would delay the final phase of implementation until spring 2004. The failure to successfully and timely integrate this system or its failure to perform as we anticipate could disrupt
our business, materially adversely affect our revenues and cause our business and financial results to suffer.

Our Limited Geographical Dispersion May Reduce Our Ability to Manage Adverse Market Events

We currently operate 58 stores in 19 markets in 13 states in the Rocky Mountain, Midwest and Southwest regions of the United States. We are vulnerable to adverse
market events in these locations including weather-related conditions, regional competition and unfavorable economic conditions.

A Disruption in Our Relationship with, or in the Operations of, any of Our Key Vendors Could Cause Our Sales to Decline

The success of our business and growth strategy depends to a significant degree upon our vendors, particularly our brand name suppliers of audio and video
equipment such as Sony, Mitsubishi, Panasonic, JVC, Pioneer and Monster Cable. We rely on a number of suppliers for limited distribution upscale items. We also rely on our suppliers for cooperative
advertising support. We do not have long-term supply agreements or exclusive arrangements with any vendors. We typically order our inventory through the issuance of individual purchase
orders to vendors. In addition, we rely heavily on a relatively small number of vendors. Our top 10 vendors represented approximately 72% of our

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purchases
and our top three vendors represented approximately 45% of our purchases in fiscal 2003. The loss of any of these key vendors or the failure by us to establish and maintain relationships
with these or other vendors could have a material adverse effect on our results of operations and financial condition. Our ability to successfully enter new markets depends to a significant extent on
the willingness and the ability of our vendors to supply those additional stores. If vendors are unwilling or unable to supply some or all of their products to us at acceptable prices in one or more
markets, our results of operations and financial condition could be adversely affected.

If We are Unable to Timely Respond to Changes in Consumer Demand and Preferences, Our Business May Be Harmed

Our success depends on our ability to anticipate and respond in a timely manner to consumer demand and preferences for consumer electronics products and changes
in such demand and preferences. If we
do not continue to meet changing consumer demands, our growth and profitability will be negatively impacted. We frequently place orders for merchandise and make decisions about marketing and
advertising expenditures several months in advance of the time when consumer demand can be determined. We also maintain an inventory level of certain merchandise that we anticipate will be in greater
demand. If we fail to anticipate, identify or react appropriately to changes in consumer demand, we could experience excess inventories. Inventories in excess of customer demand may result in
inventory write-downs, and the sale of excess inventory at discounted prices could have a material adverse effect on our operating results (particularly gross margins) and our financial condition.
Conversely, if we underestimate consumer demand for our merchandise or if our manufacturers fail to supply the merchandise that we require at the time we need it, we may experience inventory
shortages, which could result in the loss of customers and reduced sales. Any sustained failure by us to identify and respond to changes in consumer demand and preferences would have a material
adverse effect on our results of operations and financial condition.

We May Become Involved in Costly and Time-Consuming Litigation That May Significantly Increase Our Costs and Harm Our Business

We are subject to various pending claims, lawsuits and legal proceedings that arise from actions taken in the ordinary course of our business. Lawsuits and legal
proceedings, particularly class action lawsuits, could result in substantial litigation costs, damage awards against us and the diversion of our management's attention and resources. In addition,
litigation is subject to inherent uncertainties, and an adverse result in litigation matters that may arise from time-to-time may harm our business. See "Item
3Legal Proceedings."

Changes in Trade Regulations, Currency Fluctuations and Other Factors Beyond Our Control Could Impact Our Business

A significant portion of our inventory or the parts required for assembly of our inventory is manufactured overseas. Changes in trade regulations, currency
fluctuations or other factors may increase the cost of items we purchase or create shortages of such items, which in turn could have a material adverse effect on our results of operations and
financial condition. Conversely, significant reductions in the cost of such items in U.S. dollars may cause a significant reduction in retail price levels of those products, resulting in a material
adverse effect on our sales, margins or competitive position.

Because of Our Small Store Base, Our Operating Results Could Be Materially Adversely Affected By the Negative Performance of a Small Number of Markets

We currently operate 58 stores in 19 markets. Due to our small store base, poor operating results in one or more markets could materially adversely affect our
business, financial condition, operating

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results
or cash flows. Our operating results achieved to date may not be indicative of our future operating results with a larger number of stores. Any malfunction or disruption of our management
information systems or shipping problems could adversely impact our revenues and our business and financial results.

If Our Warehouse and Distribution Center Were Destroyed or Severely Damaged, Our Results of Operations Would Be Negatively Impacted

We distribute substantially all of our merchandise to our stores from a warehouse and distribution center located in Thornton, Colorado. If our warehouse and
distribution center were destroyed or severely damaged, our results of operations would be negatively impacted. Any malfunction or disruption of our centralized information systems or shipping
problems could adversely impact our revenues and our business and financial results.

The Loss of the Services of Our Chairman, Chief Executive Officer, President or Other Key Employees Could Jeopardize Our Ability to Maintain Our Competitive Position

We believe that our success depends on the continued service of our key executive management personnel. Loss of the services of William J. Pearse, our Chairman,
J. Edward McEntire, our Chief Executive Officer, and David J. Workman, our President and Chief Operating Officer, or other key employees could jeopardize our ability to maintain our competitive
position in the industry. Mr. Workman appears in most of our print, radio and television advertisements. Pursuant to an exclusive endorsement agreement with Mr. Workman,
Mr. Workman has agreed not to act as a representative of any third party for a period of five years following termination of the agreement. We do not currently have employment agreements with
any of our executives. We do not currently have key person life insurance for Mr. Workman or for any of our officers or directors.

We Could Face Potential Labor Shortages

Our success depends in large part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including store managers, sales
associates, installers and support personnel, necessary to keep pace with our expansion schedule. Qualified individuals needed to fill these positions are in short supply in certain areas. The
inability to recruit and retain such individuals may delay the planned openings of new stores or result in high employee turnover in existing stores, which could have a material adverse effect on our
business, financial condition, operating results or cash flows. Additionally, competition for qualified employees requires us to continually assess our compensation structure. Competition for
qualified employees has required, and in the future could require, us to pay higher wages to attract a sufficient number of qualified employees, resulting in higher labor costs.

We May Be Unable to Protect Our Intellectual Property Rights, Which Could Impair Our Name and Reputation

We believe that our success and ability to compete depends, in part, upon consumer identification of the Ultimate Electronics, SoundTrack, Audio King and Fast
Trak trademarks. We intend to vigorously protect our trademarks against infringement or misappropriation by others. A third party could, however, misappropriate our intellectual property in the
future. Furthermore, the enforcement of our proprietary rights through litigation could result in costs to us that could have a material adverse effect on our financial condition. In addition, though
we do not believe that we infringe the proprietary rights of third parties, infringement claims may be asserted against us in the future. An adverse determination or the costs of defending litigation
based on such a claim could have a material adverse effect on our business and financial condition.

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The Contemplated Name Change of Our Seven Audio King Stores May Disrupt Our Business in the Minneapolis/St. Paul Market

We are planning to change the name of seven of our Minnesota stores that are currently operating under the trade name Audio King to Ultimate Electronics in the
fall of 2003. We believe that establishing and maintaining a good reputation and name recognition is critical for attracting and retaining customers and employees. If our plans for transitioning to
the Ultimate Electronics trade name are not successful, there may be a loss or diminishment of our reputation and the goodwill currently associated with the Audio King name. This may lessen our
ability in the Minnesota markets to attract new, or retain existing, customers and employees.

Our Charter, Bylaws and Anti-Takeover Protections Could Delay or Prevent an Acquisition or Sale of Ultimate Electronics

Our corporate charter and bylaws, as well as certain provisions of the Delaware General Corporation Law, contain provisions that may deter, discourage or make
more difficult a change in control, even if such a change in control would be in the interest of a significant number of our stockholders or if such change in control would provide such stockholders
with a substantial premium for their shares over the then-prevailing market price for the common stock. In particular:



In
addition, under the terms of our Stockholder Rights Plan, in general, if a person or group acquires more than 15% of the outstanding shares of common stock pursuant to a transaction
not previously approved by our board of directors, all of our other stockholders would have the right to purchase securities from us at a discount to such securities' fair market value, thus causing
substantial dilution to the holdings of that acquiring person or group. The Stockholder Rights Plan may inhibit a change in control and, therefore, could materially adversely affect the stockholders'
ability to realize a premium over the then-prevailing market price for our common stock in connection with such a transaction.

Because We Experience Seasonal Fluctuations in Our Sales, Our Quarterly Results Will Fluctuate and Our Annual Results Could Be Below Expectations, Which May Adversely Affect
Our Common Stock Price

Seasonal consumer buying patterns affect our business. Our fourth fiscal quarter includes the holiday selling season and has historically contributed, and is
expected to continue to contribute, a substantial portion of our sales, income from operations and net income for our entire fiscal year. The fourth quarter of fiscal 2003 contributed 34% of sales,
87% of income from operations and 88% of net income prior to the impact of the cumulative effect of change in accounting principle. As a result, any factors negatively affecting us during the fourth
quarter of any year, including adverse weather or

17

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unfavorable
economic conditions, would have a material adverse effect on our results of operations for the entire year. More generally, our quarterly results of operations and financial condition may
fluctuate based upon such factors as:



Fluctuations
in our results of operation or financial condition may adversely affect our common stock price.

You Should Not Rely on Our Comparable Store Sales as an Indication of Our Future Results of Operations Because They Fluctuate Significantly and May Cause Our Stock Price to
Fluctuate

Our comparable store sales include sales for stores open at least 13 months and exclude (i) sales for stores recently relocated and expanded until
13 months after completion and (ii) sales for stores in new markets until 13 months after 75% of the initial number of stores planned for the market have opened. A number of
factors have historically affected, and will continue to affect, our comparable store sales results, including among other factors:



18

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We
do not expect comparable store sales to increase at rates experienced in fiscal 2000 and 2001, and comparable store sales may be negative in the future. Our historical results have
fluctuated significantly from quarter to quarter. For example, comparable store sales were down 6% during the third quarter of fiscal 2002, were up 2% during the last quarter of fiscal 2002 and the
first quarter of fiscal 2003, were up 1% during the second and third quarters of fiscal 2003 and down 8% during the last quarter of fiscal 2003. Changes in our quarterly and annual comparable store
sales results could cause the price of our common stock to fluctuate substantially. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Quarterly Results of
Operations."

Our Common Stock Price May Be Volatile, Which Could Result in Substantial Losses to Stockholders

Our common stock trading price has been and is likely to continue to be highly volatile and subject to wide fluctuations in response to a variety of internal and
external factors, some of which are beyond our control, including:



The
stock market has experienced significant price and volume fluctuations over the past several years, which have often been unrelated or disproportionate to the operating performance
of particular companies. Broad market factors may have a material adverse effect on our stock price, regardless of our actual operating performance.

Our Management, Including a Principal Stockholder, Owns a Significant Portion of Our Common Stock and Will Be Able to Exercise Significant Influence Over Our Affairs

William J. Pearse, our Chairman, beneficially owns approximately 12.3% of our outstanding common stock. In addition, our directors and executive officers as a
group (including Mr. Pearse) beneficially own approximately 15.8% of our common stock. As a result of this share ownership, our management, and in particular Mr. Pearse, will be able to
exert significant influence on corporate actions requiring stockholder approval, including the election of directors. This share ownership could delay or prevent a change in control. It could also
prevent our stockholders from realizing a premium over the market price for our common stock or making a change in management.

Future Sales of Our Common Stock May Cause Our Stock Price to Decline

All of our outstanding shares of common stock, other than shares owned by affiliates, are freely tradable without restriction or further registration. Affiliates
must comply with the volume and other requirements of Rule 144 in the sale of their shares. Sales of substantial amounts of common stock by our stockholders, including shares issued upon the
exercise of outstanding options, or even the potential for such sales, may have a depressive effect on the market price of our common stock and could impair our ability to raise capital through the
sale of our equity securities.

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We May Issue Additional Shares and Dilute Your Ownership Percentage

Some events over which you have no control could result in the issuance of additional shares of our common stock, which would dilute the ownership percentage of
holders of our common stock. We may issue additional shares of common stock or shares of preferred stock to raise additional capital or finance acquisitions. We may issue shares of common stock to
employees as restricted shares or upon the exercise or conversion of outstanding options. The rights of holders of common stock may be adversely affected by the rights of holders of any preferred
stock that may be issued in the future that would be senior to the rights of the holders of the common stock.

ITEM 2:    Properties

Properties

We operate 58 stores in 13 states. Each store, other than the store located in Thornton, Colorado, is leased. We currently plan to open seven stores in fiscal
2004, all of which are planned as large format stores. We have signed leases for all these store locations. The following table sets forth data regarding our store locations and the seven new store
sites for which we have signed leases.

|Current Store Locations |  | Year
Originally
Opened |  | Latest
Year
Remodeled
or
Relocated |  | Approximate
Total Square
Feet |  | Approximate
Retail
Selling
Square Feet |  | Lease
Expiration Date
Primary/with
Options
|----------------------- |  | ---------------------- |  | ---------------------------------- |  | ----------------------------- |  | -------------------------------------- |  | ------------------------------------------
|ARIZONA:                |  |                        |  |                                    |  |                               |  |                                        |  |                                           
|Chandler, AZ            |  | 2000                   |  |                                   |  | 33,500                        |  | 20,500                                 |  | 2015/2030                                 
|Chandler, AZ            |  | 2001                   |  |                                   |  | 32,200                        |  | 20,400                                 |  | 2016/2031                                 
|Glendale, AZ            |  | 2000                   |  |                                   |  | 34,800                        |  | 20,800                                 |  | 2015/2030                                 
|Glendale, AZ            |  | 2001                   |  |                                   |  | 34,200                        |  | 20,700                                 |  | 2016/2031                                 
|Mesa, AZ                |  | 2001                   |  |                                   |  | 33,900                        |  | 20,600                                 |  | 2016/2031                                 
|Phoenix, AZ             |  | 2000                   |  |                                   |  | 33,800                        |  | 21,500                                 |  | 2015/2025                                 
|Phoenix, AZ             |  | 2000                   |  |                                   |  | 29,400                        |  | 18,600                                 |  | 2015/2030                                 
|Scottsdale, AZ          |  | 2001                   |  |                                   |  | 34,300                        |  | 21,000                                 |  | 2017/2032                                 
|COLORADO:               |  |                        |  |                                    |  |                               |  |                                        |  |                                           
|Arvada, CO              |  | 1968                   |  | 1991                               |  | 14,500                        |  | 9,100                                  |  | 2001/2006                                 
|Boulder, CO             |  | 1985                   |  | 1996                               |  | 34,700                        |  | 21,300                                 |  | 2017/2047                                 
|Colorado Springs, CO    |  | 1989                   |  |                                   |  | 14,900                        |  | 8,700                                  |  | 2005/2005                                 
|Colorado Springs, CO    |  | 2000                   |  |                                   |  | 34,800                        |  | 20,400                                 |  | 2016/2026                                 
|Denver, CO              |  | 1976                   |  | 1994                               |  | 31,600                        |  | 15,500                                 |  | 2004/2009                                 
|Englewood, CO           |  | 1983                   |  | 1997                               |  | 41,300                        |  | 24,100                                 |  | 2017/2027                                 
|Fort Collins, CO        |  | 1990                   |  | 2002                               |  | 24,100                        |  | 9,600                                  |  | 2005/2005                                 
|Lakewood, CO            |  | 1997                   |  |                                   |  | 40,400                        |  | 24,000                                 |  | 2013/2028                                 
|Littleton, CO           |  | 1984                   |  | 1996                               |  | 38,000                        |  | 23,500                                 |  | 2017/2027                                 
|Littleton, CO           |  | 1986                   |  | 1998                               |  | 16,600                        |  | 9,800                                  |  | 2004/2007                                 
|Thornton, CO            |  | 1985                   |  | 1996                               |  | 40,300                        |  | 25,200                                 |  |                                          
|IDAHO:                  |  |                        |  |                                    |  |                               |  |                                        |  |                                           
|Boise, ID               |  | 1995                   |  |                                   |  | 37,800                        |  | 20,100                                 |  | 2010/2025                                 
|IOWA:                   |  |                        |  |                                    |  |                               |  |                                        |  |                                           
|Cedar Rapids, IA        |  | 1995                   |  | 1997                               |  | 17,700                        |  | 10,400                                 |  | 2015/2035                                 
|Davenport, IA           |  | 1999                   |  |                                   |  | 38,600                        |  | 22,600                                 |  | 2014/2029                                 
|Des Moines, IA          |  | 1994                   |  | 1997                               |  | 20,700                        |  | 12,600                                 |  | 2009/2019                                 
|                        |  |                        |  |                                    |  |                               |  |                                        |  |                                           

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|KANSAS:              |  |      |  |      |  |        |  |        |  |          
|-------------------- |  | ---- |  | ---- |  | ------ |  | ------ |  | ---------
|Lenexa, KS(1)        |  | 2003 |  |     |  | 32,200 |  | 18,000 |  | 2019/2039
|Wichita, KS(1)       |  | 2003 |  |     |  | 29,500 |  | 20,100 |  | 2019/2039
|MINNESOTA:           |  |      |  |      |  |        |  |        |  |          
|Brooklyn Center, MN  |  | 1980 |  | 1997 |  | 15,000 |  | 9,100  |  | 2008/2023
|Burnsville, MN       |  | 1979 |  | 1999 |  | 17,300 |  | 10,500 |  | 2007/2017
|Edina, MN            |  | 1974 |  | 1997 |  | 31,800 |  | 16,900 |  | 2015/2025
|Maple Grove, MN(1)   |  | 2003 |  |     |  | 31,000 |  | 17,700 |  | 2019/2039
|Minnetonka, MN(2)    |  | 1977 |  | 1997 |  | 15,000 |  | 9,300  |  | 2008/2023
|Rochester, MN(3)     |  | 1986 |  | 2003 |  | 23,800 |  | 14,700 |  | 2018/2033
|Roseville, MN        |  | 1977 |  | 1997 |  | 21,400 |  | 11,200 |  | 2015/2035
|St. Cloud, MN        |  | 1987 |  |     |  | 10,000 |  | 7,000  |  | 2003/2003
|Woodbury, MN         |  | 1989 |  | 2000 |  | 35,600 |  | 20,900 |  | 2020/2032
|MISSOURI/ILLINOIS:   |  |      |  |      |  |        |  |        |  |          
|Ballwin, MO          |  | 2001 |  |     |  | 33,500 |  | 20,500 |  | 2017/2032
|Brentwood, MO        |  | 2001 |  |     |  | 32,500 |  | 21,000 |  | 2016/2036
|Bridgeton, MO        |  | 2001 |  |     |  | 32,000 |  | 20,500 |  | 2017/2037
|Fairview Heights, IL |  | 2002 |  |     |  | 32,000 |  | 17,900 |  | 2018/2028
|Fenton, MO           |  | 2001 |  |     |  | 32,300 |  | 25,300 |  | 2016/2036
|Independence, MO(1)  |  | 2003 |  |     |  | 32,500 |  | 19,000 |  | 2019/2039
|Kansas City, MO(1)   |  | 2003 |  |     |  | 31,000 |  | 18,200 |  | 2019/2034
|Mid Rivers, MO       |  | 2002 |  |     |  | 34,200 |  | 21,000 |  | 2017/2032
|NEVADA:              |  |      |  |      |  |        |  |        |  |          
|Las Vegas, NV(2)     |  | 1995 |  |     |  | 31,500 |  | 18,200 |  | 2015/2035
|Las Vegas, NV(2)     |  | 1994 |  |     |  | 37,300 |  | 18,300 |  | 2014/2024
|NEW MEXICO:          |  |      |  |      |  |        |  |        |  |          
|Albuquerque, NM      |  | 1994 |  |     |  | 37,100 |  | 17,800 |  | 2004/2014
|OKLAHOMA:            |  |      |  |      |  |        |  |        |  |          
|Oklahoma City, OK    |  | 2001 |  |     |  | 33,500 |  | 21,200 |  | 2016/2036
|Oklahoma City, OK    |  | 2001 |  |     |  | 37,300 |  | 20,500 |  | 2016/2036
|Tulsa, OK(3)         |  | 1995 |  |     |  | 50,500 |  | 31,600 |  | 2011/2026
|SOUTH DAKOTA:        |  |      |  |      |  |        |  |        |  |          
|Sioux Falls, SD      |  | 1986 |  | 1999 |  | 25,300 |  | 10,400 |  | 2010/2015
|TEXAS:               |  |      |  |      |  |        |  |        |  |          
|Austin, TX(1)        |  | 2003 |  |     |  | 31,000 |  | 18,100 |  | 2019/2039
|Austin, TX(1)        |  | 2003 |  |     |  | 31,000 |  | 18,000 |  | 2019/2034
|Cedar Hill, TX       |  | 2002 |  |     |  | 32,200 |  | 17,700 |  | 2018/2033
|Dallas, TX           |  | 2002 |  |     |  | 31,400 |  | 23,700 |  | 2018/2038
|Fort Worth, TX       |  | 2002 |  |     |  | 32,900 |  | 18,400 |  | 2018/2033
|Frisco, TX           |  | 2002 |  |     |  | 31,900 |  | 17,800 |  | 2018/2038
|Hurst, TX            |  | 2002 |  |     |  | 30,800 |  | 20,400 |  | 2018/2038
|Lewisville, TX       |  | 2002 |  |     |  | 31,000 |  | 20,700 |  | 2018/2038
|Mesquite, TX         |  | 2002 |  |     |  | 31,700 |  | 17,700 |  | 2018/2038
|Plano, TX            |  | 2002 |  |     |  | 33,500 |  | 24,300 |  | 2018/2038
|                     |  |      |  |      |  |        |  |        |  |          

21

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|Southlake, TX       |  | 2002 |  |  |  | 31,000 |  | 19,500 |  | 2018/2038
|------------------- |  | ---- |  | - |  | ------ |  | ------ |  | ---------
|South Arlington, TX |  | 2002 |  |  |  | 33,200 |  | 21,300 |  | 2018/2038
|UTAH:               |  |      |  |   |  |        |  |        |  |          
|Layton, UT          |  | 1995 |  |  |  | 34,400 |  | 19,000 |  | 2010/2025
|Murray, UT          |  | 1994 |  |  |  | 32,200 |  | 18,200 |  | 2009/2024
|Orem, UT            |  | 1993 |  |  |  | 32,900 |  | 17,100 |  | 2005/2010
|Salt Lake City, UT  |  | 1993 |  |  |  | 33,400 |  | 19,200 |  | 2005/2013

---

Our
main warehouse and distribution center, business office and service center are located in one facility in Thornton, Colorado. In addition to the retail store in this facility noted
in the table above, this facility is comprised of 226,000 square feet of warehouse space, 51,000 square feet of office space, 15,000 square feet devoted to a service department and 7,000 square feet
for a training and employee facility. We lease a 40,000 square foot facility in Denver, Colorado to provide additional warehouse space. We lease an 85,000 square foot facility in Dallas, Texas and a
46,000 square foot facility in Minneapolis, Minnesota, each of which we use for a training center, office space, a service center and warehouse space for our delivery department. We lease a 26,000
square foot facility in Phoenix, Arizona that we use for a service center and warehouse space for our delivery department. We also lease a 22,000 square foot facility in St. Louis, Missouri that we
use for the same purposes. In smaller markets, these areas are typically made part of a centrally located store.

ITEM 3:    Legal Proceedings

On April 7, 2003, a complaint captionedHoward Fisher v. J. Edward McEntire, et al.was filed against the
Company and three of its officers and directors in the United States District Court for the District of Colorado. The complaint is a purported class action lawsuit on behalf of purchasers of our
common stock during the period between March 13, 2002 and August 8, 2002. The complaint claims damages for alleged violations of Section 11 of the Securities Act of 1933, as
amended, and Section 10(b) of the Exchange Act of 1934, as amended, and Rule 10b-5 promulgated under the 1934 act. The Company believes the complaint is without merit and
intends to defend the matter vigorously.

We
are involved in other litigation arising from the ordinary course of business. Our management intends to vigorously defend these claims and believes that the ultimate disposition of
these matters will not have a material adverse effect on our financial condition, results of operations or cash flows.

ITEM 4:    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders in the fourth quarter of fiscal 2003.

22

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PART II

ITEM 5:    Market for Registrant's Common Equity and Related Stockholder Matters

Our common stock is listed on the Nasdaq Stock Marketsm under the symbol "ULTE". As of April 30, 2003, there were 1,067 registered holders of
our common stock.

The
range of high and low closing prices for our common stock as quoted on the Nasdaq Stock Marketsm for the past two fiscal years is provided below.

High

LowFiscal 2002First Quarter

$
30.50

$
23.38Second Quarter


33.05


20.66Third Quarter


29.13


16.52Fourth Quarter


31.57


18.45Fiscal 2003First Quarter

$
29.85

$
23.45Second Quarter


31.95


13.60Third Quarter


14.25


9.00Fourth Quarter


20.11


8.09


As
a public company, we have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings for use in the operation and expansion of our
business and therefore do not anticipate paying cash dividends in the foreseeable future. Our current revolving credit facility also restricts our ability to pay dividends.

23

---

ITEM 6:    Selected Consolidated Financial Data

The following table contains our selected consolidated financial and operating data. Information for each fiscal year is derived from our historical audited
financial statements. You should read this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements
and notes included elsewhere in this report.

|                                                                                                             |  | Fiscal Year Ended January 31, |           
|------------------------------------------------------------------------------------------------------------ |  | ----------------------------- | ----------
|
|
|Income Statement Data:                                                                                       |  |                               |           
|Sales                                                                                                        |  | $                             | 328,907   
|Cost of goods sold(3)                                                                                        |  |                               | 233,413   
|                                                                                                             |  |                               |           
|Gross profit                                                                                                 |  |                               | 95,494    
|Selling, general and administrative expenses(3)                                                              |  |                               | 88,104    
|                                                                                                             |  |                               |           
|Income from operations                                                                                       |  |                               | 7,390     
|Interest income                                                                                              |  |                               |          
|Interest expense                                                                                             |  |                               | 3,957     
|                                                                                                             |  |                               |           
|Net interest expense                                                                                         |  |                               | 3,957     
|Income before taxes, extraordinary item and cumulative effect of change in accounting principle              |  |                               | 3,433     
|Income tax expense                                                                                           |  |                               | 1,273     
|                                                                                                             |  |                               |           
|Income before extraordinary item and cumulative effect of change in accounting principle(3)                  |  |                               | 2,160     
|Extraordinary loss on early extinguishment of debt, net of taxes(2)                                          |  |                               |          
|Cumulative effect of change in accounting principle, net of taxes(3)                                         |  |                               |          
|                                                                                                             |  |                               |           
|Net income                                                                                                   |  | $                             | 2,160     
|                                                                                                             |  |                               |           
|Earnings per share before extraordinary item and cumulative effect of change in accounting principlebasic   |  | $                             | .27       
|Earnings per share before extraordinary item and cumulative effect of change in accounting principlediluted |  | $                             | .26       
|Earnings per sharebasic                                                                                     |  | $                             | .27       
|Earnings per sharediluted                                                                                   |  | $                             | .26       
|Weighted average shares outstandingbasic                                                                    |  |                               | 8,150     
|Weighted average shares outstandingdiluted                                                                  |  |                               | 8,317     
|Selected Operating Data:                                                                                     |  |                               |           
|Number of stores open at end of period                                                                       |  |                               | 30        
|Average square footage per store at end of period                                                            |  |                               | 25,625    
|Average sales per store open during the entire period(4)                                                     |  | $                             | 10,419,000
|Sales growth                                                                                                 |  |                               | 10        
|Comparable store sales growth(5)                                                                             |  |                               | 2         
|Gross profit margin                                                                                          |  |                               | 29.0      
|Balance Sheet Data:                                                                                          |  |                               |           
|Working capital                                                                                              |  | $                             | 25,205    
|Total assets                                                                                                 |  |                               | 122,304   
|Long-term debt, net of current portions                                                                      |  |                               | 26,518    
|Capital lease obligations, net of current portions                                                           |  |                               | 1,841     
|Stockholders' equity                                                                                         |  |                               | 43,528    

---

24

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ITEM 7:    Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We opened our first store in 1968. We grew to nine stores in Colorado by fiscal 1994 and then adopted an expansion strategy to enter new markets in the Rocky
Mountain, Midwest and Southwest regions. By the end of fiscal 1997, we had grown to 18 stores. In June 1997, we acquired Audio King Corporation, a consumer electronics specialty retailer with
11 retail stores in Minnesota, Iowa and
South Dakota. We then opened one store in fiscal 1998, one store in fiscal 2000, five stores in fiscal 2001, ten stores in fiscal 2002 and 12 stores in fiscal 2003. We currently operate 58 stores in
13 states.

We
plan to open seven stores in fiscal 2004. We have signed leases for all of these store locations. Our investment cost for large format stores opened in the last two fiscal years has
been approximately $3.4 million per store, including leasehold improvements, fixtures and equipment, inventory (net of payables) and preopening expenses. Our large format stores have typically
been profitable on a store operating basis within their first 12 months of operation and, on average, return our investment in three years or less. The timing of our new store openings and
relocations will significantly impact our results of operations and financial condition in future periods.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make
estimates and assumptions. We believe that, of the significant accounting policies described in Note 1 to the consolidated financial statements, the following involve a higher degree of
judgment and complexity, and are therefore considered critical.



Revenue is recognized at the time the customer takes possession of the merchandise or such merchandise is delivered to the customer. We recognize revenues from
services, such as home and mobile installation, home delivery and setup, and repair services, at the time the service is provided. Sales, which includes net warranty revenue, consists of gross sales
less discounts, rebates, price guarantees, returns and allowances.

25

---

We
sell consumer electronics and home entertainment products. Along with the sale of this merchandise, we offer and sell installation services and/or warranties, which can be purchased
separately by the customer. Revenues from non-merchandise components represent approximately 6% of our total sales.

We
sell extended warranty contracts on behalf of a fully-insured unrelated party. The contracts extend beyond the normal manufacturer's warranty period, usually with terms of coverage
(including the manufacturer's warranty period) between 12 and 60 months. The extended warranty contracts are
administered by a third party and all performance obligations and risk of loss with respect to such contracts are the responsibility of such administrator and other parties. Effective
February 1, 2000, we restructured our extended warranty master contract with the administrator. For extended warranty contracts entered into after February 1, 2000, we are a
non-obligor and, therefore, we recognize commissions from the sale of these non-obligor contracts as revenues at the time of sale to customers. We are deemed to be the obligor
under the extended warranty contracts entered into prior to February 1, 2000, and we recognize revenues over the term of these obligor contracts, generally 12 to 60 months. Revenues from
extended warranty contracts entered into prior to February 1, 2000, will be amortized in decreasing amounts through fiscal 2005.



In accordance with AICPA Statement of Position 93-7, "Reporting on Advertising Costs," all advertising costs are deferred until the first time the
advertising takes place. We reduce advertising expense with cooperative advertising from our vendors. Cooperative advertising payments vary with individual programs and with individual vendors.

In
November 2002 and subsequently clarified in March 2003, the Emerging Issues Task Force reached a consensus on Issue No. 02-16, "Accounting by Customer
(including a Reseller) for Certain Consideration Received from a Vendor" (EITF 02-16). EITF 02-16 addresses two specific issues related to the classification of consideration
received from a vendor (cooperative advertising payment) by us in our income statement. Issue 1 of EITF 02-16 addresses the circumstances under which cash consideration received from a
vendor by us should be considered (a) an adjustment of the prices of the vendor's products or services and, therefore, characterized as a reduction of cost of sales when recognized in our
income statement, (b) an adjustment to a cost incurred by us and, therefore, characterized as a reduction of that cost when recognized in our income statement, or (c) a payment for
assets or services delivered to the vendor and, therefore, characterized as revenue when recognized in our income statement. Issue 1 of EITF 02-16 is effective for new arrangements or
modification of existing arrangements entered into after December 31, 2002 although early adoption is permitted. Issue 2 of EITF 02-16 discusses when we should recognize the rebate
and how we should measure the amount of the offer when a vendor offers us a rebate or refund of a specified amount of cash consideration that is payable only if we complete a specified cumulative
level of purchases or remain a customer for a specified time period. Issue 2 of EITF 02-16 is effective for arrangements entered after November 21, 2002.

We
elected to adopt early, effective February 1, 2002, the provisions of EITF 02-16 in the preparation of this Annual Report on Form 10-K. Accordingly, in fiscal
2003, we recorded a cumulative effect of change in accounting principle of $2.6 million, $1.6 million net of income tax, for the impact of this adoption related to prior fiscal years. As
of January 31, 2003, $3.3 million of our cooperative advertising allowances has been deferred into inventory and will be recognized as inventory is sold. This adoption has also resulted
in the reclassification of $14.8 million in cooperative advertising payments earned in fiscal 2003 from selling, general and administrative expense to cost of sales retroactively as of the
beginning of fiscal 2003. The fiscal 2003 impact of adoption on income before cumulative effect of change in accounting principle was $0.4 million, net of income tax.

26

---

Gross
advertising expense charged to operations was $60.2 million, $48.9 million and $39.6 million for fiscal years 2003, 2002 and 2001, respectively. Cooperative
advertising rebates, netted against gross advertising expense, were $35.5 million, $39.9 million and $33.2 million for fiscal years 2003, 2002 and 2001, respectively.



We state merchandise inventories at the lower of cost (weighted average cost) or market. Physical inventory counts are performed by us on a regular basis at all
stores and warehouse locations to ensure amounts recorded in the consolidated financial statements are properly stated. Significant management judgment is required to determine the reserve for
obsolete or excess inventory. Inventory on hand may exceed future demand because a product may either be discontinued or become technologically outdated earlier than anticipated. Inventories are
presented net of an allowance for obsolescence of $1.2 million and $2.1 million at January 31, 2002 and 2003, respectively.



Long-lived assets including property and equipment, capitalized management information system costs and goodwill are reviewed for impairment when
events or changes in circumstances indicate the carrying value of the assets may not be recoverable. We are required to perform an annual impairment test of goodwill in accordance with Statement of
Financial Accounting Standard Statement No. 142, "Goodwill and Intangibles." Additionally, Statement of Financial Accounting Standards Statement No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" (SFAS 144), addresses impairment with respect to our property and equipment and capitalized management information system assets. Under
SFAS 144, we are required to recognize an impairment loss when estimated future undiscounted cash flows expected to result from the use of these assets and their value upon disposal are less
than their carrying amount. As of and for
the year ended January 31, 2003, we did not recognize any impairment of our long-lived assets as a result of these standards.

Results of Operations

The following table sets forth, for the periods indicated, the relative percentages that certain income and expense items bear to sales:

|                                                                                                |  | Percentage of Sales
for the Years Ended
January 31, |  
|----------------------------------------------------------------------------------------------- |  | --------------------------------------------------- | -
|
|Sales                                                                                           |  | 100.0                                               | %
|Cost of goods sold                                                                              |  | 67.3                                                |  
|                                                                                                |  |                                                     |  
|Gross profit                                                                                    |  | 32.7                                                |  
|Selling, general and administrative expenses                                                    |  | 31.2                                                |  
|                                                                                                |  |                                                     |  
|Income from operations                                                                          |  | 1.5                                                 |  
|Net interest expense                                                                            |  |                                                    |  
|                                                                                                |  |                                                     |  
|Income before taxes, extraordinary item and cumulative effect of change in accounting principle |  | 1.5                                                 |  
|Income tax expense                                                                              |  | 0.6                                                 |  
|                                                                                                |  |                                                     |  
|Income before extraordinary item and cumulative effect of change in accounting principle        |  | 0.9                                                 |  
|Extraordinary loss on early extinguishment of debt, net of taxes                                |  |                                                    |  
|Cumulative effect of change in accounting principle, net of taxes                               |  | 0.2                                                 |  
|                                                                                                |  |                                                     |  
|Net income                                                                                      |  | 0.7                                                 | %
|                                                                                                |  |                                                     |  

27

---

Fiscal 2003 Compared to Fiscal 2002

Sales.For the year ended January 31, 2003, sales were $704.4 million, a 21% increase
from sales of $580.2 million for the prior year. The increase in sales during fiscal 2003 was primarily due to sales from the 12 new stores opened during the year and the full year sales for
the 10 stores that opened in fiscal 2002. This increase was partially offset by a decrease in comparable store sales of 2% for the year due to the poor general market conditions in the markets we
serve and the aggressive promotional environment for consumer electronics retailers. Comparable store sales include sales for stores open at least 13 months and exclude (i) sales for
stores recently relocated and expanded until 13 months after completion and (ii) sales for stores in new markets until 13 months after 75% of the initial number of stores planned
for the market have opened. Revenues from extended warranty contracts entered into prior to February 1, 2000 recognized during fiscal 2003 were approximately $2,889,000 compared to
approximately $4,141,000 for fiscal 2002 and will be recognized in decreasing amounts through fiscal 2005.

Gross Profit.Costs of goods sold includes merchandise costs, buying costs and warehousing and
distribution costs less vendor purchase discounts and volume rebates. Gross profit in fiscal 2003 increased 28% to $230.5 million (32.7% of sales) from $180.1 million (31.0% of sales) in
fiscal 2002. The increase in gross profit as a percentage of sales was due to a reclassification of $14.2 million, or 2.0% of sales, of fiscal 2003 cooperative advertising allowances from
selling, general and administrative expense in connection with our change in accounting principle related to the adoption of EITF 02-16. This reclass was partially offset by reduced
amortization of warranties sold prior to February 1, 2000
(approximately 30 basis points). The continued shift in merchandise mix to lower margin categories also negatively impacted gross margins.

Over
the last three years, we have experienced a continued shift in our merchandise mix from higher margin products such as audio and mobile electronics to lower margin products such as
television and DVD. For example, sales of audio products have decreased from 22% of total sales during fiscal 2001 to 19% of total sales in fiscal 2003, while sales of televisions and DBS products
have increased from 33% of total sales during fiscal 2001 to 41% of total sales in fiscal 2003. This shift in merchandise mix has negatively impacted our gross profit margins. At the same time, our
gross margins in most product categories have increased, which has partially offset the decrease in our gross profit margins due to the shift in merchandise mix.

Selling, General and Administrative Expenses.Selling, general and administrative expenses include
net advertising costs, occupancy costs, payroll, depreciation, computer costs, credit card and check processing fees, third party financing fees and all other expenses necessary to operate our
business. Selling, general and administrative expenses in fiscal 2003 increased 37% to $220.1 million (31.2% of sales) from $160.5 million (27.6% of sales) in fiscal 2002. The increase
in selling, general and administrative expenses as a percentage of sales was partially due to a reclassification of $14.8 million, or 2.1% of sales, of fiscal 2003 cooperative advertising
allowances to cost of sales in connection with our change in accounting principle. Selling, general and administrative expenses as a percentage of sales were also impacted by the decrease in
comparable store sales as well as the expenses associated with 12 new stores opened during the year and the full year contribution of the ten new stores opened in fiscal 2002. For the year, rent
increased approximately 40 basis points, fees from interest-free promotions increased approximately 30 basis points and payroll increased by approximately 30 basis points. Other expenses
(such as insurance costs, preopening expenses and other fixed expenses) represented the remaining approximately 50 basis points of the increase in selling, general and administrative expenses as a
percentage of sales.

Income from Operations.As a result of the foregoing, income from operations decreased 47% to
$10.4 million (1.5% of sales) from $19.6 million (3.4% of sales) in fiscal 2002.

28

---



Interest Income.Interest income for fiscal 2003 increased to $125,000 from $12,000 in fiscal 2002.
We generated significant interest income in fiscal 2003 from the investments of the proceeds from our public offering of common stock completed in May 2002.

Interest Expense.Interest expense was $333,000 in both fiscal 2003 and fiscal 2002.

Income Taxes.Our effective tax rate of 38% in fiscal 2003 was the same as the prior year.

Cumulative Effect of Change in Accounting Principle.We changed our accounting principle with respect
to recording cooperative advertising allowances effective retroactively as of the beginning of fiscal 2003. As a result, we recorded a non-cash charge of $1.6 million, net of income tax, in the
first quarter of fiscal 2003 for the cumulative effect of the change in accounting principle on fiscal years prior to fiscal 2003.

Net Income.Net income for fiscal 2003 was $4.7 million compared to $12.0 million for
the prior year, for the reasons described above. The net income from extended warranty contracts entered into prior to February 1, 2000, was $967,000 in fiscal 2003 compared to $1,394,000 in
fiscal 2002 and is expected to be approximately $565,000 in fiscal 2004 and $229,000 in fiscal 2005.

Fiscal 2002 Compared to Fiscal 2001

Sales.For the year ended January 31, 2002, sales were $580.2 million, a 20% increase
from sales of $484.4 million for the prior year. The increase in sales during fiscal 2002 was primarily due to sales from the 10 new stores opened during the year and the full year contribution
of the six new stores opened in fiscal 2001. In the first three quarters of fiscal 2002, we experienced negative single digit comparable store sales, a trend that was further aggravated by the
terrorist attacks on September 11, 2001. We generated a 2% comparable store sales growth in the fourth quarter due to improved consumer confidence and increased demand for digital products.

Gross Profit.Gross profit in fiscal 2002 increased 18% to $180.1 million (31.0% of sales)
from $152.3 million (31.4% of sales) in fiscal 2001. Gross profit as a percentage of sales decreased approximately 40 basis points. This decrease was due to higher than expected inventory
shrinkage in the fourth quarter (a decrease in gross profit of approximately 30 basis points) and reduced amortization of warranties sold prior to February 1, 2000 (a decrease in gross profit
of approximately 45 basis points). This decrease was partially offset by higher margins in most product categories (an increase in gross profit of approximately 35 basis points). The continued shift
in merchandise mix to lower margin categories also negatively impacted gross margins.

Selling, General and Administrative Expenses.Selling, general and administrative expenses in fiscal
2002 increased 25% to $160.5 million (27.6% of sales) from $128.4 million (26.5% of sales) in fiscal 2001. The increase in selling, general and administrative expenses as a percentage of
sales was primarily the result of increased occupancy costs for new stores (an increase in selling, general and administrative expenses of approximately 60 basis points) and lower than planned
comparable store sales growth for the year (an increase in selling, general and administrative expenses of approximately 60 basis points).

Income from Operations.As a result of the foregoing, income from operations decreased 18% to
$19.6 million (3.4% of sales) from $23.9 million (4.9% of sales) in fiscal 2001.

Interest Income.Interest income for fiscal 2002 decreased to $12,000 from $354,000 in fiscal 2001.
We generated significant interest income in fiscal 2001 from the investment of the proceeds of our public offering of common stock completed in October 1999. During fiscal 2002, such
investments were liquidated to finance our expansion.

29

---

Interest Expense.Interest expense for fiscal 2002 increased to $333,000 from $498,000 in fiscal
2001. We incurred $220,000 of interest expense for the first two months of fiscal 2001 related to public bonds we sold in March 1995. We redeemed these bonds on March 31, 2001 (the
earliest redemption date allowable under the terms of the bonds) with the proceeds from the October 1999 public offering.

Income Taxes.Our effective tax rate was 38.0% in fiscal 2002 compared to 37.5% in fiscal 2001
primarily due to the state tax impact of new markets.

Net Income.Net income for fiscal 2002 was $12.0 million compared to $14.6 million for
the prior year, for the reasons described above. Net income from extended warranty contracts entered into prior to February 1, 2000, was approximately $1,394,000 in fiscal 2002 and $1,916,000
in fiscal 2001.

Quarterly Results of Operations

The following table shows certain financial and operating data for each of the most recent eight quarters. The quarterly information is unaudited but has been
prepared on the same basis as our audited financial statements included elsewhere in the report. In the view of management, this unaudited data includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the unaudited quarterly results when read in conjunction with our audited financial

30

---

statements.
The results of operations for any quarter are not necessarily indicative of the results for any future period.

|                                                                                             |  | Three Months Ended |        
|-------------------------------------------------------------------------------------------- |  | ------------------ | -------
|
|
|Fiscal 2003                                                                                  |  |                    |        
|As restated(1):                                                                              |  |                    |        
|Sales                                                                                        |  | $                  | 142,173
|Gross profit                                                                                 |  |                    | 46,674 
|Preopening expenses                                                                          |  |                    | 147    
|Income (loss) from operations                                                                |  |                    | 2,202  
|Income (loss) before cumulative effect of change in accounting principle                     |  |                    | 1,246  
|Net income (loss)                                                                            |  |                    | (341   
|Earnings (loss) per share before cumulative effect of change in accounting principlebasic   |  |                    | .11    
|Earnings (loss) per share before cumulative effect of change in accounting principlediluted |  |                    | .11    
|Earnings (loss) per sharebasic                                                              |  |                    | (.03   
|Earnings (loss) per sharediluted                                                            |  |                    | (.03   
|New stores opened                                                                            |  |                    |       
|Comparable store sales                                                                       |  |                    | 2      
|As previously reported:                                                                      |  |                    |        
|Sales                                                                                        |  | $                  | 142,173
|Gross profit                                                                                 |  |                    | 43,814 
|Income from operations                                                                       |  |                    | 2,937  
|Net income                                                                                   |  |                    | 1,701  
|Earnings per sharebasic                                                                     |  |                    | .15    
|Earnings per sharediluted                                                                   |  |                    | .15    
|Fiscal 2002                                                                                  |  |                    |        
|Sales                                                                                        |  | $                  | 115,132
|Gross profit                                                                                 |  |                    | 35,570 
|Preopening expenses                                                                          |  |                    | 172    
|Income from operations                                                                       |  |                    | 2,842  
|Net income                                                                                   |  |                    | 1,698  
|Earnings per sharebasic                                                                     |  |                    | .16    
|Earnings per sharediluted                                                                   |  |                    | .15    
|New stores opened                                                                            |  |                    | 1      
|Comparable store sales                                                                       |  |                    | 0      

---

31

---



Operating
results are dependent upon a number of factors, including discretionary consumer spending, which is affected by local, regional and national economic conditions affecting
disposable consumer income, such as employment, business conditions, interest rates and taxation. Our quarterly results of operations may fluctuate significantly as a result of a number of factors,
including:



As
we have opened additional stores within markets we already serve, sales at existing stores have been adversely affected. Such adverse effects may occur in the future.

In
the past, we have experienced significant variability in preopening costs from quarter to quarter. These fluctuations are primarily a function of the timing of new store openings. We
typically incur the most significant portion of preopening costs associated with a given store in the three months prior to its opening.

Our
business is affected by seasonal consumer buying patterns. As is the case with many other retailers, our sales and profits have been greatest in the fourth quarter (which includes
the holiday selling season). Due to the importance of the holiday selling season, any factors negatively impacting the holiday selling season could have a material adverse impact on our financial
condition and results of operations.

Liquidity and Capital Resources

Historically, our primary sources of liquidity for funding our expansion have been net cash from operations, revolving credit lines, term debt and issuances of
common stock. Our primary cash requirements are related to expenditures for new store openings, the relocation and/or remodeling of existing store locations and inventory build-up prior to
the holiday selling season. Expenditures for new store openings include leasehold improvements, fixtures and equipment, additional inventory requirements, preopening expenses and selling, general and
administrative expenses. We currently operate a total of 58 stores in 13 states.

Net
cash used in operating activities equaled $12.3 million for fiscal 2003 compared to net cash provided by operating activities of $15.3 million for fiscal 2002,
primarily due to higher inventory and accounts receivable balances in fiscal 2003.

32

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Net
cash used in investing activities was $47.8 million for fiscal 2003, primarily for capital expenditures for new store openings and continued implementation of our new
management information system. The increase in projected capital expenditures for fiscal 2003 from our original estimate of $40 million is primarily due to additional costs associated with our
management information system and the opening of our twelfth store during fiscal 2003. For fiscal 2002, net cash used in investing activities was $47.3 million, primarily for new store
openings, the installation of warehouse management software, the reconfiguration and expansion of our warehouse and distribution center and the implementation of our new management information system.
This amount is net of proceeds we received from a sale leaseback arrangement on a new store in Colorado Springs, Colorado.

We
expect total capital expenditures to be between $35 and $40 million in fiscal 2004, primarily for new store openings, several remodels of our existing stores and completion of
the implementation of our
new management information system. We currently plan to open seven new stores and to remodel our two Las Vegas stores in addition to the relocation of our Rochester, Minnesota store in
March 2003. We have signed leases for all of the new store locations. The cost of new stores is anticipated to average approximately $3.4 million per store during fiscal 2004, which
amount includes leasehold improvements, fixtures and equipment, inventory (net of payables) and preopening expenses. Leasehold improvements, fixtures and equipment are expected to average
approximately $2.2 million per store, depending on tenant allowances. The inventory requirement for each new store is expected to average approximately $1.6 million, approximately
$750,000 of which will be financed through trade credits from our vendors. Preopening expenses for new stores are expected to average approximately $350,000, and include costs for advertising prior to
opening and recruitment and training of new employees. If we relocate existing stores, preopening costs are expected to average $150,000 and will be higher if we are required to terminate existing
store leases prior to their maturity. Total capital expenditures for fiscal 2004 also include capital expenditures of approximately $4 million anticipated to complete the implementation of our
new management information system. Through January 31, 2003, we had expended approximately $18.9 million on our new management information system.

Net
cash provided by financing activities totaled $60.1 million during fiscal 2003 compared to net cash provided by financing activities of $31.7 million during fiscal
2002. Net cash provided by financing activities for fiscal 2003 was primarily the result of the net proceeds we received from our May 6, 2002 offering, partially offset by net repayments of our
revolving line of credit. Net cash provided by financing activities for the prior year was primarily related to net borrowings on our revolving line of credit.

We
currently have an $80 million credit agreement with Wells Fargo Finance, LLC, which expires in September 2004. Borrowings under this revolving line of credit are limited
to the lesser of (i) $80 million or (ii) 75% of eligible inventory plus the lesser of 75% of eligible accounts receivable and $2.5 million. Amounts borrowed bear interest,
payable monthly, based on a blend of (i) LIBOR plus 1.75% to 2.25% and (ii) Wells Fargo Bank's prime rate minus 0.375%. Our weighted average interest rate was 3.9% at January 31,
2003. Inventories, bank accounts, accounts receivable, equipment, intangibles, negotiable instruments, investment property, intellectual property and equity interests in our subsidiaries secure the
borrowings. The facility includes negative covenants that place restrictions on our ability to incur indebtedness, create liens, enter into mergers and consolidations, pay dividends, repurchase our
capital stock, issue guarantees, sell or otherwise dispose of assets and engage in transactions with affiliates without the written consent of the bank. The facility also contains covenants regarding
our gross margins, inventory levels, tangible net worth and capital expenditures. We were in compliance with all loan covenants as of January 31, 2003. As of January 31, 2003, we had a
borrowing base of $80 million, of which approximately $8.3 million was outstanding. On May 6, 2002, we completed a public offering for the sale of 3,162,500 shares of our common
stock at an offering price of $28.50 per share. We received proceeds of approximately $84.8 million net of all offering costs. We

33

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used
a portion of the proceeds from our offering to pay down our revolving line of credit, in full, on May 6, 2002.

Our
return on assets (ROA) ratio and return on equity (ROE) ratio for fiscal 2003 decreased at a greater percentage than the percentage decrease in net income in fiscal 2003, primarily
because our comparable store sales were a negative 2%. The decrease in comparable store sales reduced our ability to leverage our expected increases in sales against our fixed costs, directly
impacting our net income. In addition, our ROA ratio was negatively affected by (i) our addition of 12 new stores during fiscal 2003 and 10 new stores during fiscal 2002 (as new stores generate
a marginal return on investment during the first few years of operation) and (ii) our significant investment in the development of our new management information system, which system has not
yet been implemented. If comparable store sales continue to be negative for a prolonged period, the decrease in our ROA and ROE ratios will continue at a greater rate than the decrease in our net
income.

We
believe that our cash flow from operations and borrowings under our revolving line of credit will be sufficient to fund our operations, debt repayment and anticipated expansion
through fiscal 2005. To fund the capital requirements for our anticipated expansion plans beyond that time, we may be required to seek additional financing, which could include an increase in our
revolving line of credit or additional debt or equity financings. We may also remortgage our Thornton, Colorado facility. We may not be able to obtain such funds on favorable terms, if at all.

The
following table reflects our contractual obligations and other commercial commitments as of January 31, 2003:

Contractual Obligations

|                          |  | Payments Due by Period
|------------------------- |  | ----------------------
|
|
|Capital lease obligations |  | $                     
|Operating leases          |  |                       
|Purchase commitments      |  |                       
|Construction commitments  |  |                       
|                          |  |                       
|                          |  | $                     
|                          |  |                       

Other Commercial Commitments

|                            |  | Amount of Commitment Expiration by Period
|--------------------------- |  | -----------------------------------------
|
|
|Revolving line of credit(1) |  |                                         
|                            |  |                                          
|                            |  |                                         
|                            |  |                                          

---

34

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Impact of Inflation

We believe that inflation has not had a significant effect on results of operations during the last few years. We cannot predict whether inflation will have an
impact on our results of operations in the future.

Recently Issued Accounting Standards

Business Combinations (SFAS 141)

In July 2001, the FASB issued Statement No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 requires companies to reflect
intangible assets apart from goodwill and requires all business combinations subsequent to July 1, 2001 to be accounted for using the purchase method of accounting. The adoption of
SFAS 141 had no impact on our consolidated financial position, result of operations or cash flows.

Goodwill and Intangible Assets (SFAS 142)

In July 2001, the FASB issued Statement No. 142, "Goodwill and Intangible Assets" ("SFAS 142"), which we adopted on February 1, 2002.
SFAS 142 eliminates amortization of goodwill and indefinite lived intangible assets and requires us to perform an annual impairment test on all goodwill and indefinite lived intangible assets.
We completed our annual goodwill impairment test required by SFAS 142 and did not identify any impairments.

Accounting for Asset Retirement Obligations (SFAS 143)

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 is effective for fiscal
periods beginning after June 15, 2002. We will adopt SFAS 143 in our fiscal 2004 financial statements. The adoption of SFAS 143 is not expected to have a material impact on our
consolidated financial position, results of operations or cash flows.

Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144)

In August 2001, the FASB issued Statement 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which we
adopted on February 1, 2002. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes Statement 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"), and the accounting
and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations" ("APB 30") for a disposal of a segment of a business. The adoption of
SFAS 144 had no impact on our consolidated financial position, results of operations, or cash flows.

Rescission of Statements 4, 44 and 62 (SFAS 145)

In April 2002, the FASB issued Statement 145, "Rescission of Statements 4, 44 and 62" ("SFAS 145"). SFAS 145 rescinds Statement 4, "Reporting
Gains and Losses from Extinguishment of Debt, "Statement 44, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements, "and Statement 62, "Accounting for Intangible Assets of
Motor Carriers". SFAS 145 requires gains and losses on extinguishment of debt to be classified as either extraordinary items or in continuing operations in accordance with the provisions of APB
30. Further, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented, that does not meet the criteria in APB 30 for extraordinary item
classification, is required to be reclassified to continuing operations. SFAS 145

35

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also
amends Statement 13, "Accounting for Leases" to require certain lease modifications that have economic effects similar to sale-leaseback transactions to be accounted for in the same
manner as sale-leaseback transactions. SFAS 145 is effective for our January 31, 2004 consolidated financial statements. We currently believe the adoption of SFAS 145
will require the $254,000 loss on extinguishment of debt recorded on the January 31, 2001 consolidated financial statement of income to be reclassified from an extraordinary item to continuing
operations.

Accounting for Costs Associated With Exit or Disposal Activities (SFAS 146)

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146), which
addresses the recognition, measurement, and reporting of costs that are associated with exit and disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3 (EITF
94-3), "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS 146,
the cost associated with an exit or disposal activity is recognized in the periods in which it is incurred rather than at the date we commit to the exit plan. This statement is effective for exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS 146 is not expected to have a material impact on our consolidated financial position, results of operations or
cash flows.

Accounting for Stock-Based Compensation-Transition and Disclosure (SFAS 148)

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure"
(SFAS 148), which amends SFAS 123 to provide alternative methods of transition to the SFAS 123 fair value method of accounting for stock-based compensation. SFAS 148 also
amends the disclosure provisions of SFAS 123 and APB Opinion No. 25, "Interim Financial Reporting," to require disclosure in the significant accounting policies of the effects of an
entity's accounting policy with respect to stock-based employee compensation on reported net income in annual and interim financial statements. The Company has implemented all required disclosures of
SFAS 148 in the accompanying consolidated financial statements.

Accounting for Certain Sales Incentives (EITF 00-14)

Effective in the second quarter of fiscal 2003, we adopted EITF Issue No. 00-14, "Accounting for Certain Sales Incentives," which provides that
sales incentives such as mail-in rebates offered to customers should be classified as a reduction of revenue. The impact of the adoption was to reduce consolidated sales by approximately
$4.3 million during fiscal 2003. Previously, these rebates were recorded in cost of goods sold and were immaterial.

Accounting by Customer (including a Reseller) for Certain Consideration Received from a Vendor (EITF 02-16)

In November 2002 and subsequently clarified in March 2003, the Emerging Issues Task Force reached a consensus on Issue No. 02-16,
"Accounting by Customer (including a Reseller) for Certain Consideration Received from a Vendor" (EITF 02-16). EITF 02-16 addresses two specific issues related to the
classification of consideration received from a vendor (cooperative advertising payment) by us in our income statement. Issue 1 of EITF 02-16 addresses the circumstances under which cash
consideration received from a vendor by us should be considered (a) an adjustment of the prices of the vendor's products or services and, therefore, characterized as a reduction of cost of
sales when recognized in our income statement, (b) an adjustment to a cost incurred by us and, therefore, characterized as a reduction of that cost when recognized in our income statement, or
(c) a payment for assets or services delivered to the vendor and, therefore, characterized as revenue when recognized in our income statement. Issue 1 of EITF 02-16 is effective for
new arrangements or modifications of existing arrangements entered into after December 31, 2002 although early adoption is permitted. Issue

36

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2
of EITF 02-16 discusses when we should recognize the rebate and how we should measure the amount of the offer when a vendor offers us a rebate or refund of a specified amount of cash
consideration that is payable only if we complete a specified cumulative level of purchases or remain a customer for a specified time period. Issue 2 of EITF 02-16 is effective for
arrangements entered after November 21, 2002.

We
elected to adopt early, effective February 1, 2002, the provisions of EITF 02-16 in the preparation of this Annual Report on Form 10-K. Accordingly, in fiscal
2003, we recorded a cumulative effect of change in accounting principle of $2.6 million, $1.6 million net of income tax, for the impact of this adoption related to prior fiscal years. As
of January 31, 2003, $3.3 million of our cooperative advertising allowances has been deferred into inventory and will be recognized as inventory is sold. This adoption also resulted in
the reclassification of $14.8 million in cooperative advertising payments earned in fiscal 2003 from selling, general and administrative expense to cost of sales retroactively as of the
beginning of fiscal 2003. The fiscal 2003 impact of adoption on income before cumulative effect of change in accounting principle was $0.4 million, net of income tax.

FORWARD-LOOKING STATEMENTS

This report and the documents incorporated by reference into this report include forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We use words such as "may," "believe," "estimate," "expect," "plan," "intend," "project," "anticipate" and similar
expressions to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events, activities or developments. Our
actual results could differ materially from those discussed in or
implied by these forward-looking statements. Forward-looking statements include statements relating to, among other things:



These
forward-looking statements are subject to numerous risks, uncertainties and assumptions about us, including the factors described under "Risk Factors." The forward-looking events
we discuss in this report might not occur in light of these risks, uncertainties and assumptions. We undertake no obligation, and disclaim any obligation, to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.

37

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ITEM 7A:    Quantitative and Qualitative Disclosures about Market Risk

The following discusses our exposure to market risks related to changes in interest rates and other general market risks. All of our investment and financing
decisions are supervised or managed by our executive officers. All of our merchandise inventory purchases are denominated in U.S. dollars.

Cash and Cash Equivalents.As of January 31, 2003, we had $2.7 million in cash and cash
equivalents, which was not restricted and in various non-interest bearing accounts. We consider all highly liquid investments purchased with an original maturity of three months or less to
be cash equivalents.

Outstanding Debt of the Company.We are exposed to market risk due to changes in U.S. interest rates.
We do not engage in financial transactions for trading or speculative purposes. We have an $80 million revolving line of credit. Amounts borrowed under the $80 million revolving line of
credit bear interest based on a blend of (i) LIBOR plus 1.75% to 2.25% and (ii) Wells Fargo Bank's prime rate minus 0.375%. Borrowings under this credit facility were $8.3 million
as of January 31, 2003. An increase in the interest rate on our revolving line of credit of 39 basis points (a 10% change from the bank's reference rate as of January 31, 2003) would
have no material effect on our operating results. We have not hedged against interest rate changes.

ITEM 8:    Financial Statements and Supplementary Data

The following consolidated financial statements of Ultimate Electronics and Report of Independent Auditors are included in this Form 10-K.

|                                                                                                                                   |  | Page
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Auditors                                                                                                     |  | F-2 
|Consolidated Balance Sheets as of January 31, 2003 and January 31, 2002                                                            |  | F-3 
|Consolidated Statements of Income for the fiscal years ended January 31, 2003, January 31, 2002
and January 31, 2001               |  | F-5 
|Consolidated Statements of Stockholders' Equity for the fiscal years ended January 31, 2003,
January 31, 2002 and January 31, 2001 |  | F-6 
|Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2003, January 31, 2002
and January 31, 2001           |  | F-7 
|Notes to Consolidated Financial Statements                                                                                         |  | F-8 

ITEM 9:    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

38

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PART III

Certain information required by Part III is omitted from this report. We plan to file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year covered by this report, and certain information included in the Proxy Statement is
incorporated into Part III of this report by reference. Only those sections of the Proxy Statement that specifically address the items set forth herein are incorporated by reference.

ITEM 10:    Directors and Certain Executive Officers of Ultimate Electronics, Inc.

The information required by this Item is incorporated by reference from the section labeled "Directors and Executive Officers" in the Proxy Statement.

ITEM 11:    Executive Compensation

The information required by this Item is incorporated by reference from the section labeled "Compensation of Directors" and "Executive Compensation" excluding the
"Board Compensation Committee Report on Executive Compensation" and the "Performance Graph" in the Proxy Statement.

ITEM 12:    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated by reference from the sections labeled "Principal Stockholders" and "Equity Compensation Plan Information"
in the Proxy Statement.

ITEM 13:    Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference from the section labeled "Certain Relationships and Related Transactions" in the Proxy
Statement.

ITEM 14:    Controls And Procedures

In its Release No. 34-46427, effective August 29, 2002, the SEC, among other things, adopted rules requiring reporting companies to
maintain disclosure controls and procedures to provide
reasonable assurance that a registrant is able to record, process, summarize and report the information required in the registrant's quarterly and annual reports under the Securities Exchange Act of
1934. While we believe that our existing disclosure controls and procedures have been effective to accomplish these objectives, we intend to continue to examine, refine and formalize our disclosure
controls and procedures and to monitor ongoing developments in this area.

During
the 90-day period prior to the filing date of this report, an evaluation was performed under the supervision and with the participation of our management, including
the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures in providing reasonable assurance (based on our
management's evaluation of the costs and benefits of possible controls and procedures) of achieving the desired controls and objectives. The chief executive officer and the chief financial officer
have concluded that this evaluation has provided them with reasonable assurance that our disclosure controls and procedures are effective.

There
have been no changes in our internal controls or in other factors known to us that could significantly affect these controls subsequent to their evaluation.

39

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PART IV

ITEM 15:    Exhibits, Financial Statement Schedules, and Reports on Form 8-K



The
following exhibits are filed pursuant to Item 601 of Regulation S-K:

|Exhibit
No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Amended and Restated Certificate of Incorporation of Ultimate Electronics, Inc., incorporated by reference to Exhibit 3(i) to the Registration Statement on Form S-1 (File No. 33-68314), filed with the Commission on
September 2, 1993, as amended by Certificate of Amendment No. 1 to the Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (File No. 333-87341), filed with the
Commission on September 29, 1999.                                                                                                                                                                                                 
|3.2         |  | Certificate of Amendment No. 2 to the Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.2 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|3.3         |  | Amended and Restated Bylaws of Ultimate Electronics, incorporated by reference to Exhibit 3(ii) to the Quarterly Report on Form 10-Q, filed with the Commission on June 14, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.1         |  | Rights Agreement, dated as of January 31, 1994, by and between Ultimate Electronics and Norwest Bank Minnesota, National Association, as rights agent, incorporated by reference to Exhibit 4.1 to Ultimate Electronics' Current Report on Form 8-K filed
with the Commission on February 10, 1995; as amended by Amendment No. 1 to the Rights Agreement, dated January 31, 1995, by and between Ultimate Electronics and Norwest Bank Minnesota, N.A. as rights agent, incorporated by reference to Exhibit 4.3 to
Ultimate Electronics' Quarterly Report on Form 10-Q for the period ended April 30, 1995.                                                                                              
|10.1        |  | Second Amended and Restated Loan and Security Agreement, by and among Ultimate Electronics, Inc. and Wells Fargo Retail Finance, LLC dated September 28, 2001, as amended by the First Amendment to the Second Amended and Restated Loan Agreement dated
December 12, 2001, as incorporated by reference to Exhibits 10.1 and 10.2, respectively, to Ultimate Electronics' Quarterly Report on Form 10-Q for the period ended October 31, 2001, as amended by the Second Amendment to the Second Amended and
Restated Loan Agreement, effective as of December 31, 2001, incorporated by reference to Exhibit 10.1 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.
|10.2        |  | Employee Stock Option Plan, incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 (File No. 33-68314), filed with the Commission on September 2, 1993.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

40

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|10.3  |  | Non-Employee Stock Option Plan, incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 33-68314), filed with the Commission on October 7, 1993.                                                                                                                                                                                    
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4  |  | 1997 Equity Incentive Plan, incorporated by reference to Exhibit 4 to the Registration Statement on Form S-8 (File No. 333-43049), filed with the Commission on December 23, 1997.                                                                                                                                                                                                           
|10.5  |  | Amended and Restated 2000 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Ultimate Electronics' Quarterly Report on Form 10-Q, filed with the Commission on September 16, 2002.                                                                                                                                                                                          
|10.6  |  | Amended and Restated Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.2 to Ultimate Electronics' Current Report on Form 8-K, filed with the Commission on September 15, 2000.                                                                                                                                                                                            
|10.7  |  | Form of Confidentiality Agreement, dated February 5, 2001, by and between Ultimate Electronics and each of William J. Pearse, J. Edward McEntire, David J. Workman, Alan E. Kessock and Neal A. Bobrick, incorporated by reference to Exhibit 10.8 to the
Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.                                              
|10.8  |  | Form of Change of Control Agreement, dated June 27, 1997, by and between Ultimate Electronics and each of William J. Pearse, J. Edward McEntire, David J. Workman, Alan E. Kessock and Neal A. Bobrick, incorporated by reference to Exhibit 10.30 to the
Ultimate Electronics' Quarterly Report on Form 10-Q for the period ended July 31, 1997.                                            
|10.9  |  | Form of Incentive Stock Option Agreement for Key Employees, incorporated by reference to Exhibit 10.10 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.                                                                                                                                                                                              
|10.10 |  | Form of Non-Statutory Stock Option Agreement for Key Employees, incorporated by reference to Exhibit 10.11 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.                                                                                                                                                                                          
|10.11 |  | Form of Indemnification Agreement by and between Ultimate Electronics and each of William J. Pearse, J. Edward McEntire, David J. Workman, Alan E. Kessock, Neal A. Bobrick, Robert W. Beale, Randall F. Bellows, Clarence D. Hein and Larry D.
Strutton, incorporated by reference to Exhibit 10.12 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.
|10.12 |  | Lease Agreement, dated April 1, 1989, by and between Ultimate Electronics and Pearse Investment Company, L.L.L.P. (successor in interest to William J. and Barbara A. Pearse), incorporated by reference to Exhibit 10.2 to the Registration Statement on
Form S-1 (File No. 33-68314), filed with the Commission on September 2, 1993.                                                      
|10.13 |  | Lease Agreement, dated October 13, 1989, by and between Ultimate Electronics and Pearse Investment Company, L.L.L.P. (successor in interest to William J. and Barbara A. Pearse), incorporated by reference to Exhibit 10.3 to the Registration Statement
on Form S-1 (File No. 33-68314), filed with the Commission on September 2, 1993.                                                   
|10.14 |  | Lease Agreement, dated February 28, 2001, by and between Ultimate Electronics and Pearse Investment Company, L.L.L.P., incorporated by reference to Exhibit 99.1 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31,
2001.                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                              

41

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|10.15 |  | Ultimate Electronics, Inc. Bonus Plans for Fiscal Years Ended January 31, 2003 and January 31, 2004.*                                                                                                                                                
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  | Exclusive Endorsement Agreement, dated September 1, 2002, by and between Ultimate Electronics and David J. Workman, incorporated by reference to Ultimate Electronics' Quarterly Report on Form 10-Q, filed with the Commission on December 16,
2002.
|21.1  |  | Subsidiaries of the Company.*                                                                                                                                                                                                                        
|23.1  |  | Consent of Ernst & Young LLP.*                                                                                                                                                                                                                       
|24.1  |  | Power of Attorney (included in signature page).                                                                                                                                                                                                      
|99.1  |  | Certificate of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).*                                                                                              

---

42

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
May 30, 2003 on its behalf by the undersigned, thereunto duly authorized.

| |  | By: | /s/J. EDWARD MCENTIREJ. Edward McEntire Chief Executive Officer
| |  | --- | ---------------------------------------------------------------

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alan E. Kessock, J. Edward McEntire and David J. Workman
and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents and each of them full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes and as he or they might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof.

43

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Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant, in the capacities and on the dates
indicated.

|Signature                               |  | Title                                                                                                                 |  | Date        
|--------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ------------
|                                        |  |                                                                                                                       |  |             
|/s/WILLIAM J. PEARSEWilliam J. Pearse   |  | Chairman of the Board and a Director                                                                                  |  | May 15, 2003
|/s/J. EDWARD MCENTIREJ. Edward McEntire |  | Chief Executive Officer and a Director (Principal Executive Officer)                                                  |  | May 15, 2003
|/s/DAVID J. WORKMANDavid J. Workman     |  | President, Chief Operating Officer and a Director                                                                     |  | May 15, 2003
|/s/ALAN E. KESSOCKAlan E. Kessock       |  | Senior Vice President, Chief Financial Officer, Secretary and a Director (Principal Financial and Accounting Officer) |  | May 15, 2003
|/s/NEAL A. BOBRICKNeal A. Bobrick       |  | Senior Vice PresidentSales                                                                                           |  | May 15, 2003
|/s/ROBERT W. BEALERobert W. Beale       |  | Director                                                                                                              |  | May 15, 2003
|/s/RANDALL F. BELLOWSRandall F. Bellows |  | Director                                                                                                              |  | May 15, 2003
|/s/CLARENCE D. HEINClarence D. Hein     |  | Director                                                                                                              |  | May 15, 2003
|/s/LARRY D. STRUTTONLarry D. Strutton   |  | Director                                                                                                              |  | May 15, 2003

44

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CERTIFICATIONS

I,
J. Edward McEntire, certify that:

1.     I
have reviewed this report on Form 10-K of Ultimate Electronics, Inc. ("Registrant");

2.     Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

4.     The
Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Registrant and we have:



5.     The
Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's
board of directors (or persons performing the equivalent functions):



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

|Date: May 15, 2003 | /s/J. EDWARD MCENTIREJ. Edward McEntire
Chief Executive Officer
|------------------ | ---------------------------------------------------------------

---

I,
Alan E. Kessock, certify that:

1.     I
have reviewed this annual report on Form 10-K of Ultimate Electronics, Inc. ("Registrant");

2.     Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

4.     The
Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Registrant and we have:



5.     The
Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's
board of directors (or persons performing the equivalent functions):



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

|Date: May 15, 2003 | /s/ALAN E. KESSOCKAlan E. Kessock
Senior Vice President, Chief Financial Officer and Secretary (Principal Financial Officer)
|------------------ | ----------------------------------------------------------------------------------------------------------------------------

---

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                  
|----------------------------------------------------------------------------------------------------------------------------------
|Report of Independent Auditors                                                                                                    
|Consolidated Balance Sheets as of January 31, 2003 and January 31, 2002                                                           
|Consolidated Statements of Income for the fiscal years ended January 31, 2003, January 31, 2002 and January 31, 2001              
|Consolidated Statements of Stockholders' Equity for the fiscal years ended January 31, 2003, January 31, 2002 and January 31, 2001
|Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2003, January 31, 2002 and January 31, 2001          
|Notes to Consolidated Financial Statements                                                                                        

F-1

---



REPORT OF INDEPENDENT AUDITORS

The
Stockholders and Board of Directors
Ultimate Electronics, Inc.:

We
have audited the accompanying consolidated balance sheets of Ultimate Electronics, Inc. and subsidiaries ("the Company") as of January 31, 2003 and 2002, and the related
consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended January 31, 2003. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial position of Ultimate Electronics, Inc. at
January 31, 2003 and 2002, and the results of their consolidated operations and their consolidated cash flows for each of the three years in the period ended January 31, 2003 in
conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.

As
discussed in Note 2 to the consolidated financial statements, effective February 1, 2002, the Company adopted the requirements of Emerging Issues Task Force Issue
No. 02-16 for its cooperative advertising arrangements.

| |  | /s/ ERNST & YOUNG LLP
| |  | ---------------------

Denver,
Colorado
March 12, 2003
except for Notes 2 and 13, as to which the dates are March 20, 2003 and April 7, 2003, respectively

F-2

---



CONSOLIDATED BALANCE SHEETS        (amounts in thousands)

|                                                              |                                 | January 31,
|------------------------------------------------------------- | ------------------------------- | -----------
|
|ASSETS:                                                       |                                 |            
|Current assets:                                               |                                 |            
|                                                              | Cash and cash equivalents       |            
|                                                              | Accounts receivable, net        |            
|                                                              | Merchandise inventories, net    |            
|                                                              | Prepaid expenses and other      |            
|                                                              |                                 |            
|Total current assets                                          |                                 |            
|Property and equipment, at cost:                              |                                 |            
|                                                              | Furniture, fixtures & equipment |            
|                                                              | Leasehold improvements          |            
|                                                              | Autos and trucks                |            
|                                                              | Land and buildings              |            
|                                                              | Construction-in-progress        |            
|                                                              |                                 |            
|                                                              |                                 |            
|                                                              | Less accumulated depreciation   |            
|                                                              |                                 |            
|                                                              |                                 |            
|Property under capital leases, including related parties, net |                                 |            
|Goodwill                                                      |                                 |            
|Other assets                                                  |                                 |            
|                                                              |                                 |            
|Total assets                                                  |                                 | $          
|                                                              |                                 |            

See
accompanying notes to consolidated financial statements

F-3

---

CONSOLIDATED BALANCE SHEETS (Continued)        (amounts in thousands, except share and per share data)

|                                                                           |                                                                         | January 31,                                                                          
|-------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------------------------------------------------
|
|LIABILITIES AND STOCKHOLDERS' EQUITY:                                      |                                                                         |                                                                                      
|Current liabilities:                                                       |                                                                         |                                                                                      
|                                                                           | Accounts payable                                                        |                                                                                      
|                                                                           | Accrued liabilities                                                     |                                                                                      
|                                                                           | Current portion of capital lease obligations, including related parties |                                                                                      
|                                                                           | Deferred revenue                                                        |                                                                                      
|                                                                           | Deferred tax liability                                                  |                                                                                      
|                                                                           |                                                                         |                                                                                      
|Total current liabilities                                                  |                                                                         |                                                                                      
|Revolving line of creditlong term                                         |                                                                         |                                                                                      
|Capital lease obligations, including related parties, less current portion |                                                                         |                                                                                      
|Deferred revenue, less current portion                                     |                                                                         |                                                                                      
|Deferred tax liability                                                     |                                                                         |                                                                                      
|                                                                           |                                                                         |                                                                                      
|Total long-term liabilities                                                |                                                                         |                                                                                      
|                                                                           |                                                                         |                                                                                      
|Total liabilities                                                          |                                                                         |                                                                                      
|Commitments                                                                |                                                                         |                                                                                      
|Stockholders' equity:                                                      |                                                                         |                                                                                      
|                                                                           | Preferred Stock, par value $.01 per share                               |                                                                                      
|                                                                           |                                                                         | Authorized shares10,000,000                                                         
|                                                                           |                                                                         | No shares issued and outstanding                                                     
|                                                                           | Common stock, par value $.01 per share                                  |                                                                                      
|                                                                           |                                                                         | Authorized shares40,000,000                                                         
|                                                                           |                                                                         | Issued and outstanding shares, 14,580,682 and 11,241,686 at January 31, 2003 and 2002
|                                                                           | Additional paid-in capital                                              |                                                                                      
|                                                                           | Retained earnings                                                       |                                                                                      
|                                                                           |                                                                         |                                                                                      
|Total stockholders' equity                                                 |                                                                         |                                                                                      
|                                                                           |                                                                         |                                                                                      
|Total liabilities and stockholders' equity                                 |                                                                         | $                                                                                    
|                                                                           |                                                                         |                                                                                      

See
accompanying notes to consolidated financial statements

F-4

---



CONSOLIDATED STATEMENTS OF INCOME        (amounts in thousands, except per share data)

|                                                                                                             |  | Year ended January 31, |        
|------------------------------------------------------------------------------------------------------------ |  | ---------------------- | -------
|
|Sales                                                                                                        |  | $                      | 704,427
|Cost of goods sold                                                                                           |  |                        | 473,930
|                                                                                                             |  |                        |        
|Gross profit                                                                                                 |  |                        | 230,497
|Selling, general and administrative expenses                                                                 |  |                        | 220,139
|                                                                                                             |  |                        |        
|Income from operations                                                                                       |  |                        | 10,358 
|Interest income                                                                                              |  |                        | (125   
|Interest expense                                                                                             |  |                        | 333    
|                                                                                                             |  |                        |        
|Net interest expense                                                                                         |  |                        | 208    
|                                                                                                             |  |                        |        
|Income before taxes, extraordinary item and cumulative effect of change in accounting principle              |  |                        | 10,150 
|Income tax expense                                                                                           |  |                        | 3,857  
|                                                                                                             |  |                        |        
|Income before extraordinary item and cumulative effect of change in accounting principle                     |  |                        | 6,293  
|Extraordinary loss on early extinguishment of debt, net of taxes                                             |  |                        |       
|Cumulative effect of change in accounting principle, net of taxes                                            |  |                        | 1,587  
|                                                                                                             |  |                        |        
|Net income                                                                                                   |  | $                      | 4,706  
|                                                                                                             |  |                        |        
|Earnings per share before extraordinary item and cumulative effect of change in accounting principlebasic   |  | $                      | 0.46   
|Earnings per share before extraordinary item and cumulative effect of change in accounting principlediluted |  | $                      | 0.45   
|Earnings per sharebasic                                                                                     |  | $                      | 0.34   
|Earnings per sharediluted                                                                                   |  | $                      | 0.34   
|Weighted average shares outstandingbasic                                                                    |  |                        | 13,671 
|Weighted average shares outstandingdiluted                                                                  |  |                        | 13,921 

See
accompanying notes to consolidated financial statements

F-5

---

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        (amounts in thousands, except share data)

|                           |                                                 | Common Stock |           |   |     |    |   |        
|-------------------------- | ----------------------------------------------- | ------------ | --------- | - | --- | -- | - | -------
|
|
|BALANCES, JANUARY 31, 2000 |                                                 | 10,705,318   |           | $ | 107 |    | $ | 70,801 
|                           | Exercise of stock options                       |              | 233,013   |   |     | 2  |   |        
|                           | Net income                                      |              |          |   |     |   |   |        
|                           |                                                 |              |           |   |     |    |   |        
|BALANCES, JANUARY 31, 2001 |                                                 | 10,938,331   |           |   | 109 |    |   | 73,290 
|                           | Exercise of stock options                       |              | 213,620   |   |     | 2  |   |        
|                           | Issuance of shares through ESPP plan            |              | 89,735    |   |     | 1  |   |        
|                           | Net income                                      |              |          |   |     |   |   |        
|                           |                                                 |              |           |   |     |    |   |        
|BALANCES, JANUARY 31, 2002 |                                                 | 11,241,686   |           |   | 112 |    |   | 77,215 
|                           | Issuance of common stock, net of offering costs |              | 3,162,500 |   |     | 32 |   |        
|                           | Exercise of stock options                       |              | 97,518    |   |     | 1  |   |        
|                           | Issuance of shares through ESPP plan            |              | 78,978    |   |     | 1  |   |        
|                           | Net income                                      |              |          |   |     |   |   |        
|                           |                                                 |              |           |   |     |    |   |        
|BALANCES, JANUARY 31, 2003 |                                                 | 14,580,682   |           | $ | 146 |    | $ | 164,291
|                           |                                                 |              |           |   |     |    |   |        

See
accompanying notes to consolidated financial statements

F-6

---



CONSOLIDATED STATEMENTS OF CASH FLOWS        (amounts in thousands)

|                                                                                            |                                              | Year ended January 31,                          |         
|------------------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------------- | --------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |                                              |                                                 |         
|Net income                                                                                  |                                              | $                                               | 4,706   
|Adjustments to reconcile net income to net cash (used in) provided by operating activities: |                                              |                                                 |         
|                                                                                            | Depreciation and amortization                |                                                 |         
|                                                                                            | Deferred taxes                               |                                                 |         
|                                                                                            | Changes in operating assets and liabilities: |                                                 |         
|                                                                                            |                                              | Accounts receivable                             |         
|                                                                                            |                                              | Merchandise inventories                         |         
|                                                                                            |                                              | Prepaid expenses and other                      |         
|                                                                                            |                                              | Other assets                                    |         
|                                                                                            |                                              | Accounts payable, accrued and other liabilities |         
|                                                                                            |                                              |                                                 |         
|NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                                         |                                              |                                                 | (12,311 
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |                                              |                                                 |         
|Purchases of property and equipment                                                         |                                              |                                                 | (47,819 
|Redemptions of investments available for sale                                               |                                              |                                                 |        
|                                                                                            |                                              |                                                 |         
|NET CASH USED IN INVESTING ACTIVITIES                                                       |                                              |                                                 | (47,819 
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |                                              |                                                 |         
|Aggregate borrowings under long-term revolving credit agreement                             |                                              |                                                 | 386,285 
|Aggregate repayments under long-term revolving credit agreement                             |                                              |                                                 | (413,187
|Early extinguishment of bonds payable                                                       |                                              |                                                 |        
|Proceeds from issuance of common stock                                                      |                                              |                                                 | 86,256  
|Proceeds from exercise of stock options                                                     |                                              |                                                 | 854     
|Principal payments on term loans and capital lease obligations                              |                                              |                                                 | (113    
|                                                                                            |                                              |                                                 |         
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                         |                                              |                                                 | 60,095  
|                                                                                            |                                              |                                                 |         
|Net decrease in cash and cash equivalents                                                   |                                              |                                                 | (35     
|Cash and cash equivalents at beginning of year                                              |                                              |                                                 | 2,694   
|                                                                                            |                                              |                                                 |         
|Cash and cash equivalents at end of year                                                    |                                              | $                                               | 2,659   
|                                                                                            |                                              |                                                 |         
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                           |                                              |                                                 |         
|Cash paid during the year for:                                                              |                                              |                                                 |         
|Interest                                                                                    |                                              | $                                               | 898     
|Income taxes                                                                                |                                              |                                                 | 5,487   

See
accompanying notes to consolidated financial statements

F-7

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Significant Accounting Policies

Background

Ultimate Electronics, Inc. (the "Company") is a leading specialty retailer of consumer electronics and home entertainment products. As of
January 31, 2003, the Company operated 58 stores in Arizona, Colorado, Idaho, Illinois, Iowa, Minnesota, Missouri, Nevada, New Mexico, Oklahoma, South Dakota, Texas and Utah.

Principles of Consolidation

The consolidated financial statements include the accounts of all subsidiaries. All intercompany accounts and transactions have been eliminated upon
consolidation.

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, disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Inventories

The Company states merchandise inventories at the lower of cost (weighted average cost) or market. Inventories are presented net of an allowance for obsolescence
of $2.1 million and $1.2 million at January 31, 2003 and 2002, respectively.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Additions and improvements are capitalized. Maintenance and repairs are expensed as incurred.

Depreciation and Amortization

Depreciation is provided principally using the straight-line method based upon the following useful lives:

Furniture, fixtures and equipment

5 - 10 yearsLeasehold improvements

7 - 20 yearsAutos and trucks

5 yearsProperty under capital leases

5 - 15 yearsBuildings

30 years


Capitalized Interest

For the fiscal years ended January 31, 2003, 2002 and 2001, the Company capitalized interest of $488,000, $930,000, and $250,000, respectively, primarily
associated with the construction of new stores and implementation of the Company's management information system.

F-8

---

Accrued Liabilities

Accrued liabilities are comprised of the following:

January 31,2003

2002(in thousands)Compensation

$
7,134

$
5,739Sales taxes


2,437


2,889Customer deposits


6,986


7,427Income taxes


2,086


5,760Other


12,404


4,307Total

$
31,047

$
26,122


Revenue Recognition

Revenue is recognized at the time the customer takes possession of the merchandise or such merchandise is delivered to the customer. The Company recognizes
revenues from services, such as home and mobile installation, home delivery and setup, and repair services, at the time the service is provided. Sales, which includes net warranty revenue, consists of
gross sales less discounts, price guarantees, returns and allowances.

Advertising Costs

In accordance with AICPA Statement of Position 93-7, "Reporting on Advertising Costs," all advertising costs are deferred until the first time the
advertising takes place. The Company reduces advertising expense with cooperative advertising from its vendors. Cooperative advertising payments vary with individual programs and with individual
vendors.

Barter/Exchange Transaction

The Company entered into barter/exchange agreements with an unrelated party in October 2002, April 2002 and April 2001 whereby the Company
agreed to transfer inventory with a net carrying value of $549,000, $533,000 and $675,000, respectively, in exchange for $650,000, $650,000 and $755,000, respectively, of advertising credits. The
Company accounted for the transactions in accordance with EITF Issue No. 99-17, "Accounting for Advertising Barter Transactions." The Company had $1,477,000, $685,000 and $365,000
in prepaid advertising credits recorded as current assets at January 31, 2003, 2002 and 2001, respectively.

Earnings Per Share of Common Stock

The Company reports its earnings per share amounts in accordance with Statement No. 128, Earnings per Share (SFAS 128). Basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share includes the dilutive effects of such equity instruments.

F-9

---

The
following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per common share for fiscal 2003, 2002 and 2001:

Year Ended January 31,2003

2002

2001(In thousands, except per share data)Numerator:Net income

$
4,706

$
11,953

$
14,607Denominator:Basic weighted average common shares outstanding


13,671


11,041


10,792Employee stock options


250


442


629Weighted average common shares outstanding assuming dilution


13,921


11,483


11,421Basic earnings per share

$
0.34

$
1.08

$
1.35Diluted earnings per share

$
0.34

$
1.04

$
1.28


Goodwill

Goodwill represents the excess of purchase price over tangible assets acquired less liabilities assumed arising from the Company's acquisition of Audio King
Corporation in fiscal 1998. The Company adopted Financial Accounting Standards Board Statement No. 142 "Goodwill and Intangible Assets" ("SFAS 142") on February 1, 2002.
SFAS 142 eliminates amortization of goodwill and indefinite lived intangible assets and requires the Company to perform an annual impairment test on all goodwill and indefinite lived intangible
assets. The Company has completed its annual goodwill impairment test required by SFAS 142 and did not identify any impairments. If the requirements of SFAS 142 had been in effect for
the fiscal years ended January 31, 2002 and 2001, the results would have been as follows:

Fiscal year ended
January 31,2002

2001(in thousands, except per
share data)Reported net income

$
11,953

$
14,607Add-back goodwill amortization, net of tax


171


171Adjusted net income

$
12,124

$
14,778Reported basic earnings per share

$
1.08

$
1.35Add-back goodwill amortization, net of tax


.02


.02Adjusted basic earnings per share

$
1.10

$
1.37Reported diluted earnings per share

$
1.04

$
1.28Add-back goodwill amortization, net of tax


.02


.01Adjusted diluted earnings per share

$
1.06

$
1.29


Fair Value of Financial Instruments

The Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, revolving line of credit and other
long-term debt, have fair values which approximate their recorded values as the financial instruments are either short term in nature or carry interest rates that approximate market rates.

F-10

---

Segment Reporting

During 1997, the FASB issued Statement No. 131, "Disclosures about Segment Reporting of an Enterprise and Related Information," which establishes standards
for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also establishes standards for related disclosure about products and services, geographic areas and major customers. The Company
conducts business in one operating segment and determined its operating segment based on the individual operations that the chief operating decision maker reviews for purposes of assessing performance
and making operating decisions. These individual operations have been reflected as one reporting segment because the Company believes doing so helps users understand the Company's performance and
assess its prospects. The combined operations have similar economic characteristics and each operation has similar products, services, customers and distribution methods.

Stock-Based Compensation

Statement of Financial Accounting Standard No. 123, "Accounting for Stock Based Compensation" (SFAS 123), establishes accounting and reporting
standards for stock based employee compensation plans, as amended. As permitted by SFAS 123, the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations, in accounting for its employee stock options (see note 7). In December 2002, the FASB issued Statement
No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure" (SFAS 148), which amends SFAS 123 to provide alternative methods of transition to the
SFAS 123 fair value method of accounting for stock-based compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 25, "Interim Financial
Reporting," to require disclosure in the significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income in
annual and interim financial statements. The Company has implemented all required disclosures of SFAS 148 in the accompanying consolidated financial statements.

The
Company's pro forma information, amortizing the fair value of the options over their vesting period, is as follows:

Year Ended January 31,2003

2002

2001(In thousands, except per share data)Net income as reported

$
4,706

$
11,953

$
14,607SFAS 123 compensation expense, net of tax


(1,406
)

(1,052
)

(624
)Pro forma net income

$
3,300

$
10,901

$
13,983Basic earnings per share as reported

$
0.34

$
1.08

$
1.35Pro forma basic earnings per share

$
0.24

$
0.99

$
1.30Diluted earnings per share as reported

$
0.34

$
1.04

$
1.28Pro forma diluted earnings per share

$
0.24

$
0.95

$
1.22


Recently Issued Accounting Standards

Business Combinations (SFAS 141)

In July 2001, the FASB issued Statement No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 requires companies to reflect
intangible assets apart from goodwill and requires all business

F-11

---

combinations
subsequent to July 1, 2001 to be accounted for using the purchase method of accounting. The adoption of SFAS 141 had no impact on the consolidated financial position, result
of operations or cash flows of the Company.

Accounting for Asset Retirement Obligations (SFAS 143)

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 is effective for fiscal
periods beginning after June 15, 2002. The Company will adopt SFAS 143 in its fiscal 2004 financial statements. The adoption of SFAS 143 is not expected to have a material impact
on the consolidated financial position, results of operations or cash flows of the Company.

Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144)

In August 2001, the FASB issued Statement 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which the
Company adopted on February 1, 2002. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes Statement 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"), and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations" ("APB 30") for a disposal of a segment of a business. The adoption of SFAS 144 had no impact on the consolidated
financial position, results of operations, or cash flows of the Company.

Rescission of Statements 4, 44 and 62 (SFAS 145)

In April 2002, the FASB issued Statement 145, "Rescission of Statements 4, 44 and 62" ("SFAS 145"). SFAS 145 rescinds Statement 4, "Reporting
Gains and Losses from Extinguishment of Debt, "Statement 44, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements, "and Statement 62, "Accounting for Intangible Assets of
Motor Carriers". SFAS 145 requires gains and losses on extinguishment of debt to be classified as either extraordinary items or in continuing operations in accordance with the provisions of APB
30. Further, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented, that does not meet the criteria in APB 30 for extraordinary item
classification, is required to be reclassified to continuing operations. SFAS 145 also amends Statement 13, "Accounting for Leases" to require certain lease modifications that have economic
effects similar to sale-leaseback transactions to be accounted for in the same manner as sale-leaseback transactions. SFAS 145 is effective for the Company's
January 31, 2004 consolidated financial statements. The Company currently believes the adoption of SFAS 145 will require the $254,000 loss on extinguishment of debt recorded on the
January 31, 2001 consolidated financial statement of income to be reclassified from an extraordinary item to continuing operations.

Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146)

In June 2002, the FASB Issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146), which
addresses the recognition, measurement, and reporting of costs that are associated with exit and disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3 (EITF
94-3), "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS 146,
the cost associated with an exit or disposal activity is recognized in the periods in which it is incurred rather than at the date the Company commits to the exit plan. This statement is effective for
exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 is not expected to have a material impact on the consolidated financial position, results of
operations or cash flows of the Company.

F-12

---

Accounting for Certain Sales Incentives (EITF 00-14)

Effective in the second quarter of fiscal 2003, the Company adopted EITF Issue No. 00-14, "Accounting for Certain Sales Incentives," which
provides that sales incentives such as mail-in rebates offered to customers should be classified as a reduction of revenue. The impact of the adoption was to reduce consolidated sales by
approximately $4.3 million during fiscal 2003. Previously, these rebates were recorded in cost of goods sold and were immaterial.

2.    Change in Accounting Principle

In November 2002 and subsequently clarified in March 2003, the Emerging Issues Task Force reached a consensus on Issue No. 02-16,
"Accounting by Customer (including a Reseller) for Certain Consideration Received from a Vendor" (EITF 02-16). EITF 02-16 addresses two specific issues related to the
classification of consideration received from a vendor in the Company's income statement. Issue 1 of EITF 02-16 addresses the circumstances under which cash consideration received from a
vendor (cooperative advertising payment) by the Company should be considered (a) an adjustment of the prices of the vendor's products or services and, therefore, characterized as a reduction of
cost of sales when recognized in the Company's income statement, (b) an adjustment to a cost incurred by the Company and, therefore, characterized as a reduction of that cost when recognized in
the Company's income statement, or (c) a payment for assets or services delivered to the vendor and, therefore, characterized as revenue when recognized in the Company's income statement. Issue
1 of EITF 02-16 is effective for new arrangements or modifications of existing arrangements entered into after December 31, 2002 although early adoption is permitted. Issue 2 of
EITF 02-16 discusses when the Company should recognize the rebate and how it should measure the amount of the offer when a vendor offers a rebate or refund of a specified amount of cash
consideration that is payable only if the
Company completes a specified cumulative level of purchases or remains a customer for a specified time period. Issue 2 of EITF 02-16 is effective for arrangements entered after
November 21, 2002.

The
Company elected to adopt early, effective February 1, 2002, the provisions of EITF 02-16 in the preparation of this Annual Report on Form 10-K. Accordingly, in
fiscal 2003, the Company recorded a cumulative effect of change in accounting principle of $2.6 million, $1.6 million net of income tax, for the impact of this adoption related to prior
fiscal years. As of January 31, 2003, $3.3 million of the Company's cooperative advertising allowances has been deferred into inventory and will be recognized as inventory is sold. This
adoption also resulted in the reclassification of $14.8 million in cooperative advertising payments earned in fiscal 2003 from selling, general and administrative expense to cost of sales
retroactively as of the beginning of fiscal 2003. The fiscal 2003 impact of adoption on income before cumulative effect of change in accounting principle was $0.4 million, net of income tax.

The
amount of the Company's cooperative advertising receivable at the end of fiscal 2003 and 2002 is as follows:

As of January 31,2003(1)

2002(in thousands)Cooperative advertising receivable

$
13,964

$
16,746


F-13

---

The
amounts of cooperative advertising that are being netted against advertising expense for fiscal 2003, 2002 and 2001, respectively, are as follows:

Fiscal Year ended January 31,2003(1)

2002

2001(in thousands)Gross advertising expense

$
60,212

$
48,908

$
39,586Cooperative advertising


(35,484
)

(39,921
)

(33,234
)Net advertising expense

$
24,728

$
8,987

$
6,352


---

3.    Accounting for Extended Warranty Contracts

The Company sells extended warranty contracts on behalf of a fully-insured unrelated party. The contracts extend beyond the normal manufacturer's warranty period,
usually with terms of coverage (including the manufacturer's warranty period) between 12 and 60 months. The extended warranty contracts are administered by a third party and all performance
obligations and risk of loss with respect to such contracts are the responsibility of such administrator and other parties.

For
extended warranty contracts entered into prior to February 1, 2000, the Company recognizes revenues, net of direct selling expenses, over the term of the obligor contracts, as
the Company was deemed to be the obligor under the terms of its extended warranty master contract. Effective February 1, 2000, the Company restructured its extended warranty master contract
with the administrator such that the extended warranty contracts sold after the effective date generally qualify as non-obligor contracts. The Company retains a commission which it now
recognizes as
revenue from the sale of these non-obligor contracts at the time of sale to the customers.

4.    Public Stock Offering

On May 6, 2002, the Company completed a public offering for the sale of 3,162,500 shares of its common stock at an offering price of $28.50 per share. The
Company received proceeds of approximately $84.8 million, net of all offering costs.

5.    Revolving Line of Credit Agreement

The Company currently has an $80 million credit agreement with Wells Fargo Finance, LLC, which expires in September 2004. Borrowings under this
revolving line of credit are limited to the lesser of (i) $80 million or (ii) 75% of eligible inventory plus the lesser of 75% of eligible accounts receivable and
$2.5 million. Amounts borrowed bear interest, payable monthly, based on a blend of (i) LIBOR plus 1.75% to 2.25% and (ii) Wells Fargo Bank's prime rate minus 0.375%. The Company's
weighted average interest rate was 3.9% at January 31, 2003. Inventories, bank accounts, accounts receivable, equipment, intangibles, negotiable instruments, investment property, intellectual
property and equity interests in the Company's subsidiaries secure the borrowings. The facility includes negative covenants that place restrictions on the Company's ability to incur indebtedness,
create liens, enter into mergers and consolidations, pay dividends, repurchase the Company's capital stock, issue guarantees, sell or otherwise dispose of assets and engage in transactions with
affiliates without the written consent of the bank. The facility also contains covenants regarding the Company's gross margins, inventory levels, tangible net worth and capital expenditures. The
Company is in compliance with all loan covenants. As of January 31, 2003, the Company had a borrowing base of $80 million, of which approximately $8.3 million was outstanding.

F-14

---

6.    Bonds Payable

On March 23, 1995, the Company completed an offering for the sale of $13,000,000 aggregate principal amount of bonds payable (the "Bonds"). The Bonds were
redeemable by the Company at par any time at or after March 31, 2000. The Company acquired $1,300,000 of the Bonds in the open market in a series of transactions in fiscal 2000. On
March 31, 2000, the Company paid $13,111,000 to redeem the Bonds in full. The Bonds were redeemed at a redemption price of 100% of the principal amount and all accrued and unpaid interest as of
such date, which totaled $111,000. As a result of the redemption of the Bonds, the Company recognized an extraordinary loss of $254,000 (net of taxes). The Company received $1,300,000 (plus accrued
interest) relating to the Bonds it held in connection with its open market purchases during fiscal 2000.

7.    Stock Option and Stockholder Rights Plans

Stock Option Plan

Under the terms of the Company's original stock option plan (the "Plan"), the Company granted to officers and employees awards of options to purchase shares of
common stock and other types of awards. The Plan authorized the issuance of 900,000 shares of common stock. Under the terms of the non-employee directors' stock option plan (the
"Directors' Plan"), the Company granted awards of stock options to non-employee directors. The Directors' Plan authorized the issuance of 20,000 shares of common stock.

In
June 1997, at the Company's annual meeting, the Company's stockholders approved a new stock option plan known as the Equity Incentive Plan (the "1997 Plan"). The 1997 Plan
replaced both the Plan and the Directors' Plan. Grants issued under the Plan and the Directors' Plan continue to be exercisable according to their original terms but no additional grants can be issued
under these plans. The 1997 Plan authorized the issuance of 750,000 shares to be awarded to employees, non-employee directors and/or outside consultants. The exercise price for incentive
stock options for employees and non-qualified options for outside directors is the market value of the underlying common stock at the date of grant. Incentive stock options issued to
employees who then have attributed ownership of more than 10% of the total combined voting power of all
classes of stock must be issued at an exercise price of 110% of market value of the underlying common stock at the date of grant. During fiscal 2001, options to purchase 32,250 shares were granted
under the 1997 Plan. The options were granted at prices from $15.50 to $18.75.

In
July 2000, at the Company's annual meeting, the Company's stockholders approved a new stock option plan known as the 2000 Equity Incentive Plan (the "2000 Plan"), which
replaced the 1997 Plan. Grants issued under the 1997 Plan continue to be exercisable according to original terms but no additional grants can be issued under the 1997 Plan. The 2000 Plan initially
authorized the issuance of up to 300,000 shares to be awarded to employees, non-employee directors or outside consultants and provided for annual increases of 100,000 shares subject to a
maximum of 1,200,000 shares. In June of 2002, at the Company's annual meeting, the Company's stockholders approved an amendment to increase the aggregate number of shares that may be issued under the
2000 Plan to 2,950,000 and to eliminate the automatic annual increase provisions. Each non-employee director receives an option to purchase 4,000 shares of common stock effective
February 1st of each year, which options are exercisable one year from the date of grant. The Board of Directors continues to determine the person to whom employee awards are granted, the types
of awards granted, the number of shares granted, the vesting schedule and the term of any option (which cannot exceed ten years). The exercise price for incentive stock options for employees and
non-qualified options for outside directors is the market value of the underlying common stock at the date of grant. Incentive stock options issued to employees who then have attributed
ownership of more than 10% of the total combined voting power of all classes of stock must be issued at an exercise price of 110% of the market value of the underlying

F-15

---

common
stock at the date of grant. During fiscal years 2001 and 2002, respectively, 53,250 and 188,000 options were granted under the 2000 Plan. In fiscal year 2003, 349,260 options were granted under
the 2000 Plan. The options were granted at prices from $13.04 to $30.60. The options available for grant at January 31, 2003 include only the options available under the 2000 Plan.

In
November of 2002, the Company's board authorized the grant of an option to purchase 4,000 shares to a newly appointed board member. The option was granted at $18.14 per share and
vests in full after one year.

Changes
in the options outstanding and exercisable are as follows:

|                                        |  | Year Ended January 31,
|--------------------------------------- |  | ----------------------
|
|
|Options outstanding @ beginning of year |  | 659,665               
|Granted                                 |  | 353,260               
|Canceled                                |  | 46,917                
|Exercised                               |  | 97,518                
|Options outstanding @ end of year       |  | 868,490               
|Options exercisable @ end of year       |  | 376,374               

No
options expired during fiscal 2003, fiscal 2002 and fiscal 2001.

The
following summarizes options outstanding:

|                  |  | Year ended January 31,
|----------------- |  | ----------------------
|
|
|$2.7500-3.4938    |  | 169,315               
|$3.4939-$6.9876   |  | 37,871                
|$6.9877-$10.4814  |  | 10,000                
|$10.4815-$13.9752 |  | 46,000                
|$13.9753-$17.4609 |  | 199,803               
|$17.4610-$20.9628 |  | 59,501                
|$20.6929-$24.4566 |  | 15,000                
|$24.4567-$27.9504 |  | 136,120               
|$27.9505-$31.4442 |  | 194,880               
|$31.4443-$37.9380 |  |                      
|                  |  |                       
|                  |  | 868,490               

F-16

---

The
following summarizes options exercisable:

|                    |  | Year ended January 31,
|------------------- |  | ----------------------
|
|
|$2.7500 - $3.4938   |  | 169,315               
|$3.4939 - $6.9876   |  | 37,871                
|$6.9877 - $10.4814  |  | 10,000                
|$10.4815 - $13.9752 |  | 6,000                 
|$13.9753 - $17.4609 |  | 52,875                
|$17.4610 - $20.9628 |  | 38,001                
|$20.6929 - $24.4566 |  | 4,999                 
|$24.4567 - $27.9504 |  | 4,666                 
|$27.9505 - $31.4442 |  | 52,647                
|$31.4443 - $37.9380 |  |                      
|                    |  |                       
|                    |  | 376,374               

As
discussed in Note 1, the Company has elected to follow APB 25 and related Interpretations in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

Pro
forma information regarding net income and earnings per share is required by SFAS 123 and SFAS 148, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to January 31, 1995 under the fair value method of these statements. The fair value for these options was estimated at
the date of grant or the date of repricing using a Black-Scholes option valuation model with the following weighted average assumptions:

|                                               |  | Year Ended January 31,
|---------------------------------------------- |  | ----------------------
|
|Risk-free interest rate                        |  |                       
|Dividend yield                                 |  |                       
|Stock volatility                               |  |                       
|Expected option life                           |  |                       
|Weighted average fair value of options granted |  | $                     

The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized
to expense over the options' vesting period. Pro forma information is presented in Note 1 to the consolidated financial statements.

F-17

---

Stockholder Rights Plan

On January 31, 1995, the Company declared to stockholders of record at the close of business on February 10, 1995, a dividend of one right to
purchase preferred stock (a "Right") for each outstanding share of common stock. Each share of subsequently issued common stock will also incorporate one Right. The Rights will expire on
February 10, 2005. Each Right entitles stockholders, in certain circumstances, to buy one-hundredth of a newly issued share of Series A Junior Participating Preferred Stock
(the "Junior Preferred Stock") of the Company at the initial purchase price of $75.00 per share.

The
Rights are exercisable and transferable apart from the common stock only if a person or group (other than certain exempt persons) acquires beneficial ownership of 15% or more of the
common stock, or commences a tender or exchange offer upon consummation of which such person of group would beneficially own 15% or more of the common stock.

The
Company is generally entitled to redeem the Rights at $.001 per Right at any time until a person or group (other than certain exempt persons) has become the beneficial owner of 15%
or more of the common stock. Under the Rights "flip-in" feature, if any such person or group becomes the beneficial owner of 15% or more of the common stock, then each Right not owned by
such person or group of certain related parties will entitle its holder to purchase, at the Right's then current purchase price, shares of common stock (or in certain circumstances as determined by
the Company's Board, cash, other property or other securities) having a value of twice the Right's purchase price.

Under
the Rights "flip-over" provision, if, after any other person or group (other than certain exempt persons) becomes the beneficial owner of 15% or more of the common
stock, the Company is involved in a merger or other business combination transaction with another person, or sells 25% or more of its assets or earning power in one or more transactions, each Right
will entitle its holder to purchase, at the Right's then current purchase price, shares of common stock of such other person having a value of twice the Right's purchase price.

The
Junior Preferred Stock will not be redeemable and, unless otherwise provided in connection with the creation of a subsequent series of preferred stock, will be subordinate to all
other series of the Company's preferred stock. Each share of Junior Preferred Stock will represent the right to receive, when and if declared, a quarterly dividend at an annual rate equal to the
greater of $1.00 per share or 100 times the quarterly per share cash dividends declared on the common stock during the immediately preceding fiscal year. In addition, each share of Junior Preferred
Stock will represent the right to receive 100 times any non-cash dividends (other than dividends payable in common stock) declared on the common stock, in like kind. In the event of the
liquidation, dissolution, or winding up of the Company, each share of Junior Preferred Stock will represent the right to receive a liquidation payment in an amount equal to the greater of $1.00 per
share or 100 times the liquidation payment made per share of common stock. Each share of Junior Preferred Stock will have 100 votes, voting together with the common stock. In the event of any merger,
consolidation, or other transaction in which common shares are exchanged, each share of Junior Preferred Stock represents the right to receive 100 times the amount received per share of common stock.
The rights of the Junior Preferred Stock as to dividends, liquidation, voting rights and merger participation are protected by anti-dilution provisions.

8.    Provision For Income Taxes

Under the liability method of accounting for income taxes as prescribed by FASB Statement No. 109, "Accounting for Income Taxes," deferred income taxes
reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and

F-18

---

amounts
used for income tax purposes. The components of the provision for income taxes for the fiscal years ended January 31, 2003, 2002 and 2001 are as follows:

Current

Deferred

Total(in thousands)January 31, 2003Federal

$
2,930

$
582

$
3,512State


288


57


345Total

$
3,218

$
639

$
3,857January 31, 2002Federal

$
6,074

$
668

$
6,742State


528


58


586Total

$
6,602

$
726

$
7,328January 31, 2001Federal

$
6,588

$
1,743

$
8,331State


1,033


(449
)

584Total

$
7,621

$
1,294

$
8,915


The
following is a reconciliation of the provision for income taxes to the federal statutory rate for the years ended January 31, 2003, 2002 and 2001:

Year Ended January 31,2003

2002

2001(in thousands)Income taxes at the federal statutory rate

$
3,512

$
6,742

$
8,331State income taxes, net of federal benefit


345


586


584Provision for income taxes

$
3,857

$
7,328

$
8,915


The
tax effects of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at January 31, 2003 and 2002 are as follows:

January 31,2003

2002(in thousands)Deferred tax assets:Deferred warranties

$
447

$
1,038Inventories


2,181


2,003Accrued liabilities


676


676Valuation reserves


1,201


879Capital leases


137


137$
4,642

$
4,733Deferred tax liabilities:Inventories

$
(3,877
)
$
(3,877
)Depreciation and amortization


(2,651
)

(2,059
)(6,528
)

(5,936
)Net deferred tax liability

$
(1,886
)
$
(1,203
)


F-19

---

9.    Leases

Operating Leases

The Company leases retail stores under agreements that expire at various dates through 2020. Several leases contain escalation clauses or options to renew at
negotiated or specified minimum lease payments for periods ranging from one to 30 years beyond the initial noncancelable lease terms. The Company's policy for rent incentives, concessions or
leases with back-end rent is to recognize these items on a straight-line basis over the life of the lease. Currently, the Company has no leases with rent incentives,
concessions or arrangements with back-end rent due. Rent on all other leases is expensed as it becomes payable. Total rent expense charged to operations was $19,775,000, $13,738,000 and
$9,407,000 for the years ended January 31, 2003, 2002, and 2001, respectively.

Capital Leases

The following property is held under capital leases:

January 31,2003

2002(in thousands)Buildings and improvements

$
2,877

$
2,877Less accumulated depreciation


1,811


1,675$
1,066

$
1,202


Related Party Leases

In February 2001, the Company entered into a sale and leaseback transaction with an entity controlled by a principal stockholder of the Company on a new
store located in Colorado Springs, Colorado. There was no gain or loss recognized as a result of the sale. As of January 31, 2003, the Company leases three retail stores with the entity
controlled by such principal stockholder. The lease agreements for the three retail stores provide for annual rent increases over the initial noncancelable lease terms. Total rental payments to
related parties under these leases were $717,077, $677,000 and $276,000 for the years ended January 31, 2003, 2002 and 2001, respectively. Two of the related party leases are operating leases
and one of the related party leases is a capital lease. Related party capital lease information is as follows:

January 31,2003

2002(in thousands)Buildings and improvements

$
900

$
900Less accumulated depreciation


770


710$
130

$
190


F-20

---

The
aggregate minimum annual rental commitments as of January 31, 2003 are as follows:

Operating
Leases

Capital
Leases(in thousands)Fiscal Year Ended January 31,2004

$
23,274


3462005


25,244


3532006


24,929


2382007


24,822


2042008


25,303


2042009-2020


227,283


1,629Total minimum lease payments

$
350,855

$
2,974Less amount representing interest





(1,428
)Present value of net minimum lease payments





1,546Less portion due within one year





(126
)Long term capital lease obligations




$
1,420


10.    Purchase and Construction Commitments

The Company had purchase commitments and construction commitments relating to new store locations of $2.8 million and $2.8 million, respectively, as
of January 31, 2003, and $3.6 million and $2.5 million, respectively, as of January 31, 2002.

11.    Employee Benefit Plans

The Company has a 401(k) Savings Plan for the benefit of substantially all employees. The Plan provides for both employee and employer contributions. The Company
matches 25% of the employee's contribution limited to 1.5% of the employee's annual compensation subject to limitations set annually by the Internal Revenue Service. The Company's contributions were
$330,000, $350,000 and $305,000 for the years ended January 31, 2003, 2002 and 2001, respectively.

In
July 2000, at the Company's annual meeting, the Company's stockholders approved an Employee Stock Purchase Plan (the "Purchase Plan"). Under the Purchase Plan, the Company
initially authorized the issuance of 400,000 shares. In fiscal 2003, the Company's board of directors authorized the issuance of an additional 224,834 shares. The Purchase Plan provides for an annual
increase equal to the lesser of (i) 2% of the outstanding shares of the Company, or (ii) a lesser amount determined by the Board, provided that the total shares issued shall never exceed
2,000,000 shares. Eligible employees may purchase a limited number of shares of the Company's common stock at 85% of the market value at certain plan-defined dates. The Purchase Plan
terminates on July 17, 2010. In fiscal 2003, 78,978 shares were issued pursuant to the Purchase Plan. In fiscal 2002, 89,735 shares were issued pursuant to the Purchase Plan. At
January 31, 2003, 456,121 shares were available for issuance under the Purchase Plan.

F-21

---

12.    Quarterly Financial Data(unaudited)

|                                                                                             |  | Three Months Ended
|-------------------------------------------------------------------------------------------- |  | ------------------
|
|
|Fiscal 2003                                                                                  |  |                   
|As restated(1):                                                                              |  |                   
|Sales                                                                                        |  | $                 
|Gross profit                                                                                 |  |                   
|Income (loss) from operations                                                                |  |                   
|Income (loss) before cumulative effect of change in accounting principle                     |  |                   
|Net income (loss)                                                                            |  |                   
|Earnings (loss) per share before cumulative effect of change in accounting principlebasic   |  |                   
|Earnings (loss) per share before cumulative effect of change in accounting principlediluted |  |                   
|Earnings (loss) per sharebasic                                                              |  |                   
|Earnings (loss) per sharediluted                                                            |  |                   
|As previously reported:                                                                      |  |                   
|Sales                                                                                        |  | $                 
|Gross profit                                                                                 |  |                   
|Income from operations                                                                       |  |                   
|Net income                                                                                   |  |                   
|Earnings per sharebasic                                                                     |  |                   
|Earnings per sharediluted                                                                   |  |                   
|Fiscal 2002                                                                                  |  |                   
|Sales                                                                                        |  | $                 
|Gross profit                                                                                 |  |                   
|Income from operations                                                                       |  |                   
|Net income                                                                                   |  |                   
|Earnings per sharebasic                                                                     |  |                   
|Earnings per sharediluted                                                                   |  |                   

---

13.    Subsequent Event

On April 7, 2003, a complaint captionedHoward Fisher v. J. Edward McEntire, et. al.was filed against the
Company and three of its officers and directors in the United States District Court of the District of Colorado. The complaint is a purported class action lawsuit on behalf of purchasers of the

F-22

---

Company's
common stock during the period between March 13, 2002 and August 8, 2002. The complaint claims damages for alleged violations of Section 11 of the Securities Act of
1933, as amended, and Section 10(b) of the Exchange Act of 1934, as amended, and Rule 10b-5 promulgated under the 1934 act. The Company believes the complaint is without
merit and intends to defend the matter vigorously. The Company has not provided for any potential loss associated with this lawsuit in the accompanying financial statements.

F-23

---



ULTIMATE ELECTRONICS, INC.        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

|Description                 |                               | Balance at
Beginning of
Period                         |       | Charged to
Costs and
Expenses |       | Deductions
(Describe) |   | Balance at
End of
Period
|--------------------------- | ----------------------------- | ------------------------------------------------------ | ----- | ----------------------------- | ----- | --------------------- | - | ------------------------
|
|Year ended January 31, 2003 |                               |                                                        |       |                               |       |                       |   |                         
|                            | Deducted from asset accounts: |                                                        |       |                               |       |                       |   |                         
|                            |                               | Allowance for doubtful accounts                        |       | $                             | 470   |                       | $ | 160                     
|                            |                               | Reserve for cash and cooperative advertising discounts |       |                               | 105   |                       |   | 748                     
|                            |                               | Allowance for obsolete inventory                       |       |                               | 1,200 |                       |   | 1,642                   
|                            |                               |                                                        |       |                               |       |                       |   |                         
|                            |                               |                                                        | Total |                               | $     | 1,775                 |   | $                       
|                            |                               |                                                        |       |                               |       |                       |   |                         
|Year ended January 31, 2002 |                               |                                                        |       |                               |       |                       |   |                         
|                            | Deducted from asset accounts: |                                                        |       |                               |       |                       |   |                         
|                            |                               | Allowance for doubtful accounts                        |       | $                             | 477   |                       | $ | 43                      
|                            |                               | Reserve for cash and cooperative advertising discounts |       |                               | 84    |                       |   | 209                     
|                            |                               | Allowance for obsolete inventory                       |       |                               | 951   |                       |   | 558                     
|                            |                               |                                                        |       |                               |       |                       |   |                         
|                            |                               |                                                        | Total |                               | $     | 1,512                 |   | $                       
|                            |                               |                                                        |       |                               |       |                       |   |                         
|Year ended January 31, 2001 |                               |                                                        |       |                               |       |                       |   |                         
|                            | Deducted from asset accounts: |                                                        |       |                               |       |                       |   |                         
|                            |                               | Allowance for doubtful accounts                        |       | $                             | 446   |                       | $ | 62                      
|                            |                               | Reserve for cash and cooperative advertising discounts |       |                               | 36    |                       |   | 478                     
|                            |                               | Allowance for obsolete inventory                       |       |                               | 920   |                       |   | 552                     
|                            |                               |                                                        |       |                               |       |                       |   |                         
|                            |                               |                                                        | Total |                               | $     | 1,402                 |   | $                       
|                            |                               |                                                        |       |                               |       |                       |   |                         

---

F-24

---

EXHIBIT INDEX

|Exhibit
No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Amended and Restated Certificate of Incorporation of Ultimate Electronics, Inc., incorporated by reference to Exhibit 3(i) to the Registration Statement on Form S-1 (File No. 33-68314), filed with the Commission on
September 2, 1993, as amended by Certificate of Amendment No. 1 to the Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (File No. 333-87341), filed with the
Commission on September 29, 1999.                                                                                                                                                                                                 
|3.2         |  | Certificate of Amendment No. 2 to the Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.2 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|3.3         |  | Amended and Restated Bylaws of Ultimate Electronics, incorporated by reference to Exhibit 3(ii) to the Quarterly Report on Form 10-Q, filed with the Commission on June 14, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.1         |  | Rights Agreement, dated as of January 31, 1994, by and between Ultimate Electronics and Norwest Bank Minnesota, National Association, as rights agent, incorporated by reference to Exhibit 4.1 to Ultimate Electronics' Current Report on Form 8-K filed
with the Commission on February 10, 1995; as amended by Amendment No. 1 to the Rights Agreement, dated January 31, 1995, by and between Ultimate Electronics and Norwest Bank Minnesota, N.A. as rights agent, incorporated by reference to Exhibit 4.3 to
Ultimate Electronics' Quarterly Report on Form 10-Q for the period ended April 30, 1995.                                                                                              
|10.1        |  | Second Amended and Restated Loan and Security Agreement, by and among Ultimate Electronics, Inc. and Wells Fargo Retail Finance, LLC dated September 28, 2001, as amended by the First Amendment to the Second Amended and Restated Loan Agreement dated
December 12, 2001, as incorporated by reference to Exhibits 10.1 and 10.2, respectively, to Ultimate Electronics' Quarterly Report on Form 10-Q for the period ended October 31, 2001, as amended by the Second Amendment to the Second Amended and
Restated Loan Agreement, effective as of December 31, 2001, incorporated by reference to Exhibit 10.1 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.
|10.2        |  | Employee Stock Option Plan, incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 (File No. 33-68314), filed with the Commission on September 2, 1993.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.3        |  | Non-Employee Stock Option Plan, incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 33-68314), filed with the Commission on October 7, 1993.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.4        |  | 1997 Equity Incentive Plan, incorporated by reference to Exhibit 4 to the Registration Statement on Form S-8 (File No. 333-43049), filed with the Commission on December 23, 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.5        |  | Amended and Restated 2000 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Ultimate Electronics' Quarterly Report on Form 10-Q, filed with the Commission on September 16, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.6        |  | Amended and Restated Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.2 to Ultimate Electronics' Current Report on Form 8-K, filed with the Commission on September 15, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.7        |  | Form of Confidentiality Agreement, dated February 5, 2001, by and between Ultimate Electronics and each of William J. Pearse, J. Edward McEntire, David J. Workman, Alan E. Kessock and Neal A. Bobrick, incorporated by reference to Exhibit 10.8 to the
Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.                                                                                                                                                                                                                                                                                                                                                            
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|10.8  |  | Form of Change of Control Agreement, dated June 27, 1997, by and between Ultimate Electronics and each of William J. Pearse, J. Edward McEntire, David J. Workman, Alan E. Kessock and Neal A. Bobrick, incorporated by reference to Exhibit 10.30 to the
Ultimate Electronics' Quarterly Report on Form 10-Q for the period ended July 31, 1997.                                            
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|10.9  |  | Form of Incentive Stock Option Agreement for Key Employees, incorporated by reference to Exhibit 10.10 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.                                                                                                                                                                                              
|10.10 |  | Form of Non-Statutory Stock Option Agreement for Key Employees, incorporated by reference to Exhibit 10.11 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.                                                                                                                                                                                          
|10.11 |  | Form of Indemnification Agreement by and between Ultimate Electronics and each of William J. Pearse, J. Edward McEntire, David J. Workman, Alan E. Kessock, Neal A. Bobrick, Robert W. Beale, Randall F. Bellows, Clarence D. Hein and Larry D.
Strutton, incorporated by reference to Exhibit 10.12 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31, 2002.
|10.12 |  | Lease Agreement, dated April 1, 1989, by and between Ultimate Electronics and Pearse Investment Company, L.L.L.P. (successor in interest to William J. and Barbara A. Pearse), incorporated by reference to Exhibit 10.2 to the Registration Statement on
Form S-1 (File No. 33-68314), filed with the Commission on September 2, 1993.                                                      
|10.13 |  | Lease Agreement, dated October 13, 1989, by and between Ultimate Electronics and Pearse Investment Company, L.L.L.P. (successor in interest to William J. and Barbara A. Pearse), incorporated by reference to Exhibit 10.3 to the Registration Statement
on Form S-1 (File No. 33-68314), filed with the Commission on September 2, 1993.                                                   
|10.14 |  | Lease Agreement, dated February 28, 2001, by and between Ultimate Electronics and Pearse Investment Company, L.L.L.P., incorporated by reference to Exhibit 99.1 to Ultimate Electronics' Annual Report on Form 10-K for the year ended January 31,
2001.                                                                                                                                    
|10.15 |  | Ultimate Electronics, Inc. Bonus Plans for Fiscal Years Ended January 31, 2003 and January 31, 2004.*                                                                                                                                                                                                                                                                                        
|10.16 |  | Exclusive Endorsement Agreement, dated September 1, 2002, by and between Ultimate Electronics and David J. Workman, incorporated by reference to Ultimate Electronics' Quarterly Report on Form 10-Q, filed with the Commission on December 16,
2002.                                                                                                                                        
|21.1  |  | Subsidiaries of the Company.*                                                                                                                                                                                                                                                                                                                                                                
|23.1  |  | Consent of Ernst & Young LLP.*                                                                                                                                                                                                                                                                                                                                                               
|24.1  |  | Power of Attorney (included in signature page).                                                                                                                                                                                                                                                                                                                                              
|99.1  |  | Certificate of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).*                                                                                                                                                                                                                                      

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