<PAGE>   1
 
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1999
 
                                                      REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                            ------------------------
 
<TABLE>
<S>                                <C>                                <C>
             DELAWARE                             5731                            04-3417513
   (STATE OR OTHER JURISDICTION       (PRIMARY STANDARD INDUSTRIAL             (I.R.S. EMPLOYER
        OF INCORPORATION)             CLASSIFICATION CODE NUMBER)            IDENTIFICATION NO.)
</TABLE>
 
                            ------------------------
 
                                 10 PEQUOT WAY
 
                          CANTON, MASSACHUSETTS 02021
                                 (781) 830-3000
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------
 
                    JOSEPH MCGUIRE, CHIEF FINANCIAL OFFICER
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
                                 10 PEQUOT WAY
                          CANTON, MASSACHUSETTS 02021
                                 (781) 830-3000
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
                            ------------------------
 
                          COPIES OF COMMUNICATIONS TO:
 
<TABLE>
<S>                                                 <C>
             TIMOTHY B. BANCROFT, ESQ.                          EDWIN L. MILLER, JR., ESQ.
              GOULSTON & STORRS, P.C.                         TESTA, HURWITZ & THIBEAULT, LLP
                400 ATLANTIC AVENUE                                   125 HIGH STREET
            BOSTON, MASSACHUSETTS 02110                         BOSTON, MASSACHUSETTS 02110
</TABLE>
 
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:  As soon as
practicable after the effective date of this Registration Statement.
 
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
 
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
 
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
 
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
 
                            ------------------------
 
                        CALCULATION OF REGISTRATION FEE
 
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
                                                           PROPOSED MAXIMUM          PROPOSED MAXIMUM
    TITLE OF EACH CLASS OF           AMOUNT TO BE         OFFERING PRICE PER        AGGREGATE OFFERING          AMOUNT OF
  SECURITIES TO BE REGISTERED       REGISTERED(1)              SHARE(2)                  PRICE(2)           REGISTRATION FEE
<S>                              <C>                   <C>                       <C>                       <C>
------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value       2,300,000 Shares            $28.125                 $64,687,500             $17,983.00
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
 
(1) Includes 300,000 shares that the underwriters have the right to purchase
    from the Registrant to cover over-allotments, if any.
 
(2) Estimated solely for the purpose of determining the registration fee
    pursuant to Rule 457(c) under the Securities Act of 1933 on the basis of the
    average of the high and low prices of the Registrant's common stock on
    January 7, 1999, as reported by Nasdaq.
 
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
 
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. TWEETER
AND THE UNDERWRITERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
 
                                                           SUBJECT TO COMPLETION
                                                                JANUARY 13, 1999
 
                                2,000,000 SHARES
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
TWEETER LOGO                     BRYN MAWR LOGO                  HI FI BUYS LOGO
                                  COMMON STOCK
 
This is a public offering of 2,000,000 shares of common stock of Tweeter Home
Entertainment Group, Inc. Tweeter is a specialty retailer of mid to high-end
audio and video consumer electronics products. Tweeter is selling 500,000 shares
in this offering, and the selling stockholders identified in this prospectus are
selling 1,500,000 shares.
 
Tweeter's common stock is quoted on the Nasdaq National Market under the symbol,
"TWTR." On January 11, 1999, the last reported sale price of the common stock
was $30.625 per share.
 
AN INVESTMENT IN THE COMMON STOCK OF TWEETER INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 9.
 
<TABLE>
<CAPTION>
                                              PER SHARE                TOTAL
                                              ---------                -----
<S>                                     <C>                    <C>
  Public offering price................           $                      $
  Underwriting discount................           $                      $
  Proceeds to Tweeter..................           $                      $
  Proceeds to the selling
     stockholders......................           $                      $
</TABLE>
 
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
 
Tweeter has granted the underwriters the right to purchase up to 300,000
additional shares to cover any over-allotments.
 
                            ------------------------
 
The shares should be delivered through the facilities of the Depository Trust
Company on or about             , 1999.
 
BT ALEX. BROWN
 
                         PAINEWEBBER INCORPORATED
                                               DAIN RAUSCHER WESSELS
                                                  A DIVISION OF DAIN RAUSCHER
                                                         INCORPORATED
 
                                           , 1999
<PAGE>   3
 
                DESCRIPTION OF INSIDE FRONT COVER PAGE GRAPHICS
 
The graphics on the inside front cover page consist of one photograph headed by
a solid field with inset text heading and three different logos, which solid
field heading and photograph are located in the top of two thirds of the page.
 
The photograph (without solid field heading) measures approximately 7.675 inch
(width) by 5.25 inch (length). The solid field heading measures approximately
7.675 inch (width) by 1.875 inch (length) (based on an 8.5 inch by 11 inch
page). The entire graphic is centered from side-to-side. The text in the solid
field heading reads "Tweeter Home Entertainment Group." Below the text heading
are the three logos from left to right as follows:
 
        1. "Tweeter, etc.;"
 
        2. "Bryn Mawr Stereo & Video;" and
 
        3. "HiFi Buys."
 
The photograph is a store-deep perspective showing general store layout and
product displays with a checkout counter in the foreground where three employees
are assisting customers.
 
           DESCRIPTION OF INSIDE FRONT COVER FOLDOUT INSERT GRAPHICS
 
The graphics on the inside front cover foldout insert consist of eight
photographs of various sizes which approximately measure from 1.75 inch (width)
by 1.75 inch (length) up to 4 inch (width) by 2.75 inch (length) (based on an 11
inch by 17 inch page), overlapping three black, 0.25 inch-high horizontal lines
with inset white text, equally vertically spaced, the first of which is
approximately 2.25 inch from the top of the page.
 
Beginning at the top third of the page, there are two photographs overlapping
the first horizontal line, one showing the exterior of a Tweeter, etc. store and
one showing the showroom of the same. The text on the first horizontal line to
which these two photographs relate reads "24 Tweeter, etc. Locations in New
England."
 
In the second third of the page there are two photographs overlapping the second
horizontal line, one showing the exterior of a Bryn Mawr Stereo & Video store
and one showing the showroom of the same. The text on the second horizontal line
to which these two photographs relate reads "18 Bryn Mawr Stereo & Video
Locations in the Mid-Atlantic."
 
In the bottom third of the page there are two photographs overlapping the third
horizontal line, one showing the exterior of a HiFi Buys store and one showing a
car stereo showroom. The text on the third horizontal line to which these two
photographs relate reads "11 HiFi Buys Locations in Southeast."
 
Below the third horizontal line are two photographs, side-by-side, with 0.375
inch black borders, the left of which shows a large screen television, the right
of which shows a home theater room in a Tweeter, etc. store. Above these two
photographs is the caption "Products on the Cutting Edge."
 
The insert has text centered at the bottom of the left half of the insert
reading "Automatic Price Protection(SM)."
<PAGE>   4
 
                 DESCRIPTION OF INSIDE BACK COVER PAGE GRAPHICS
 
The back cover page graphics consist of three geographic maps which measure
approximately 3.125 inch (width) by 2.75 inch (length) (based on an 8.5 inch by
11 inch page) vertically aligned to the left side of the page, three logos with
captions vertically aligned in the top-right quadrant of the page, and a fourth
geographic map, unbordered, measures approximately 2.5 inch (width) by 3.875
inch (length) (based on an 8.5 inch by 11 inch page) in the bottom-right
quadrant of the page.
 
The three vertically aligned geographic maps on the left side of the page depict
the regions of the U.S.A. in which Tweeter has stores. Gray dots mark store
locations and states in which Tweeter stores are located are offset by white
fill in each of the maps the following order from top to bottom:
 
        1. Connecticut, Massachusetts, New Hampshire and Rhode Island;
 
        2. Delaware, Maryland, New Jersey and Pennsylvania; and
 
        3. Georgia and Alabama.
 
The three logos vertically aligned in the top-right quadrant of the page read
from top to bottom with captions centered below each (shown in parentheses
below) as follows:
 
        1. "Tweeter, etc. (24 Locations);"
 
        2. "Bryn Mawr Stereo & Video (18 Locations);" and
 
        3. "HiFi Buys (11 Locations)."
 
The unbordered geographic map in the bottom-right quadrant of the page is a
composite of the other three geographic maps described above, depicting coastal
states (plus West Virginia and Vermont) from Alabama to New Hampshire, Gray dots
mark store locations and states in which Tweeter stores are located are offset
by white fill.
<PAGE>   5
 
                               PROSPECTUS SUMMARY
 
Investors should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus before making an investment decision.
 
This prospectus contains forward-looking statements regarding Tweeter's
performance, strategy, plans, objectives, expectations, beliefs and intentions.
The actual outcome of the events described in these forward-looking statements
could differ materially. Therefore, this prospectus, and especially the sections
entitled "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," contains a discussion of
some of the factors and risks that could contribute to those differences.
 
                                    TWEETER
 
Tweeter is a specialty retailer of mid to high-end audio and video consumer
electronics products. We operate 53 stores under the Tweeter, etc. name in the
New England market, the Bryn Mawr Stereo & Video name in the Mid-Atlantic market
and the HiFi Buys name in the Southeast market. Our stores feature an extensive
selection of home and car audio systems and components, portable audio equipment
and home video products, including large screen televisions, DVD players,
digital satellite systems, video cassette recorders and camcorders. We
differentiate ourselves by focusing on consumers who seek audio and video
products with advanced features, functionality and performance. We do not offer
personal computers or home office equipment. We seek to build name recognition
and customer loyalty by combining quality products and knowledgeable sales
associates with a high level of service and competitive prices. Audio Video
International Magazine recognized us as the "Consumer Electronics Retailer of
the Year" in both 1996 and 1997. The TWICE Consumer Electronics Retail Registry
named us the fastest growing consumer electronics retailer in the United States
in 1997 and 1998.
 
BUSINESS STRATEGY
 
Our goal is to become the nation's leading specialty retailer of high quality
audio and video products to our targeted customer base. To achieve this
objective, we have implemented an operating model that includes:
 
        - A deep merchandise selection focused on mid to high-end audio and
          video products, including limited distribution products which
          accounted for approximately 41% of our sales for fiscal 1998;
 
        - Exceptional customer service based upon relationship and
          knowledge-based selling that is critical to higher-end products;
 
        - Every day competitive pricing featuring our patented Automatic Price
          Protection program; and
 
        - A dynamic and inviting retail environment.
 
We believe that the quality and knowledge of our sales associates is critical to
our success and represents a significant competitive advantage. Sales
consultants initially receive five weeks of intensive classroom training and
five to fifteen days of additional training per year, both in the store and at
regional training centers. Our relationship selling model encourages sales
associates to promote a comfortable, trusting, low pressure sales environment
that engenders long term customer loyalty. An integral part of our relationship
selling model is our Automatic Price Protection program. We designed this
program to remove pricing concerns from the purchase decision and to allow
customers and the sales staff to focus on product functionality, performance and
quality. Under the Automatic Price Protection program, if a customer purchases a
consumer electronics product from one of our stores and a competitor within 25
miles of the store advertises a lower price
 
                                        3
<PAGE>   6
 
within 30 days, we automatically send a check to the customer for the difference
without requiring the customer to request the payment.
 
STORE FORMAT
 
Our store prototype is 10,000 square feet with brightly painted interiors, often
in pastel colors. Many stores exhibit hand painted murals and other decorative
artwork. Unlike many competitors whose stores contain large, open spaces, our
stores feature individual sound rooms with practical displays that allow
customers to sample and compare the features and functions of products in
various combinations. The sound rooms architecturally and acoustically resemble
a home or car environment so the customer can hear and see how products will
perform. Each store contains a traditional television wall, and many stores
contain a movie theater room complete with theater-style seats to showcase home
theater products. Some stores display a car on the selling floor that features a
state-of-the-art car stereo system.
 
INDUSTRY
 
We believe that the consumer electronics industry is large, growing and
fragmented, with significant consolidation opportunities. We estimate that
retail sales of audio and video products were approximately $30 billion in 1997.
We also estimate that between 1990 and 1997, the audio and video segments
expanded at a compound annual growth rate of 2.3%. We believe that new digital
technologies present the possibility for accelerated growth. The expansion of
large format national chains has created competitive pressures for smaller
specialty stores that may be successfully differentiated but lack an adequate
scale of operations or purchasing power to operate on a stand-alone basis. We
believe that these regional specialty operations provide acquisition
opportunities.
 
GROWTH STRATEGY
 
Tweeter has developed an aggressive growth strategy to:
 
        - Open new stores in current regional markets and relocate certain
          stores to more favorable sites; and
 
        - Selectively pursue acquisitions in new regional markets and achieve
          operating improvements by converting the acquired company to its core
          operating model, and leverage distribution, marketing and corporate
          infrastructure.
 
During fiscal 1998, we opened two Tweeter, etc. stores and three Bryn Mawr
stores. We intend to open 11 new stores in fiscal 1999, one of which is now
open. These stores do not include the seven Home Entertainment stores that we
intend to acquire in February 1999. We believe that our acquisitions of Bryn
Mawr in May 1996 and of HiFi Buys in May 1997 and our pending acquisition of
Home Entertainment described below provide us with platforms from which to open
new stores within and around their markets.
 
THE BRYN MAWR ACQUISITION
 
In May 1996, we acquired the 13 store Bryn Mawr chain located in the
Mid-Atlantic market for $8.7 million, including acquisition costs. We
implemented strategic initiatives within the acquired stores focused on
increasing sales and store contribution. Specifically, we:
 
        - Increased advertising expenditures during the quarter following the
          acquisition and refocused advertising to emphasize radio, television
          and direct marketing rather than print;
 
        - Implemented our every day competitive pricing and Automatic Price
          Protection programs;
 
                                        4
<PAGE>   7
 
        - Initiated a substantial sales associate training program to improve
          product knowledge and enhance relationship selling skills; and
 
        - Focused the sales staff on higher margin products, particularly audio
          products.
 
These initiatives enabled us to generate comparable store sales increases at
Bryn Mawr of 36.9% during the period from June 1, 1996 through September 30,
1996 as compared to the same period of the prior year, 4.7% during fiscal 1997
and 19.3% during fiscal 1998. On a pro forma basis assuming completion of the
Bryn Mawr acquisition as of October 1, 1995, store contribution for Bryn Mawr
improved from 3.1% in fiscal 1996 to 6.8% in fiscal 1997 and 7.8% in fiscal
1998.
 
THE HIFI BUYS ACQUISITION
 
In May 1997, we acquired the ten store HiFi Buys chain located in the greater
Atlanta, Georgia market for $19.7 million, including acquisition costs. Like
Tweeter, etc. and Bryn Mawr, HiFi Buys had created a strong reputation among
consumers with a specialized focus on audio and video products. The HiFi Buys
stores, at an average size of 15,000 square feet, are larger than the Tweeter,
etc. or Bryn Mawr stores. The HiFi Buys stores carried a broader product mix,
however, including more entry level product offerings and marketed heavily
through promotional newspaper advertising. Our integration strategy in the HiFi
Buys acquisition has been to convert the HiFi Buys product mix to one compatible
with Tweeter's, increase gross margins and reduce operating expenses.
Specifically, following the HiFi Buys acquisition we:
 
        - Adjusted the merchandise mix to increase the proportion of mid and
          high-end products and reduce the number of lower margin introductory
          products;
 
        - Altered store employee compensation to reduce the emphasis on
          promotional sales and focus incentives on gross margin and store
          contribution;
 
        - Reduced marketing expenditures and shifted marketing emphasis from
          promotional advertising toward Tweeter's traditional relationship
          selling and everyday competitive price message;
 
        - Converted the advertising program to emphasize electronic advertising
          and direct mail marketing as opposed to print media;
 
        - Implemented the Automatic Price Protection program; and
 
        - Eliminated $2.4 million of overhead by centralizing accounting,
          purchasing and other support infrastructure.
 
As a result, comparable store sales decreased 29.9% during the period from the
acquisition through September 30, 1997 and decreased 5.2% in fiscal 1998. At the
same time, on a pro forma basis assuming completion of the HiFi Buys acquisition
as of October 1, 1996, store contribution improved from 4.3% in fiscal 1997 to
9.9% in fiscal 1998.
 
PENDING ACQUISITION OF HOME ENTERTAINMENT
 
On December 9, 1998, Tweeter agreed in principle to acquire the retail
operations of Home Entertainment of Texas, Inc., a seven store chain located in
the Dallas and Houston markets, for $8.2 million in cash, excluding acquisition
costs. Home Entertainment is a focused retailer of high quality audio and video
products with a 42-year operating history. We believe that there is a
significant opportunity to increase sales at the store level. In addition, Home
Entertainment operates a successful custom installation business, which we
believe can be applied in our other stores. We intend to open, over time, new
Home Entertainment stores in Dallas and Houston, as well as elsewhere in Texas.
We expect to continue the operation of the retail stores as well as the service
and distribution facilities. We expect to close this acquisition in February
1999. The closing is subject to various conditions, however, including
satisfactory completion of our due diligence
 
                                        5
<PAGE>   8
 
investigation of Home Entertainment, which currently is underway, and
negotiation and execution of a definitive asset purchase agreement. It is
possible, therefore, that we will not complete the planned acquisition.
 
Tweeter is a Massachusetts corporation organized in 1972 and reorganized as a
Delaware corporation in June 1998. In this prospectus, the terms "Tweeter,"
"we," "us," and "our " mean Tweeter Home Entertainment Group, Inc. and its
predecessors and subsidiaries, unless otherwise required by the context.
"Tweeter, etc." means our New England stores. Tweeter's principal executive
offices are located at 10 Pequot Way, Canton, Massachusetts 02021. Our telephone
number is (781) 830-3000.
 
                                  THE OFFERING
 
<TABLE>
<S>                                                     <C>
Shares offered by Tweeter...........................    500,000 shares
Shares offered by the selling stockholders..........    1,500,000 shares
Shares to be outstanding after the offering.........    6,792,512 shares(1)
Use of proceeds.....................................    To fund possible acquisitions,
                                                        including the pending acquisition of
                                                        Home Entertainment, and other general
                                                        corporate purposes.
Nasdaq National Market symbol.......................    TWTR
</TABLE>
 
---------------
(1) Excludes 301,953 shares of common stock issuable upon exercise of warrants
    outstanding after the date of this offering, with a weighted average
    exercise price of $3.61 per share. Also excludes 1,044,725 shares of common
    stock issuable upon exercise of options outstanding as of December 31, 1998,
    with a weighted average exercise price of $6.48 per share. See Notes 7 and
    12 of Notes to Tweeter's Consolidated Financial Statements.
 
Unless we indicate otherwise, all information in this prospectus assumes no
exercise of the over-allotment option granted by Tweeter to the underwriters.
 
                                        6
<PAGE>   9
 
                      SUMMARY FINANCIAL AND OPERATING DATA
                (IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
 
<TABLE>
<CAPTION>
                                                                       FISCAL YEAR ENDED SEPTEMBER 30,
                                                              -------------------------------------------------
                                                               1994      1995     1996(1)   1997(2)      1998
                                                              -------   -------   -------   --------   --------
<S>                                                           <C>       <C>       <C>       <C>        <C>
STATEMENT OF OPERATIONS DATA:
    Total revenue...........................................  $47,401   $60,121   $80,607   $132,525   $232,289
 
    Gross profit............................................   16,489    20,954    28,791     46,210     81,024
 
    Income from operations..................................    1,344     2,238     1,953      2,053     12,072
 
    Interest expense........................................      426       629       617      1,808      2,753
 
    Income before income taxes..............................      918     1,609     1,336        245      9,319
    Income tax expense (benefit)(3).........................       --      (174)     (453)        99      3,724
                                                              -------   -------   -------   --------   --------
    Income before extraordinary item........................      918     1,783     1,789        146      5,595
    Extraordinary item(4)...................................       --        --        --         --       (340)
                                                              -------   -------   -------   --------   --------
    Net income..............................................      918     1,783     1,789        146      5,255
                                                              =======   =======   =======   ========   ========
    Accretion of preferred stock............................       --        --     1,036      2,156      2,514
                                                              -------   -------   -------   --------   --------
    Net income (loss) available to common stockholders......  $   918   $ 1,783   $   753   $ (2,010)  $  2,741
                                                              =======   =======   =======   ========   ========
    Basic earnings (loss) per share
    Net income (loss) available to common stockholders
      before extraordinary item.............................     0.27      0.53      0.39      (1.20)      1.24
      Extraordinary item....................................       --        --        --         --      (0.14)
                                                              -------   -------   -------   --------   --------
      Net income (loss).....................................  $  0.27   $  0.53   $  0.39   $  (1.20)  $   1.10
                                                              =======   =======   =======   ========   ========
    Diluted earnings (loss) per share
    Net income (loss) available to common stockholders
      before extraordinary item.............................     0.27      0.53      0.38      (1.20)      1.11
      Extraordinary item....................................       --        --        --         --      (0.07)
                                                              -------   -------   -------   --------   --------
      Net income (loss).....................................  $  0.27   $  0.53   $  0.38   $  (1.20)  $   1.04
                                                              =======   =======   =======   ========   ========
    Weighted average shares outstanding(5)
      Basic.................................................    3,371     3,371     1,940      1,673      2,486
                                                              =======   =======   =======   ========   ========
      Diluted...............................................    3,371     3,371     1,983      1,673      5,034
                                                              =======   =======   =======   ========   ========
OPERATING DATA:
    Store contribution(6)...................................  $ 3,985   $ 5,550   $ 6,798   $ 10,642   $ 24,117
    Stores open at beginning of period......................       14        16        18         33         47
    New stores..............................................        2         2         2          4          5
    Relocated stores........................................        1         1         1          1          2
    Closed stores...........................................        0         0         0          0          0
    Stores acquired.........................................        0         0        13         10          0
    Stores open at end of period............................       16        18        33         47         52
COMPARABLE STORE SALES DATA:(7)
    Tweeter, etc............................................     11.2%     12.5%      1.6%      -4.5%      28.6%
    Bryn Mawr...............................................                         36.9%       4.7%      19.3%
    HiFi Buys...............................................                                   -29.9%      -5.2%
    Consolidated............................................     11.2%     12.5%      5.6%      -7.2%      12.5%
</TABLE>
 
<TABLE>
<CAPTION>
                                                                 SEPTEMBER 30, 1998
                                                              -------------------------
                                                              ACTUAL     AS ADJUSTED(8)
                                                              -------    --------------
<S>                                                           <C>        <C>
BALANCE SHEET DATA:
    Working capital.........................................  $18,263       $ 26,621
    Total assets............................................   91,643        100,002
    Long term debt, excluding current portion...............    5,250              0
    Stockholder's equity (deficit)..........................   51,610         65,219
</TABLE>
 
                                                   (footnotes on following page)
 
                                        7
<PAGE>   10
 
(footnotes from previous page)
 
---------------
 
(1) The fiscal year 1996 data includes results of the Bryn Mawr acquisition from
    May 13, 1996, which was accounted for using the purchase method (see Note 11
    of Notes to Tweeter's Consolidated Financial Statements).
 
(2) The fiscal year 1997 data includes results of the HiFi Buys acquisition from
    June 1, 1997, which was accounted for using the purchase method (see Note 11
    of Notes to Tweeter's Consolidated Financial Statements).
 
(3) Tweeter operated as an S corporation through November 1995 and was not
    subject to federal and certain state corporate income taxes. In connection
    with the recapitalization that occurred on November 26, 1995, Tweeter
    revoked its S election, and became subject to taxation as a C corporation.
    If Tweeter had been taxed as a C corporation, it would have recorded income
    tax expense of $661,000 for fiscal 1995 and $550,000 for fiscal 1996.
 
(4) In connection with its initial public offering, Tweeter recorded an
    extraordinary charge against current period income for the early
    extinguishment of debt. Tweeter wrote off deferred financing costs of
    $286,009 related to the issuance of certain senior subordinated promissory
    notes in 1997. Tweeter also wrote off $280,136 representing the unamortized
    portion of the discount related to the warrants issued in conjunction with
    the 1997 notes. The gross amount of the extraordinary item was $566,145. The
    net effect of $339,687, after tax benefit of $226,458, was recorded in the
    consolidated statement of income as an extraordinary item.
 
(5) Shares outstanding include 407,542 shares issuable upon exercise of stock
    options and warrants outstanding as of September 30, 1997, and 522,410
    shares issuable upon exercise of stock options and warrants outstanding as
    of September 30, 1998, after applying the treasury stock method.
 
(6) Refers to gross profit after deducting selling expenses including labor,
    advertising, store level operations and pre-opening expenses. Store
    contribution is presented to provide additional information about Tweeter
    and should not be considered in isolation or as a substitute for operating
    income, cash flow from operating activities and other income or cash flow
    data prepared in accordance with generally accepted accounting principles,
    or as a measure of Tweeter's profitability or liquidity. Tweeter's
    calculation of store contribution may not be comparable to similarly titled
    items reported by other companies.
 
(7) Stores are included in the comparable store base after they are in operation
    for 12 full months. Acquired stores are included if the store was open for
    12 full months as of the date of acquisition. Remodeled or relocated stores
    are excluded from the comparable store base until they have completed 12
    full months of operation from the date the remodeling was completed, or
    re-opened after relocation.
 
(8) Adjusted to reflect the sale of 500,000 shares of common stock offered
    hereby at an assumed public offering price of $30.625 (the closing price on
    January 11, 1999), after deducting the estimated underwriting discount and
    offering expenses payable by Tweeter.
 
                                        8
<PAGE>   11
 
                                  RISK FACTORS
 
The value of an investment in Tweeter will be subject to the significant risks
inherent in its business. Investors should consider carefully the risks and
uncertainties described below and the other information in this prospectus
before deciding whether to invest. If any of the events described below actually
occur, our business, financial condition or operating results could be adversely
affected in a material way. This could cause the trading price of our common
stock to decline, perhaps significantly.
 
This prospectus contains forward-looking statements regarding Tweeter's
performance, strategy, plans, objectives, expectations, beliefs and intentions.
The actual outcome of the events described in these forward-looking statements
could differ materially. The following is a discussion of some of the factors
and risks that could contribute to those differences.
 
RISKS ASSOCIATED WITH GROWTH
 
Tweeter's success depends in large part on its ability to open, or acquire
through strategic acquisitions, new stores in both existing and new geographic
markets and to operate those stores profitably. We may not be able to achieve
our planned expansion or to effectively integrate any new stores into our
existing operations. The opening of additional stores in new geographic markets
could present competitive and merchandising challenges different from those we
currently or previously faced within our existing geographic markets. In
addition, we may incur higher costs related to advertising, administration and
distribution as we enter new markets.
 
There are a number of factors which could affect our ability to open or acquire
new stores consistent with our business plan. These factors also affect the
ability of any newly opened or acquired stores to achieve sales and
profitability levels comparable with our existing stores, or to become
profitable at all. These factors include:
 
        - The identification and acquisition of suitable sites and the
          negotiation of acceptable leases for such sites;
 
        - The identification of existing audio and video consumer electronics
          retailers appropriate for strategic acquisition;
 
        - The successful consummation of such acquisitions;
 
        - The obtaining of governmental and other third-party consents, permits
          and licenses needed to operate such additional sites;
 
        - The hiring, training and retention of skilled personnel;
 
        - The availability of adequate management and financial resources;
 
        - The adaptation of our distribution and other operational and
          management systems to an expanded network of stores;
 
        - The ability and willingness of vendors to supply on a timely basis at
          competitive prices; and
 
        - Continued consumer demand for our products at levels that can support
          acceptable profit margins.
 
In addition, our rapid expansion through the opening or acquisition of new
stores will place significant demands on our management, resources, operations
and information systems. Such expansion requires us to expend significant effort
and additional resources to ensure the continuing adequacy of our financial
controls, operating procedures, information systems, product purchasing and
distribution systems and employee training programs. We also need to attract and
retain additional qualified personnel, including new store managers, for such
new stores.
 
                                        9
<PAGE>   12
 
Our continued growth also depends on our ability to increase sales in our
existing stores. The opening of additional stores in an existing market could
result in lower net sales at our existing stores in that market.
 
RISKS ASSOCIATED WITH ACQUISITIONS
 
Integration of newly acquired stores may involve significant delay or expense.
Additional suitable acquisition candidates may not be identified. Further, we
may not consummate acquisitions of any identified candidates, such as the
pending acquisition of Home Entertainment, and new stores acquired through such
acquisitions may not operate profitably or integrate successfully into our
operations. Previously acquired stores have had, and newly acquired stores may
have, different merchandising, advertising, store format and operating
approaches from ours, and our success in integrating such stores will depend on
our ability to effect significant changes in the operations of such stores to
conform to our approach in these areas. We may not be successful in effecting
such changes without an adverse effect on the revenues or profitability of such
stores. In addition, future acquisitions could involve the issuance of equity
securities which could dilute the holdings of existing stockholders. Future
acquisitions could also involve the incurrence of debt and contingent
liabilities, and amortization expenses related to goodwill and other intangible
assets, any of which could have a material adverse effect on our results of
operations or financial condition.
 
DEPENDENCE ON KEY PERSONNEL
 
Our success depends upon the active involvement of senior management personnel,
particularly Samuel J. Bloomberg, Tweeter's Chief Executive Officer and Chairman
of the Board, and Jeffrey Stone, Tweeter's President and Chief Operating
Officer. The loss of the full-time services of Messrs. Stone or Bloomberg or
other members of senior management could have a material adverse effect on
Tweeter's results of operations and financial condition. Except for employment
contracts with Messrs. Stone and Bloomberg, and with Joseph McGuire, the Chief
Financial Officer and Chief Information Officer of Tweeter, Tweeter does not
have employment agreements with any members of its senior management team.
 
RISKS ASSOCIATED WITH COMPETITION
 
The retail consumer electronics industry is highly competitive. Tweeter
currently competes against a diverse group of retailers, including several
national and regional large format merchandisers and superstores, such as
Circuit City and Best Buy, which sell, among other products, audio and video
consumer electronics products similar and often identical to those Tweeter
sells. Tweeter also competes in particular markets with a substantial number of
retailers that specialize in one or more types of consumer electronic products
that Tweeter sells. Certain of these competitors have substantially greater
financial resources than Tweeter that may increase their ability to purchase
inventory at lower costs or to initiate and sustain predatory price competition.
In addition, the large format stores are continuing to expand their geographic
markets, and such expansion may increase price competition within those markets.
Best Buy recently entered the New England market. A number of different
competitive factors could have a material adverse effect on Tweeter's results of
operations and financial condition, including:
 
        - Increased operational efficiencies of competitors;
 
        - Competitive pricing strategies;
 
        - Expansion by existing competitors;
 
        - Entry by new competitors into markets in which Tweeter is currently
          operating; or
 
        - Adoption by existing competitors of innovative store formats or retail
          sales methods.
 
SEASONAL AND QUARTERLY FLUCTUATIONS IN SALES
 
Seasonal shopping patterns affect our business, like that of many retailers. The
fourth calendar quarter, which is Tweeter's first fiscal quarter and which
includes the December holiday shopping
 
                                       10
<PAGE>   13
 
period, has historically contributed, and is expected to continue to represent,
a substantial portion of Tweeter's operating income for its entire fiscal year.
As a result, any factors negatively affecting Tweeter during such calendar
quarter of any year, including adverse weather or unfavorable economic
conditions, would have a material adverse effect on Tweeter's results of
operations for the entire year. More generally, Tweeter's quarterly results of
operations and also may fluctuate based upon such factors as:
 
        - The timing of new store openings and new store acquisitions;
 
        - The amount of store pre-opening expenses;
 
        - The amount of net sales contributed by new and existing stores;
 
        - The mix of consumer electronic products sold in its stores;
 
        - Profitability of sales of particular products; and
 
        - Other competitive factors.
 
FLUCTUATIONS IN COMPARABLE STORE SALES
 
A number of factors have historically affected, and will continue to affect,
Tweeter's comparable store sales results, including, among other factors:
 
        - Competition;
 
        - General regional and national economic conditions;
 
        - Consumer trends;
 
        - Changes in Tweeter's product mix;
 
        - Timing of promotional events;
 
        - New product introductions; and
 
        - Tweeter's ability to execute its business strategy effectively.
 
Tweeter does not expect comparable store sales to increase at historical rates,
and comparable store sales may decrease in the future. Changes in Tweeter's
comparable store sales results could cause the price of the common stock to
fluctuate substantially.
 
POTENTIAL NEED FOR ADDITIONAL FINANCING
 
Financing for the opening and acquisition of new stores may be in the form of
debt or equity or both and may not be available on terms acceptable to Tweeter,
if at all. We estimate that the average cash investment, including pre-opening
expenses for tenant fit-out, demonstration and inventory (net of payables),
required to open a store to be approximately $860,000. The actual cost of
opening a store may be significantly greater than such current estimates,
however, and we may need to seek additional debt and/or equity financing in
order to fund our continued expansion through 1999 and beyond. In addition, our
ability to incur additional indebtedness or issue equity or debt securities
could be limited by covenants in present and future loan agreements and debt
instruments. Additional issuances of equity by Tweeter may result in dilution to
existing stockholders.
 
LACK OF GEOGRAPHICAL DISPERSION
 
Tweeter currently operates 53 stores, of which:
 
        - 24 are operated under the Tweeter, etc. name in the New England
          market;
 
        - 18 are operated under the Bryn Mawr name in the Mid-Atlantic market;
          and
 
        - 11 are operated under the HiFi Buys name in the Southeast market.
 
The lack of wider geographical dispersion of Tweeter's current stores makes it
vulnerable to adverse events in these markets, including weather, regional
competition or unfavorable regional economic conditions.
 
                                       11
<PAGE>   14
 
CHANGES IN CONSUMER DEMAND AND PREFERENCES
 
Tweeter's success depends on its ability to anticipate and respond in a timely
manner to consumer demand and preferences regarding audio and video consumer
electronics products and changes in such demand and preferences. Consumer
spending patterns, particularly discretionary spending for products such as
those Tweeter markets, are affected by, among other things, prevailing economic
conditions. In addition, the periodic introduction and availability of new
products and technologies at price levels which generate wide consumer interest
stimulate the demand for audio and video consumer electronics products. Also,
many products which incorporate the newest technologies, such as DVD and
high-definition television, are subject to significant technological and pricing
limitations and to the actions and cooperation of third parties such as
television broadcasters or movie distributors. It is possible that these
products or other new products will never achieve widespread consumer
acceptance. Furthermore, the introduction or expected introduction of new
products or technologies may depress sales of existing products and
technologies. Significant deviations from the projected demand for products
Tweeter sells would have a materially adverse effect on its results of
operations and financial condition, either from lost sales or lower margins due
to the need to mark down excess inventory. Any sustained failure by Tweeter to
identify and respond to changes in consumer demand and preferences would have a
material adverse effect on Tweeter's results of operations and financial
condition.
 
DEPENDENCE ON SUPPLIERS
 
The success of Tweeter's business and growth strategy depends to a significant
degree upon its suppliers, particularly its brand-name suppliers of stereo and
video equipment such as Sony, Mitsubishi, Yamaha, Boston Acoustics and
Panasonic. Tweeter does not have any supply agreements or exclusive arrangements
with any vendors. Tweeter typically orders its inventory through the issuance of
individual purchase orders to vendors. In addition, Tweeter relies heavily on a
relatively small number of suppliers. Tweeter's two largest suppliers accounted
for approximately 36% of its sales during fiscal 1998. The loss of any of these
key vendors or the failure by Tweeter to establish and maintain relationships
with these or other vendors could have a material adverse effect on Tweeter's
results of operations and financial condition and its expansion. It is possible,
especially given Tweeter's growth strategy, that Tweeter will be unable to
acquire sufficient quantities or an appropriate mix of consumer electronic
products at acceptable prices, if at all. Specifically, Tweeter's ability to
establish additional stores in existing markets and to penetrate new markets
depends to a significant extent on the willingness and ability of vendors to
supply those additional stores, and vendors may not be willing or able to do so.
As we continue to open or acquire new stores, the inability or unwillingness of
suppliers to supply some or all of their products to us at acceptable prices in
one or more markets could have a material adverse effect on our results of
operations and financial condition.
 
INVENTORY PURCHASED FROM FOREIGN VENDORS
 
Tweeter purchases a significant portion of its inventory from overseas vendors,
particularly vendors headquartered in Japan. Changes in trade regulations,
currency fluctuations or other factors may increase the cost of items Tweeter
purchases from foreign vendors or create shortages of such items, which could in
turn have a material adverse effect on Tweeter's 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 and may limit or eliminate Tweeter's ability to successfully
differentiate itself from other competitors, thereby resulting in an adverse
effect on Tweeter's sales, margin or competitive position.
 
DEPENDENCE UPON MEMBERSHIP IN BUYING GROUP
 
Tweeter is a member of the Progressive Retailers Organization, a volume buying
group currently comprised of 14 consumer electronics retailers located
throughout the country, which provides its members with market information and
negotiates purchase terms with vendors on behalf of its
 
                                       12
<PAGE>   15
 
members. Any future termination of Tweeter's membership in this group could have
a material adverse effect on Tweeter's results of operations and financial
condition. In addition, rebates paid to Tweeter by product manufacturers through
this group depend on the sales volumes achieved by the group's other members, as
well as Tweeter, and therefore decreased sales performance by these other
members could reduce the amounts of such rebates payable to Tweeter. Any such
reduction could in turn have a material adverse effect on Tweeter's results of
operations and financial condition.
 
UNCERTAINTY OF INTELLECTUAL PROPERTY RIGHTS
 
Our "Tweeter, etc." and "Bryn Mawr Stereo" service marks have been registered
with the United States Patent and Trademark Office. Tweeter has not registered
the "HiFi Buys" service mark and is aware that other consumer electronics
retailers use the name "HiFi Buys" outside Tweeter's current geographical
markets. Tweeter has submitted applications for registration of certain other of
its service marks, which applications are currently pending. Tweeter may be
unable to successfully register such service marks. In addition, Tweeter's
service marks, whether registered or unregistered, and patents may not be
effective to protect its intellectual property rights, and infringement or
invalidity claims may be asserted by third parties in the future. Any such
assertions, if proven to be true, could have a material adverse effect on
Tweeter's results of operations and financial condition.
 
SIGNIFICANT OWNERSHIP BY PRINCIPAL STOCKHOLDERS
 
Upon completion of this offering, our executive officers, directors and
principal stockholders and their affiliates will own approximately 34.2% of
Tweeter's outstanding common stock. As a result, those parties might be able to
influence significantly Tweeter's affairs if they were to act together.
 
EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER PROVISIONS
 
Tweeter's corporate charter and by-laws as well as certain provisions of
Delaware General Corporation Law, contain provisions which may deter, discourage
or make more difficult a change in control of Tweeter, even if such a change in
control would be in the interest of a significant number of Tweeter's
stockholders or if such change in control would provide such stockholders with a
substantial premium for their shares over then current market prices. For
example, the charter authorizes Tweeter's Board of Directors to issue one or
more classes of preferred stock, having such designations, rights and
preferences as they determine, and such issuances may, among other things, have
an adverse effect on the rights of holders of common stock.
 
Tweeter's stockholders have no right to take action by written consent and may
not call special meetings of stockholders. Any amendment of the by-laws by the
stockholders or certain provisions of the charter requires the affirmative vote
of at least 75% of the shares of voting stock then outstanding. The charter also
provides for the staggered election of directors to serve for one, two and
three-year terms, and for successive three-year terms thereafter, subject to
removal only for cause upon the vote of not less than 75% of the shares of
common stock represented at a stockholders' meeting.
 
In addition, under the terms of Tweeter's Stockholder Rights Plan, in general,
if a person or group acquires more than 15% of the outstanding shares of common
stock (an "Acquiring Person"), all other stockholders of Tweeter would have the
right to purchase securities from Tweeter at a discount to such securities' fair
market value, thus causing substantial dilution to the holdings of the Acquiring
Person. The Stockholder Rights Plan may inhibit a change in control and,
therefore, could adversely affect the stockholders' ability to realize a premium
over the then-prevailing market price for the common stock in connection with
such a transaction.
 
SHARES ELIGIBLE FOR FUTURE SALE
 
Following this offering, Tweeter will have 6,792,512 shares of common stock
outstanding. Of such shares, the 2,710,000 shares sold in Tweeter's initial
public offering and the 2,000,000 offered
                                       13
<PAGE>   16
 
hereby will be freely tradable. Substantially all of the remaining outstanding
shares are subject to lock-up agreements with the underwriters, pursuant to
which the holders of those shares have agreed, with certain exceptions, not to
sell, offer or contract to sell, sell short, engage in certain hedging
transactions with respect to, or otherwise dispose of any shares of common stock
for a period of 90 days after the date of this prospectus (the "Lock-up
Period"), without the prior written consent of BT Alex. Brown Incorporated. Upon
expiration of the Lock-up Period, these shares will be available for sale in the
public market, subject in certain circumstances to the provisions of Rule 144
under the Securities Act of 1933.
 
As of January 1, 1999, approximately 1,044,725 shares of common stock were
issuable pursuant to options under Tweeter's stock plans and 301,953 shares of
common stock were issuable upon the exercise of warrants. Of the 1,044,725
shares issuable pursuant to such options, 723,313 shares are currently
exercisable. Of those 723,313 shares, 378,802 shares are freely tradable and
344,511 shares are subject to lock-up agreements. All shares issuable upon the
exercise of warrants are subject to lock-up agreements. In addition, the holders
of approximately 2,053,632 shares of common stock will have certain rights to
registration of their shares under the Securities Act. Sales of substantial
amounts of common stock in the public market, or the perception that such sales
could occur, could have a material adverse effect on the market price of the
common stock.
 
VOLATILITY OF STOCK PRICE
 
The trading price of our common stock has been and is likely to continue to be
highly volatile and could be subject to wide fluctuations in response to a
variety of internal and external factors. The stock market in general, and the
Nasdaq National Market in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of particular companies. The trading prices of many companies'
stocks are at or near historical highs and these trading prices and multiples
are substantially above historical levels. These trading prices and multiples
may not be sustained. These broad market factors may have a material adverse
effect on the market price of our common stock, regardless of our actual
operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class-action litigation has
often been instituted against such companies. Such litigation, if instituted,
could result in substantial costs and a diversion of management's attention and
resources, which would materially adversely affect Tweeter's results of
operations and financial condition.
 
YEAR 2000 COMPLIANCE
 
We have begun contacting our suppliers to determine whether Year 2000 issues
will affect their supply of goods to us. Any disruption in our supply chain
could have a material adverse affect on our results of operation and financial
condition. In addition, although we anticipate minimal internal business
interruption due to Year 2000 problems, we expect any problems which may arise
to develop during our peak sales period. During this time, it is possible that
Tweeter may lose communications links with certain store locations, that
Tweeter's stores may close due to loss of electric power, that Tweeter's stores'
and storage facilities' security systems may not operate and that individual
stores may be unable to process transactions, send purchase orders or engage in
similar normal business activities. Any large scale failure to operate during
this period may have a material adverse effect on Tweeter's results of
operations and financial condition.
 
DILUTION
 
Investors participating in the offering will incur immediate and substantial
dilution in the amount of $23.77 per share, based upon an assumed public
offering price of $30.625 per share (the closing price on January 11, 1999). To
the extent that currently outstanding options or warrants to purchase common
stock are exercised, there will be further dilution.
 
                                       14
<PAGE>   17
 
                          PRICE RANGE OF COMMON STOCK
 
Tweeter's common stock trades on the Nasdaq National Market under the symbol
"TWTR." Public trading in the common stock commenced on July 16, 1998. Prior to
that date, there was no public market for the common stock. The following table
sets forth, for the periods indicated, the high and low sale prices for the
common stock as reported by Nasdaq:
 
<TABLE>
<CAPTION>
                                                         HIGH      LOW
                                                        ------    ------
<S>                                                     <C>       <C>
Fourth Quarter Fiscal 1998 (from July 16, 1998).......  $21.13    $11.25
First Quarter Fiscal 1999.............................  $31.00    $10.63
Second Quarter Fiscal 1999 (through January 11,
  1999)...............................................  $31.13    $26.75
</TABLE>
 
As of December 31, 1998, there were approximately 1,000 holders of record of the
common stock.
 
                                USE OF PROCEEDS
 
Tweeter estimates that it will receive net proceeds of $13,608,593, ($22,313,749
if the underwriters' over-allotment option is exercised in full) from the sale
of the 500,000 shares of common stock offered by it hereby, based upon an
assumed public offering price of $30.625 per share (the closing price on January
11, 1999) and after deducting the estimated underwriting discount and expenses
payable by Tweeter. Tweeter will use such proceeds to fund possible strategic
acquisitions, including the pending acquisition of Home Entertainment, and for
working capital purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Pending Acquisition."
 
Pending use as described above, any remaining net proceeds of this offering will
be invested in investment-grade, interest-bearing instruments. Tweeter will not
receive any proceeds from the sale of common stock by the selling stockholders.
 
                                DIVIDEND POLICY
 
Tweeter does not anticipate paying any cash dividends. Payment of future
dividends, if any, will depend upon Tweeter's results of operations, financial
condition, cash requirements and other factors deemed relevant by its Board of
Directors. Our current credit facility restricts the payment of dividends. See
"Management Discussion and Analysis -- Liquidity and Capital Resources."
 
                                       15
<PAGE>   18
 
                                 CAPITALIZATION
 
The following table sets forth the equity capitalization of Tweeter as of
September 30, 1998, (i) on an actual basis and (ii) as adjusted to reflect the
application of the estimated net proceeds from the sale of 500,000 shares of
common stock offered by Tweeter hereby, based upon an assumed public offering
price of $30.625 per share (the closing price on January 11, 1999). At September
30, 1998, Tweeter had total long-term debt outstanding of $5,250,000, all of
which was repaid prior to December 31, 1998. This table should be read in
conjunction with the Tweeter's consolidated financial statements and the notes
thereto appearing elsewhere in this prospectus.
 
<TABLE>
<CAPTION>
                                                                  SEPTEMBER 30, 1998
                                                              --------------------------
                                                                ACTUAL       AS ADJUSTED
                                                              -----------    -----------
<S>                                                           <C>            <C>
Stockholders' equity:
     Preferred stock, $.01 par value, 10,000,000 shares
       authorized, no shares issued and outstanding actual
       and as adjusted......................................  $        --    $        --
     Common stock, $.01 par value, 30,000,000 shares
       authorized; 6,082,690 shares outstanding actual and
       6,582,690 shares outstanding as adjusted(1)..........       75,217         80,217
     Additional paid-in capital.............................   46,840,737     60,444,331
     Retained earnings......................................    6,701,244      6,701,244
     Treasury stock, 1,439,073 shares at cost...............   (2,006,815)    (2,006,815)
                                                              -----------    -----------
          Total stockholders' equity (deficit)..............  $51,610,383    $65,218,977
                                                              ===========    ===========
</TABLE>
 
---------------
(1) Excludes 511,808 shares of common stock issuable upon exercise of warrants
    outstanding as of September 30, 1998, with a weighted average exercise price
    of $2.13 per share. Also excludes 1,044,725 shares of common stock issuable
    upon exercise of options outstanding at the date of this prospectus, with a
    weighted average exercise price of $6.48 per share. See Notes 7 and 12 of
    Notes to Tweeter's Consolidated Financial Statements.
 
                                       16
<PAGE>   19
 
               SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
           (IN THOUSANDS, EXCEPT PER SHARE AND NUMBER OF STORES DATA)
 
Set forth below is selected financial and operating data for, and as of the end
of, each of the five years ended September 30, 1998. The selected statement of
operations and balance sheet data for each of the five years ended September 30,
1998 have been derived from financial statements of Tweeter, which have been
audited by its independent auditors. The balance sheets as of September 30, 1997
and September 30, 1998, and the related statements of income, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
September 30, 1998, and the audit report thereon, are included elsewhere in this
prospectus. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Tweeter's Consolidated Financial Statements and the Notes
thereto included elsewhere in this prospectus.
 
<TABLE>
<CAPTION>
                                                                  FISCAL YEAR ENDED SEPTEMBER 30,
                                                     ---------------------------------------------------------
                                                      1994        1995       1996(1)     1997(2)        1998
                                                     -------     -------     -------     --------     --------
<S>                                                  <C>         <C>         <C>         <C>          <C>
STATEMENT OF OPERATIONS:
  Total revenue....................................  $47,401     $60,121     $80,607     $132,525     $232,289
  Cost of sales....................................   30,912      39,167      51,816       86,315      151,265
                                                     -------     -------     -------     --------     --------
    Gross profit...................................   16,489      20,954      28,791       46,210       81,024
  Selling expenses.................................   12,504      15,404      21,993       35,568       56,907
  Corporate, general and administrative expenses...    2,576       3,247       4,716        8,102       11,128
  Amortization of goodwill.........................       65          65         129          487          917
                                                     -------     -------     -------     --------     --------
  Income from operations...........................    1,344       2,238       1,953        2,053       12,072
  Interest expense.................................      426         629         617        1,808        2,753
                                                     -------     -------     -------     --------     --------
  Income before taxes..............................      918       1,609       1,336          245        9,319
  Income tax expense (benefit)(3)..................       --        (174)       (453)          99        3,724
                                                     -------     -------     -------     --------     --------
  Income before extraordinary item.................      918       1,783       1,789          146        5,595
  Extraordinary item (less applicable income
    taxes)(4)......................................       --          --          --           --         (340)
                                                     -------     -------     -------     --------     --------
  Net income.......................................      918       1,783       1,789          146        5,255
                                                     =======     =======     =======     ========     ========
  Accretion of preferred stock.....................       --          --       1,036        2,156        2,514
                                                     -------     -------     -------     --------     --------
  Net income (loss) available to common
    stockholders...................................  $   918     $ 1,783     $   753     $ (2,010)    $  2,741
                                                     =======     =======     =======     ========     ========
  Basic earnings per share
    Net income (loss) available to common
      stockholders before extraordinary item.......     0.27        0.53        0.39        (1.20)        1.24
    Extraordinary item.............................       --          --          --           --        (0.14)
                                                     -------     -------     -------     --------     --------
    Net income (loss)..............................  $  0.27     $  0.53     $  0.39     $  (1.20)    $   1.10
                                                     =======     =======     =======     ========     ========
  Diluted earnings per share
  Net income (loss) available to common
    stockholders before extraordinary item.........     0.27        0.53        0.38        (1.20)        1.11
    Extraordinary item.............................       --          --          --           --        (0.07)
                                                     -------     -------     -------     --------     --------
    Net income (loss)..............................  $  0.27     $  0.53     $  0.38     $  (1.20)    $   1.04
                                                     =======     =======     =======     ========     ========
  Weighted average shares outstanding(5)
    Basic..........................................    3,371       3,371       1,940        1,673        2,486
                                                     =======     =======     =======     ========     ========
    Diluted........................................    3,371       3,371       1,983        1,673        5,034
                                                     =======     =======     =======     ========     ========
OPERATING DATA:
  Store contribution(6)............................  $ 3,985     $ 5,550     $ 6,798     $ 10,642     $ 24,117
  Stores open at beginning of period...............       14          16          18           33           47
  New stores.......................................        2           2           2            4            5
  Relocated stores.................................        1           1           1            1            2
  Closed stores....................................        0           0           0            0            0
  Stores acquired..................................        0           0          13           10            0
  Stores open at end of period.....................       16          18          33           47           52
BALANCE SHEET DATA:
  Working capital..................................  $   835     $ 1,590     $ 1,897     $ 11,857     $ 18,263
  Total assets.....................................   12,562      15,162      38,619       78,688       91,643
  Long term debt, excluding current portion........    7,955       8,705      10,700       30,875        5,250
  Redeemable convertible preferred stock...........        0           0      11,597       20,591            0
  Stockholder's equity (deficit)...................   (4,122)     (2,457)     (3,984)      (5,669)      51,610
</TABLE>
 
                                          (footnotes following Other Store Data)
 
                                       17
<PAGE>   20
 
                                OTHER STORE DATA
                     (IN THOUSANDS, EXCEPT OPERATING DATA)
 
<TABLE>
<CAPTION>
                                                           FISCAL YEAR ENDED SEPTEMBER 30,
                                                 ---------------------------------------------------
                                                  1994       1995       1996       1997       1998
                                                 -------    -------    -------    -------    -------
<S>                                              <C>        <C>        <C>        <C>        <C>
TWEETER, ETC. DATA:
  Total revenue................................  $47,401    $60,121    $68,577    $74,049    $97,711
  Store contribution(6)........................    3,985      5,550      7,089      6,338     11,880
  Store contribution margin....................      8.4%       9.2%      10.3%       8.6%      12.2%
  Stores open at beginning of period...........       14         16         18         20         22
  New stores...................................        2          2          2          2          2
  Relocated stores.............................        1          1          1          1          2
  Closed stores................................        0          0          0          0          0
  Stores open at end of period.................       16         18         20         22         24
BRYN MAWR DATA:
  Total revenue................................                        $12,030    $35,432    $51,768
  Store contribution(6)........................                           (291)     2,414      4,029
  Store contribution margin....................                           -2.4%       6.8%       7.8%
  Stores open at beginning of period...........                              0         13         15
  New stores...................................                              0          2          3
  Relocated stores.............................                              0          0          0
  Closed stores................................                              0          0          0
  Stores acquired..............................                             13          0          0
  Stores open at end of period.................                             13         15         18
HIFI BUYS DATA:
  Total revenue................................                                   $23,044    $82,810
  Store contribution(6)........................                                     1,890      8,208
  Store contribution margin....................                                       8.2%       9.9%
  Stores open at beginning of period...........                                         0         10
  New stores...................................                                         0          0
  Relocated stores.............................                                         0          0
  Closed stores................................                                         0          0
  Stores acquired..............................                                        10         10
  Stores open at end of period.................                                        10         10
CONSOLIDATED DATA:
  Corporate, general and administrative
    expenses...................................    2,576      3,247      4,716      8,102     11,128
  Amortization of goodwill.....................       65         65        129        487        917
                                                 -------    -------    -------    -------    -------
  Income from operations.......................  $ 1,344    $ 2,238    $ 1,953    $ 2,053    $12,072
                                                 =======    =======    =======    =======    =======
COMPARABLE STORE SALES DATA:(7)
  Tweeter, etc.................................     11.2%      12.5%       1.6%      -4.5%      28.6%
  Bryn Mawr....................................                           36.9%       4.7%      19.3%
  HiFi Buys....................................                                     -29.9%      -5.2%
  Consolidated.................................     11.2%      12.5%       5.6%      -7.2%      12.5%
</TABLE>
 
                                            (footnotes appear on following page)
 
                                       18
<PAGE>   21
 
(footnotes from previous pages)
 
---------------
 
(1) Includes results of the Bryn Mawr acquisition from May 13, 1996, which was
    accounted for using the purchase method. See Note 11 of Notes to Tweeter's
    Consolidated Financial Statements.
 
(2) Includes results of the HiFi Buys acquisition from May 30, 1997, which was
    accounted for using the purchase method. See Note 11 of Notes to Tweeter's
    Consolidated Financial Statements.
 
(3) Tweeter operated as an S corporation through November 1995 and was not
    subject to federal and certain state corporate income taxes. In connection
    with the recapitalization that occurred on November 26, 1995, Tweeter
    revoked its S election, and became subject to taxation as a C corporation.
    If Tweeter had been taxed as a Corporation, it would have recorded income
    tax expense of $661,000 for fiscal 1995 and $550,000 for fiscal 1996.
 
(4) In connection with its initial public offering, Tweeter recorded an
    extraordinary charge against current period income for the early
    extinguishment of debt. Tweeter wrote off deferred financing costs of
    $286,009, related to the issuance of certain senior subordinated promissory
    notes issued in 1997. Tweeter also wrote off $280,136 representing the
    unamortized portion of the discount related to the warrants issued in
    conjunction with the 1997 notes. The gross amount of the extraordinary item
    was $566,145. The net effect of $339,687, after tax benefit of $226,458, was
    recorded in the consolidated statement of income as an extraordinary item.
 
(5) Shares outstanding include 407,540 shares issuable upon exercise of stock
    options and warrants outstanding as of September 30, 1997 and 522,410 shares
    issuable upon exercise of stock options and warrants outstanding as of
    September 30, 1998, after applying the treasury stock method.
 
(6) Refers to gross profit after deducting selling expenses including labor,
    advertising, store level operations and pre-opening expenses. Store
    contribution is presented to provide additional information about Tweeter
    and is commonly used as a performance measurement by retail companies. Store
    contribution should not be considered in isolation or as a substitute for
    operating income, cash flow from operating activities and other income or
    cash flow data prepared in accordance with generally accepted accounting
    principles, or as a measure of Tweeter's profitability or liquidity.
    Tweeter's calculation of store contribution may not be comparable to
    similarly titled items reported by other companies
 
(7) Stores are included in the comparable store base after they are in operation
    for 12 full months. Acquired stores are included if the store was open for
    12 full months as of the date of acquisition and the related figures are
    based on the acquired company's financial statements. Remodeled or relocated
    stores are excluded from the comparable store base until they have completed
    12 full months of operation from the date the remodeling was completed, or
    re-opened after relocation.
 
                                       19
<PAGE>   22
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This prospectus contains forward-looking statements regarding Tweeter's
performance, strategy, plans, objectives, expectations, beliefs and intentions.
The actual outcome of the events described in these forward-looking statements
could differ materially. Therefore, this prospectus, and especially the sections
entitled "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" contains a discussion of
some of the factors and risks that could contribute to those differences.
 
OVERVIEW
 
Tweeter is a specialty retailer of mid to high-end audio and video consumer
electronics products under the Tweeter, etc., Bryn Mawr and HiFi Buys names. We
opened our first Tweeter, etc. store in New England in 1972. Over 26 years, we
have refined our retail concept to meet the needs of consumers seeking brand
name products with advanced features, functionality and performance which we
sell through our highly trained, relationship-driven sales force. We believe
that our effective merchandising and superior customer service has enabled us to
generate substantial customer loyalty.
 
In 1995, Tweeter adopted an aggressive growth strategy to:
 
        - Open new stores in current regional markets and relocate certain
          stores to more favorable sites; and
 
        - Selectively pursue acquisitions in new regional markets and achieve
          operating improvements by converting the acquired companies to its
          core operating model and leveraging distribution, marketing and
          corporate infrastructure.
 
To support this growth strategy, we obtained equity investments in fiscal 1996
of approximately $10.6 million, net of issuance costs, from a group of investors
led by Weston Presidio and Advent International (the "1996 Investors"). In May
1996, Tweeter completed the Bryn Mawr acquisition. In May 1997, we raised an
additional $21.5 million, consisting of $6.8 million of equity and $14.7 million
of subordinated debt from the 1996 Investors and a new group of investors. We
used the proceeds primarily to finance the HiFi Buys acquisition. Both
acquisitions were accounted for by the purchase method of accounting. By
December 31, 1998, Tweeter had grown to 53 stores. In December 1998, Tweeter
agreed in principle to acquire the retail operations of Home Entertainment.
 
Tweeter seeks to increase sales, profitability and asset productivity at
acquired companies by converting them to our standard operating model with
enhanced training for sales personnel, superior customer service, improved
merchandising focused on higher-end audio and video equipment and more stringent
operating controls. We also have aggressively expanded corporate infrastructure
over the past two years to support anticipated higher levels of growth,
including expanding our management team with the addition of senior financial,
information systems, and buying personnel. We have made enhancements to our
management information systems with the addition of a new mainframe and
operating platform, and to our distribution and administrative infrastructure to
enable us to support all three regions on an integrated basis.
 
Prior to their acquisition by Tweeter, both Bryn Mawr and HiFi Buys operated at
substantially lower store contribution margins than Tweeter's existing
operations. Consequently, converting these stores to our operating model
adversely affected results in fiscal 1996 and 1997, as we converted these stores
to our operating model. The timing of the acquisitions resulted in the peak,
holiday sales period being excluded from the operations of the acquired stores
during the year of the acquisition, thus exacerbating the negative impact of
these acquisitions on Tweeter's results.
 
                                       20
<PAGE>   23
 
BRYN MAWR
 
Subsequent to the Bryn Mawr acquisition, we implemented a variety of strategic
initiatives to convert Bryn Mawr to our core operating model. These initiatives
were primarily focused on increasing sales and gross margin, rather than
reducing operating expenses, in order to improve store contribution. These
initiatives included:
 
        - Increasing advertising expenditures and refocusing advertising to
          emphasize radio, television and direct marketing rather than print;
 
        - Implementing Tweeter's everyday competitive pricing and Automatic
          Price Protection programs;
 
        - Initiating a substantial sales associate training program to improve
          product knowledge and enhance relationship selling skills; and
 
        - Focusing the sales staff on higher margin products, particularly audio
          products.
 
Primarily as a result of these initiatives, comparable store sales increased
36.9% at Bryn Mawr during the period from the acquisition, May 13, 1996, through
September 30, 1996 versus the same period for the prior year. Comparable store
sales at Bryn Mawr increased 4.7% during fiscal 1997 and 19.3% during fiscal
1998. On a pro forma basis, assuming the Bryn Mawr acquisition as of October 1,
1995, store contribution increased from 3.1% to 6.8% in fiscal 1997 and 7.8% in
fiscal 1998, primarily due to the leveraging of expenses on a higher sales base
as well as an increase in gross margin.
 
The following table sets forth total revenues in thousands and store
contribution as a percentage of total revenues for Bryn Mawr on a standalone
basis:
 
<TABLE>
<CAPTION>
                                        PRO FORMA
                                       YEAR ENDED              YEAR ENDED            YEAR ENDED
                                  SEPTEMBER 30, 1996(1)    SEPTEMBER 30, 1997    SEPTEMBER 30, 1998
                                  ---------------------    ------------------    ------------------
<S>                               <C>                      <C>                   <C>
Total revenue...................         $33,525                $35,432               $51,768
Store contribution..............       3.1%                    6.8%                  7.8%
</TABLE>
 
---------------
(1) The pro forma results are presented as if the Bryn Mawr acquisition had
    occurred on October 1, 1995 and reflect the results of Bryn Mawr for a
    period under prior ownership. The pro forma results are based upon available
    information and certain assumptions that we believe are reasonable under the
    circumstances. The pro forma results are not necessarily indications of what
    our results would have been for the period had we completed the Bryn Mawr
    acquisition as of the date indicated.
 
HIFI BUYS
 
As with the Bryn Mawr acquisition, Tweeter initiated a series of strategic
initiatives subsequent to the HiFi Buys acquisition. In contrast to Bryn Mawr,
however, these initiatives combined a planned decrease of revenues with a
planned increase in gross margin and a substantial decrease in operating
expenses to generate increased store contribution. Specifically, we:
 
        - Adjusted the merchandise mix to increase the proportion of mid and
          high-end products and reduce the number of lower margin introductory
          products;
 
        - Altered store employee compensation to reduce the emphasis on
          promotional sales and focus incentives on gross margin and store
          contribution;
 
        - Reduced marketing expenditures and shifted marketing emphasis from
          promotional advertising toward our traditional relationship selling
          and everyday competitive price message;
 
        - Converted the advertising program to emphasize electronic advertising
          and direct mail marketing as opposed to print media;
 
                                       21
<PAGE>   24
 
        - Implemented the Automatic Price Protection program; and
 
        - Eliminated $2.4 million of overhead by centralizing accounting,
          purchasing and other support infrastructure.
 
Primarily as a result of these initiatives, Tweeter experienced a planned
decline in comparable store sales of 29.9% at HiFi Buys during the period from
the acquisition, June 1, 1997, through September 30, 1997 versus the same period
for the prior year. In addition to the elimination of lower end items from the
product mix and reduced advertising, the comparable store sales decline was
exacerbated by a relatively high sales level during June to September 1996 due
to the Olympic Games in Atlanta. Comparable store sales declined 5.2% in fiscal
1998 at HiFi Buys. Pro forma for the HiFi Buys acquisition as of October 1,
1996, store contribution improved to 9.9% in fiscal 1998 from 4.3% in the prior
year.
 
The following table sets forth total revenues in thousands and store
contribution as a percentage of total revenues for HiFi Buys on a standalone
basis:
 
<TABLE>
<CAPTION>
                                           PRO FORMA
                                           YEAR ENDED              YEAR ENDED
                                     SEPTEMBER 30, 1997(1)     SEPTEMBER 30, 1998
                                     ----------------------    ------------------
<S>                                  <C>                       <C>
Total revenue......................         $72,410                 $82,810
Store contribution.................       4.3%                     9.9%
</TABLE>
 
---------------
(1) The pro forma results are presented as if the HiFi Buys acquisition had
    occurred on October 1, 1996 and reflect the results of HiFi Buys for a
    period under prior ownership. The pro forma results are based upon available
    information and certain assumptions that Tweeter believes are reasonable
    under the circumstances. The pro forma results are not necessarily
    indications of what our results would have been for the period had we
    completed the HiFi Buys acquisition as of the date indicated.
 
PENDING ACQUISITION
 
On December 9, 1998, Tweeter agreed in principle to acquire the retail
operations of Home Entertainment of Texas, Inc., a seven store chain located in
the Dallas and Houston markets. Home Entertainment reported retail revenue of
$25 million for the year ended June 30, 1998. We expect the purchase price to be
$8.2 million in cash, excluding acquisition costs. We intend to open new Home
Entertainment stores in Dallas and Houston, as well as elsewhere in Texas. We
expect to continue the operation of the retail stores as well as the service and
distribution facilities. We expect to close this acquisition in February 1999.
The closing is subject to various conditions, however, including satisfactory
completion of our due diligence investigation of Home Entertainment, which
currently is underway, and negotiation and execution of a definitive asset
purchase agreement. It is possible, therefore, that we will not complete the
planned acquisition.
 
                                       22
<PAGE>   25
 
RESULTS OF OPERATIONS
 
The following table is derived from Tweeter's Consolidated Financial Statements
and sets forth, for the periods indicated, the actual amounts, in thousands, of
certain income and expense items and their percentages, relative to total
revenue:
 
<TABLE>
<CAPTION>
                                                        FISCAL YEARS ENDED SEPTEMBER 30,
                                           ----------------------------------------------------------
                                                 1996                1997                 1998
                                           ----------------    -----------------    -----------------
<S>                                        <C>        <C>      <C>         <C>      <C>         <C>
STATEMENT OF OPERATIONS:
  Total revenue..........................  $80,607    100.0%   $132,525    100.0%   $232,289    100.0%
  Gross profit...........................   28,791     35.7%     46,210     34.9%     81,024     34.9%
  Selling expenses.......................   21,993     27.3%     35,568     26.8%     56,907     24.5%
  Corporate, general and administrative
    expenses.............................    4,716      5.9%      8,102      6.1%     11,128      4.8%
  Amortization of goodwill...............      129      0.2%        487      0.4%        917      0.4%
                                           -------    -----    --------    -----    --------    -----
  Income from operations.................    1,953      2.4%      2,053      1.5%     12,072      5.2%
  Interest expense.......................      617      0.8%      1,808      1.4%      2,753      1.2%
                                           -------    -----    --------    -----    --------    -----
  Income before income taxes.............    1,336      1.7%        245      0.2%      9,319      4.0%
  Income tax expense (benefit)...........     (453)    -0.6%         99      0.1%      3,724      1.6%
                                           -------    -----    --------    -----    --------    -----
  Income before extraordinary item.......    1,789      2.2%        146      0.1%      5,595      2.4%
  Extraordinary item (less applicable
    income taxes)........................       --      0.0%         --      0.0%       (340)    -0.1%
                                           -------    -----    --------    -----    --------    -----
  Net income.............................    1,789      2.2%        146      0.1%      5,255      2.3%
                                           =======    =====    ========    =====    ========    =====
  Accretion of preferred stock...........    1,036      1.3%      2,156      1.6%      2,514      1.1%
                                           -------    -----    --------    -----    --------    -----
  Net income (loss) available to common
    stockholders.........................  $   753      0.9%   $ (2,010)    -1.5%   $  2,741      1.2%
                                           =======    =====    ========    =====    ========    =====
</TABLE>
 
FISCAL YEAR ENDED SEPTEMBER 30, 1998 AS COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1997
 
Total Revenue.  Total revenue includes delivered sales, completed service center
work orders, insurance replacement and corporate sales. Total revenue increased
$99.8 million, or 75.3%, to $232.3 million in fiscal 1998 from $132.5 million in
fiscal 1997. The increase was primarily comprised of $59.8 million from a full
year of HiFi Buys revenues, $9.4 million from new stores, and $20.9 million from
comparable store sales growth. Comparable store sales increased by 12.5%, made
up of a 28.6% increase at Tweeter, etc., a 19.3% increase at Bryn Mawr, and 5.2%
decrease at HiFi Buys. The exit from the New England market of competing retail
chains has had a favorable impact on comparable store sales at Tweeter, etc.,
while the increase at Bryn Mawr resulted from the conversion to Tweeter's
operating model. The decrease in HiFi Buys comparable store sales was primarily
due to the planned elimination of entry level products and a decrease in
associated promotional advertising.
 
Gross Profit.  Cost of sales includes merchandise, net delivery costs,
distribution costs, purchase discounts, and vendor volume rebates. Cost of sales
increased $65.0 million, or 75.3%, to $151.3 million in fiscal 1998 from $86.3
million in fiscal 1997. Gross profit increased $34.8 million, or 75.3% to $81.0
million in fiscal 1998 from $46.2 million in fiscal 1997. The gross margin
remained the same for both periods at 34.9%.
 
Selling Expenses.  Selling expenses include the compensation of store personnel,
occupancy, store level depreciation, advertising, preopening expenses and credit
card fees and excludes corporate overhead. Selling expenses increased $21.3
million, or 59.8%, to $56.9 million in fiscal 1998 from $35.6 million in fiscal
1997. The increase, on an absolute basis, was principally associated with
advertising, commissions related to increased sales, fees related to private
label credit card promotions, and rent and related staff positions for the
additional stores acquired as part of the HiFi Buys acquisition. As a percentage
of total revenue, selling expenses declined to 24.5% in fiscal 1998 from 26.8%
in the prior year period. This decline was primarily the result of the inclusion
of the
 
                                       23
<PAGE>   26
 
HiFi Buys stores, which have lower advertising expenses as a percentage of
revenue than our other stores due to their concentration in a single market.
 
Corporate, General and Administrative Expenses.  Corporate, general and
administrative expenses include the costs of purchasing, accounting, information
systems, human resources, training, executive officers and related support
functions. Corporate, general and administrative expenses increased 37.0% in
fiscal 1998 to $11.1 million from $8.1 million in fiscal 1997. As a percentage
of total revenue, corporate, general and administrative expenses decreased to
4.8% for fiscal 1998 from 6.1% for the prior year period as we benefited from a
larger sales base.
 
Amortization of Goodwill.  Amortization of goodwill increased to $917,000 in
fiscal 1998 from $487,000 in fiscal 1997. This increase is attributable to
goodwill recorded for a full year in connection with the HiFi Buys acquisition.
 
Interest Expense.  Interest expense increased to $2.8 million in fiscal 1998
from $1.8 million in fiscal 1997 due primarily to the increased debt incurred to
fund the HiFi Buys acquisition. The funds from the initial public offering were
used to pay off existing debt. Accordingly, management anticipates that cash
outflows for interest will be reduced in 1999.
 
Income Taxes.  The effective tax rates in fiscal 1998 and fiscal 1997 were 40.0%
and 40.3%, respectively. For an analysis of changes in our effective tax rate,
see Note 10 to Consolidated Financial Statements.
 
Accretion of Preferred Stock.  In periods prior to its initial public offering,
Tweeter had preferred stock outstanding. Tweeter accreted the preferred stock to
its redemption value. Upon completion of the initial public offering, all
preferred stock was converted to common stock and Tweeter eliminated all
balances related to the preferred stock.
 
FISCAL YEAR ENDED SEPTEMBER 30, 1997 AS COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1996
 
Total Revenue.  Total revenue increased $51.9 million, or 64.4%, to $132.5
million in fiscal 1997 from $80.6 million in fiscal 1996. The increase was due
to $23.0 million from stores acquired in the HiFi Buys acquisition as well as a
full year of revenue from stores acquired in May 1996 in the Bryn Mawr
acquisition. Total revenue increased 8.0% at the Tweeter, etc. stores, all of
which came from new stores as comparable store sales decreased 4.5% during
fiscal 1997 versus the prior year. We believe that the decline in comparable
store sales was due to general weakness in the consumer electronics industry and
an ineffective marketing campaign for the first half of the fiscal year.
Comparable store sales increased 4.7% at the Bryn Mawr stores.
 
Gross Profit.  Cost of sales increased $34.5 million, or 66.6%, to $86.3 million
in fiscal 1997 from $51.8 million in fiscal 1996. Gross profit increased $17.4
million, or 60.5%, to $46.2 million in fiscal 1997 from $28.8 million in fiscal
1996. Gross margin declined to 34.9% in fiscal 1997 from 35.7% in fiscal 1996.
The decline was due to the impact on the gross margin at HiFi Buys, which was
lower than the gross margin at the Tweeter, etc. and Bryn Mawr stores. We
incurred lower gross margin at Tweeter, etc. stores due to a reduction in vendor
rebates resulting from lower than expected sales volume and an increase in the
percentage of lower margin video products sold. Gross margin increased at Bryn
Mawr as Tweeter converted the stores to its operating model.
 
Selling Expenses.  Selling expenses increased $13.6 million, or 61.7%, to $35.6
million in fiscal 1997 from $22.0 million in fiscal 1996. As a percentage of
total revenue, selling expenses decreased to 26.8% in fiscal 1997 from 27.3% in
fiscal 1996. The improvement in selling expenses as a percentage of revenue is a
result of having the Bryn Mawr stores for the full year including the peak
holiday selling season.
 
Corporate, General and Administrative Expenses.  Corporate, general and
administrative expenses increased $3.4 million, or 71.8%, to $8.1 million in
fiscal 1997 from $4.7 million in fiscal 1996. The increase was the result of
investment in corporate infrastructure including the addition of
 
                                       24
<PAGE>   27
 
purchasing, accounting and information systems staff in conjunction with the
Bryn Mawr and HiFi Buys acquisitions and Tweeter's accelerated growth strategy.
As a percentage of total revenue, corporate general and administrative expenses
increased to 6.1% in fiscal 1997 from 5.9% in fiscal 1996 due to lower than
anticipated sales and the timing of the HiFi Buys acquisition.
 
Amortization of Goodwill.  Amortization of goodwill increased to $487,084, for
fiscal 1997 from $129,273 for fiscal 1996. This increase is attributable to the
additional goodwill recorded in connection with the HiFi Buys acquisition, as
well as a full year of goodwill amortization from the Bryn Mawr acquisition.
 
Interest Expense.  Interest expense for fiscal 1997 increased $1.2 million to
$1.8 million in fiscal 1997 from $616,879 in fiscal 1996. This increase was due
to the issuance of the $15.0 million senior subordinated notes, the proceeds of
which were used for the HiFi Buys acquisition, as well as increased borrowings
on our revolving line of credit. As a percentage of total revenue, interest
expense increased to 1.4% in fiscal 1997 from 0.8% in fiscal 1996.
 
Income Taxes.  For an analysis of changes in our effective tax rate, see Note 10
to Consolidated Financial Statements.
 
Accretion of Preferred Stock.  In periods prior to its initial public offering,
Tweeter had preferred stock outstanding. Tweeter accreted the preferred stock to
its redemption value. Upon completion of the initial public offering, all
preferred stock was converted to common stock and Tweeter eliminated all
balances related to the preferred stock.
 
SEASONALITY AND QUARTERLY RESULTS
 
Tweeter's business is subject to seasonal variations. Historically, Tweeter has
realized a significant portion of its total revenue and net income for the year
during the first and fourth fiscal quarters, with a majority of net income for
such quarters realized in the first fiscal quarter. Due to the importance of the
holiday shopping season, any factors negatively impacting the holiday selling
season could have a material adverse effect on Tweeter's financial condition and
results of operations. Tweeter's quarterly results of operations may also
fluctuate significantly due to a number of factors, including the timing of new
store openings and acquisitions and unexpected changes in volume-related rebates
from manufacturers. In addition, operating results may be negatively affected by
increases in merchandise costs, price changes in response to competitive factors
and unfavorable local, regional or national economic developments that result in
reduced consumer spending.
 
The following tables set forth certain quarterly financial data in thousands and
percentages of total revenue for the eight quarters ended September 30, 1998.
The quarterly information is unaudited but has been prepared on the same basis
as the audited financial statements included elsewhere in this prospectus. In
the opinion of management, all necessary adjustments (consisting only of normal
recurring adjustments) have been included to present fairly the unaudited
quarterly results when read in conjunction with Tweeter's Consolidated Financial
Statements and Notes thereto included elsewhere in this prospectus. The results
of operations for any quarter are not necessarily indicative of the results for
any future period. See "Risk Factors -- Seasonality and Quarterly Fluctuations."
 
                                       25
<PAGE>   28
 
<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED
                              ---------------------------------------------------------------------
                               DECEMBER 31,        MARCH 31,         JUNE 30,        SEPTEMBER 30,
                                   1997              1998              1998              1998
                              ---------------   ---------------   ---------------   ---------------
<S>                           <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>
Total revenue...............  $74,617   100.0%  $54,512   100.0%  $49,676   100.0%  $53,483   100.0%
Cost of sales...............   49,236    66.0%   35,044    64.3%   32,257    64.9%   34,729    64.9%
                              -------   -----   -------   -----   -------   -----   -------   -----
Gross profit................   25,381    34.0%   19,468    35.7%   17,419    35.1%   18,754    35.1%
Selling expenses............   16,390    22.0%   13,818    25.3%   13,379    26.9%   13,320    25.0%
Corporate, general and
  administrative expenses...    2,617     3.5%    2,771     5.1%    2,734     5.6%    3,006     5.6%
Amortization of goodwill....      221     0.3%      235     0.4%      221     0.4%      240     0.4%
                              -------   -----   -------   -----   -------   -----   -------   -----
Income from operations......    6,153     8.2%    2,644     4.9%    1,085     2.2%    2,188     4.1%
Interest expense............      865     1.2%      745     1.4%      745     1.5%      397     0.7%
                              -------   -----   -------   -----   -------   -----   -------   -----
Income before income taxes..    5,288     7.0%    1,899     3.5%      340     0.7%    1,791     3.4%
Income tax expense..........    2,115     2.8%      760     1.4%      136     0.3%      713     1.3%
                              -------   -----   -------   -----   -------   -----   -------   -----
Net income..................  $ 3,173     4.2%  $ 1,139     2.1%  $   204     0.4%  $ 1,078     2.1%
                              =======   =====   =======   =====   =======   =====   =======   =====
Stores open at beginning of
  period....................       47                50                50                51
New stores..................        3                 0                 1                 1
Relocated stores............        2                 0                 0                 0
Closed stores...............        0                 0                 0                 0
Stores acquired.............        0                 0                 0                 0
Stores open at end of
  period....................       50                50                51                52
</TABLE>
 
<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED
                              ---------------------------------------------------------------------
                               DECEMBER 31,        MARCH 31,         JUNE 30,        SEPTEMBER 30,
                                   1996              1997             1997(1)           1997(1)
                              ---------------   ---------------   ---------------   ---------------
<S>                           <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>
Total revenue...............  $34,988   100.0%  $25,595   100.0%  $28,211   100.0%  $43,731   100.0%
Cost of sales...............   22,688    64.8%   16,493    64.4%   18,552    65.8%   28,582    65.4%
                              -------   -----   -------   -----   -------   -----   -------   -----
Gross profit................   12,300    35.2%    9,102    35.6%    9,659    34.2%   15,149    34.6%
Selling expenses............    7,927    22.7%    6,870    26.8%    8,160    28.9%   12,611    28.8%
Corporate, general and
  administrative expenses...    1,775     5.0%    2,018     8.0%    2,069     7.4%    2,240     5.1%
Amortization of goodwill....       60     0.2%       60     0.2%      122     0.4%      245     0.6%
                              -------   -----   -------   -----   -------   -----   -------   -----
Income (loss) from
  operations................    2,538     7.3%      154     0.6%     (692)   -2.5%       53     0.1%
Interest expense............      274     0.8%      239     0.9%      473     1.7%      822     1.9%
                              -------   -----   -------   -----   -------   -----   -------   -----
Income (loss) before income
  taxes.....................    2,264     6.5%      (85)   -0.3%   (1,165)   -4.2%     (769)   -1.8%
Income tax expense
  (benefit).................      914     2.6%      (38)   -0.1%     (467)   -1.7%     (310)   -0.7%
                              -------   -----   -------   -----   -------   -----   -------   -----
Net income (loss)...........  $ 1,350     3.9%  $   (47)   -0.2%  $  (698)   -2.5%  $  (459)   -1.1%
                              =======   =====   =======   =====   =======   =====   =======   =====
Stores open at beginning of
  period....................       33                35                35                47
New stores..................        2                 0                 2                 0
Relocated stores............        0                 1                 0                 0
Closed stores...............        0                 0                 0                 0
Stores acquired.............        0                 0                10                 0
Stores open at end of
  period....................       35                35                47                47
</TABLE>
 
---------------
 
(1) Includes results of the HiFi Buys acquisition from May 30, 1997, which was
    accounted for using the purchase method.
 
                                       26
<PAGE>   29
 
LIQUIDITY AND CAPITAL RESOURCES
 
As of September 30, 1998, Tweeter had $18.3 million in working capital compared
to $11.9 million on September 30, 1997. In addition, as of September 30, 1998,
$24.8 million was available for borrowing on our credit facility.
 
Net cash provided by operations was $4.4 million for fiscal 1998, comprised
primarily of $5.3 million in net income, an increase in accounts payable and
accrued expenses of $2.3 million and depreciation and amortization of $3.9
million. This was offset by increases in inventory of $7.2 million and accounts
receivable of $0.7 million and a decrease in deferred warranty of $1.5 million,
as well as minor changes in other operating accounts. Net cash used in investing
activities during fiscal 1998 was approximately $9.0 million used primarily to
open five new stores, relocate two stores and purchase a facility a facility in
Canton, Massachusetts to serve as a corporate headquarters, service center and
distribution center. Net cash provided by financing activities was $4.2 million
in fiscal 1998 consisting of net proceeds of $32.2 million from our initial
public offering, primarily offset by repayment of $26.4 million of debt
outstanding.
 
Net cash used in operations was approximately $6.2 million in fiscal 1997,
comprised primarily of an increase in inventory of $6.5 million related to new
stores, including the acquired HiFi Buys stores. Net cash used in investing
activities during fiscal 1997 was approximately $23.5 million, including $19.5
million for the HiFi Buys acquisition and $4.0 million for new stores. Net cash
provided by financing activities was $30.5 million in fiscal 1997, consisting of
$20.7 million of long term debt, $6.8 million from issuance of preferred stock,
and $3.1 million of miscellaneous borrowings.
 
Tweeter primarily needs cash for working capital to support its inventory
requirements, selling and administrative expenses and capital expenditures,
pre-opening expenses and beginning inventory for new or relocated stores.
Additionally, Tweeter pursues an active acquisition strategy, and capital needs
arise as acquisition opportunities become available.
 
Prior to its initial public offering, Tweeter financed its operations through
cash flow from operations and its revolving credit facility with BankBoston,
N.A. It funded its acquisitions primarily through private placements of equity
and debt securities. These private placements generated gross proceeds of
approximately $18.0 million from the issuance of preferred stock and
approximately $17.2 million in senior subordinated notes.
 
Tweeter's completed its initial public offering in July 1998, which yielded
approximately $32.2 million, net of offering expenses. Tweeter used these net
proceeds to repay:
 
        - Approximately $14.5 million in outstanding indebtedness under its
          Credit Facility;
 
        - Approximately $15.0 million in outstanding indebtedness under certain
          subordinated promissory notes issued in connection with the HiFi Buys
          acquisition;
 
        - Approximately $1.9 million in outstanding indebtedness under the terms
          of a certain promissory note dated November 28, 1995, incurred in
          connection with a recapitalization pursuant to which Tweeter
          repurchased common stock from certain of its stockholders; and
 
        - Approximately $771,000 in outstanding indebtedness under a certain
          subordinated note dated May 30, 1997 issued in connection with the
          HiFi Buys acquisition.
 
Tweeter's credit facility currently has a maximum availability of $30.0 million
and a maturity date of July 31, 2001. Any borrowed funds will be secured by our
inventory and certain other assets (including pledges of stock in certain
affiliates). At our election, interest accrues on borrowings at either (i) the
higher of BankBoston's Base Rate or the Federal Funds rate plus 0.50% or (ii)
LIBOR plus an applicable margin varying from 100 to 175 basis points. The credit
agreement contains various financial covenants, including a maximum ratio of
debt to EBITDA, cash flow and interest coverage tests, and a minimum net worth
test, and provides for limitations on other indebtedness, liens, capital
expenditures, mergers, payment of dividends and certain other matters.
 
                                       27
<PAGE>   30
 
We believe that the net proceeds from this offering, together with cash
generated by operations and available borrowings under our credit facility will
be at least sufficient to finance our working capital and capital expenditure
requirements for at least the next twelve months and our acquisition of Home
Entertainment. If we pursue additional acquisitions within this period, however,
such acquisitions could strain our capital resources. Furthermore, due to the
seasonality of our business, our working capital needs are significantly higher
the fiscal third and fourth quarters and there is the possibility that this
could cause unforeseen capital constraints in the future.
 
YEAR 2000 COMPLIANCE
 
PRODUCTS
 
Tweeter purchases and sells new mid to high-end consumer electronic products,
which suppliers recently manufactured. Tweeter believes that it is unlikely that
these products have Year 2000 problems or that, even if some products were not
Year 2000 compliant, the warranty expenses to Tweeter would be material. As
such, we do not intend to evaluate individual products. If a large quantity of
these products, however, are non-compliant and consumers learn of this non-
compliance, we could suffer a loss of sales.
 
SUPPLIERS
 
Tweeter has begun contacting its suppliers to ensure that Year 2000 issues will
not materially adversely affect its supply chain and inventory levels. We expect
this process to be completed by August 1999. When we have compiled adequate
information regarding the Year 2000 status of our major suppliers we will
formulate contingency plans based upon these assessments. Any failure of
suppliers to provide inventory to Tweeter could have a material adverse effect
on its results of operations and financial condition.
 
INTERNAL OPERATIONS
 
Tweeter is currently evaluating its internal business systems, as well as its
stores and storage facilities for Year 2000 problems. We have substantially
completed our assessment of our internal systems and software, and believe that
Year 2000 issues will not materially affect our business. We have already
completed the majority of the required coding conversions on our information
technology, including our patented Automatic Price Protection software. All of
our other internal software, including our accounting software, are recently
released, off-the-shelf applications, which are certified as compliant by their
licensors. Tweeter anticipates identifying and completing all known remaining
coding conversions during the current fiscal year.
 
Although we anticipate minimal business disruption as a result of Year 2000
issues, possible consequences of non-compliance include, but are not limited to,
loss of communications links with certain store locations, loss of electric
power, loss of security systems, and inability to process transactions, send
purchase orders or engage in similar normal business activities.
 
COSTS OF COMPLIANCE
 
We estimate the total cost of Tweeter's Year 2000 compliance will not be
material in amount. Tweeter has not hired any outside personnel to assess the
scope of or provide solutions to Year 2000 problems. We have not diverted
material resources, including employee resources, and any costs expended are an
immaterial part of our information technology budget.
 
The Year 2000 expenses incurred to date and the completion dates are based on
management's best estimates and may be updated as additional information becomes
available.
 
                                       28
<PAGE>   31
 
IMPACT OF INFLATION
 
We do not believe that inflation has had a material adverse effect on Tweeter's
results of operations. However, we cannot predict accurately the effect of
inflation on future operating results.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
The Financial Accounting Standards Board (FASB) recently issued Statement of
Financial Accounting Standards "SFAS" No. 130, "Reporting Comprehensive Income,"
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," SFAS No. 132, "Employer's Disclosures About Pensions and Other
Post Retirement Benefits" and SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities."
 
SFAS No. 130, 131 and 132 will be implemented during fiscal year 1999. We do not
expect that the adoption of these statements will have a material impact on the
consolidated financial statements.
 
SFAS No. 133 will be implemented during fiscal year 2000. We do not expect that
the adoption of this statement will have a material impact on the consolidated
financial statements.
 
RECENT DEVELOPMENTS
 
For the quarter ended December 31, 1998, our total revenue increased 16.3% to
$86.8 million from $74.6 million for the quarter ended December 31, 1997.
Comparable store sales increased 10.6% overall, consisting of an 11.9% increase
at the Tweeter, etc. stores, a 23.9% increase at the Bryn Mawr stores and no
change in comparable store sales at the HiFi Buys stores.
 
                                       29
<PAGE>   32
 
                                    BUSINESS
 
OVERVIEW
 
Tweeter is a specialty retailer of mid to high-end audio and video consumer
electronics products. We operate 53 stores under the Tweeter, etc. name in the
New England market, the Bryn Mawr Stereo & Video name in the Mid-Atlantic market
and the HiFi Buys name in the Southeast market. Our stores feature an extensive
selection of home and car audio systems and components, portable audio equipment
and home video products, including large screen televisions, DVD players,
digital satellite systems, video cassette recorders and camcorders. We
differentiate our stores by focusing on consumers who seek audio and video
products with advanced features, functionality and performance. We do not offer
personal computers or home office equipment. The stores display products in an
inviting retail environment averaging 10,000 square feet and are staffed with
attentive, knowledgeable sales personnel. We seek to build name recognition and
customer loyalty by combining a high level of service with competitive prices
backed by our patented Automatic Price Protection program. Audio Video
International Magazine recognized us as the "Consumer Electronics Retailer of
the Year" in both 1996 and 1997. The TWICE Consumer Electronics Retail Registry
named us the fastest growing consumer electronics retailer in the United States
in 1997 and 1998.
 
INDUSTRY
 
According to Tweeter estimates, retail sales of audio and video products were
approximately $30 billion in 1997. Tweeter also estimates that between 1980 and
1997, the audio and video segment expanded at a compound annual growth rate of
4.3%, with faster growth of 5.6% from 1980 to 1990 due to new product
introductions, including compact disc players and video cassette recorders, and
more modest growth of 2.3% between 1990 and 1997 as product categories matured.
 
Tweeter believes that the following trends in the consumer electronics industry
create significant opportunities for a specialty retailer of audio and video
products such as Tweeter:
 
POSITIONING OF LARGE FORMAT, HIGH VOLUME RETAILERS
 
In the 1990s, consumer electronics retailing has become increasingly dominated
by large format stores, including superstores and mass merchandisers. These
stores typically rely on high sales volumes by marketing a wide variety of
products to a broad segment of consumers, with an emphasis on introductory level
products. Many of these retailers have sought to capitalize on the growth of
certain product categories within the overall consumer electronics industry,
including personal computers, software, home office equipment and
telecommunications equipment, which Tweeter believes has contributed to a
decrease in emphasis by those stores on audio and video products. According to
Tweeter estimates, audio and video products accounted for 31% of total sales of
consumer electronic products in 1997 versus 44% in 1990. Tweeter believes that
because of their emphasis on high volume across broad product categories, these
large format stores are unable to match the product knowledge, service and
shopping environment of a specialty audio and video retailer such as Tweeter.
 
CONSOLIDATION OF CONSUMER ELECTRONICS RETAILERS
 
The retail consumer electronics industry is highly fragmented, and Tweeter
estimates that the two largest superstore chains accounted for less than 22% of
the total sales attributable to the 100 largest retailers in 1997. Tweeter
believes that the expansion of large format chains has precipitated
consolidation of the industry during the 1990s by placing competitive pressure
on (i) regional broadline consumer electronics retailers with strategies
undifferentiated from consumer electronics superstores and mass merchandisers,
and (ii) smaller specialty retailers that may be successfully differentiated but
which operate at a disadvantage due to limited scale, media inefficiencies,
 
                                       30
<PAGE>   33
 
reduced purchasing power and lack of management depth. Tweeter believes that
regional specialty retailers with strong consumer name recognition represent
attractive acquisition candidates and that the smaller or weaker specialty
retailers will continue to face significant competitive pressures, thereby
providing opportunities for retailers with scale advantages to increase market
share.
 
ADVENT OF NEW TECHNOLOGIES
 
Growth in the audio and video consumer electronics market has historically been
accelerated by the introduction of new products based on technological
innovations. For example, the proliferation of video cassette recorders and
compact disc players helped to accelerate growth in the 1980s. Tweeter believes
that a new generation of technology offers the prospect of increased industry
sales with the introduction of digital products such as DVD players and high
definition televisions, as well as direct broadcast satellite systems and
internet-ready televisions. According to statistics provided by the Consumer
Electronics Manufacturers' Association, approximately 858,800 DVD players were
shipped in the first eleven months of 1998, and sales of DVD players in November
1998 reached 1.4 million units on an annualized basis. The Company believes that
specialty retailers with sales personnel capable of understanding and
communicating the benefits of technologically advanced products to consumers are
well positioned to capture the increased sales that may result should such
products achieve market acceptance.
 
BUSINESS STRATEGY
 
Our goal is to become the leading specialty retailer of high-quality audio and
video products. The key elements of our business strategy are as follows:
 
EXTENSIVE SELECTION OF MID TO HIGH-END AUDIO AND VIDEO PRODUCTS
 
We concentrate on mid to high-end audio and video consumer electronics products.
This focus differentiates us from larger format superstores and mass
merchandisers, which offer a broad array of consumer electronics and
non-electronics products with a higher emphasis on products priced at
introductory price levels. Tweeter's emphasis on higher-end products positions
it attractively to manufacturers seeking to sell more advanced or limited
distribution products as part of their distribution strategy. Limited
distribution products accounted for approximately 41% of product sales in fiscal
1998. As a result of our higher-end product focus, a historical early adopter
customer base and our extensively trained sales force, we are often among the
earliest retailers to offer new product innovations on behalf of manufacturers.
In addition, we believe that our focused product offering allows for higher
gross margin opportunities, appeals to a more service-conscious consumer and
results in enhanced brand awareness of our regional names to our targeted
customer group.
 
EXCEPTIONAL CUSTOMER SERVICE
 
We believe that the quality and knowledge of our sales associates is critical to
our success and represents a significant competitive advantage. Our relationship
selling model encourages sales associates to promote a comfortable, trusting,
low pressure environment. We provide new sales associates with five weeks of
intensive classroom training, and all sales associates receive five to fifteen
days of ongoing training per year, both at the store and at Tweeter's regional
training centers. Our sales force receives technical product and sales training
prior to our introduction of significant new products. We believe that the
success of our operating model has enabled us to engender long-term customer
loyalty.
 
DYNAMIC, INVITING STORES
 
Our stores display products in a dynamic and inviting setting intended to
encourage the customer to view and hear products in sound rooms architecturally
and acoustically designed to simulate the customer's home or car environment.
The store prototype is brightly painted, often in pastel colors,
 
                                       31
<PAGE>   34
 
with many stores exhibiting hand-painted murals and other decorative artwork.
Innovative and interactive product displays enable customers to sample and
compare a variety of products. Each store contains a television wall displaying
an extensive selection of televisions and related products, and many stores
contain a movie theater room, complete with theater-style seats, which showcases
our home theater products.
 
EVERYDAY COMPETITIVE PRICING
 
We utilize an "everyday competitive pricing" strategy with fixed prices clearly
marked on our products. Store managers regularly visit local competitors to
ensure that our pricing remains competitive within the store's local market. In
addition, all product sales are backed by our patented Automatic Price
Protection program. Under this program, if a customer purchases a consumer
electronics product from one of our stores and a competitor within 25 miles of
the store advertises a lower price within 30 days of purchase, we automatically
send a check to the customer for the difference without requiring the customer
to request payment. The Automatic Price Protection program is designed to remove
pricing concerns from the purchase decision and, as a result, allows customers
and the sales staff to focus on product functionality, performance and quality.
 
GROWTH STRATEGY
 
We opened our first store in 1972 in Boston under the Tweeter, etc. name and
over the next two decades grew exclusively through new store openings in New
England, expanding to 18 stores by 1995. In 1995, Tweeter adopted its current
growth strategy to:
 
        - Open new stores in current regional markets and relocate certain
          stores to more favorable sites; and
 
        - Selectively pursue acquisitions in new regional markets and achieve
          operating improvements by converting each acquired company to its core
          operating model and leveraging distribution, marketing and corporate
          infrastructure.
 
NEW STORES
 
We intend to open new stores and relocate a limited number of stores within
existing markets in order to increase penetration and leverage regional
advertising, distribution, and operating efficiencies. During fiscal 1998, we
opened two Tweeter, etc. stores and three Bryn Mawr stores. We intend to open 11
new stores in fiscal 1999, one of which is now open. These stores do not include
the seven Home Entertainment stores which we intend to acquire in February 1999.
We believe that our acquisitions of Bryn Mawr in May 1996, HiFi Buys in May 1997
and our pending acquisition of Home Entertainment provide us with platforms from
which to open new stores within and around their markets.
 
STRATEGIC ACQUISITIONS
 
We believe that we have obtained, and can continue to obtain, significant
benefits from the consummation of strategic acquisitions of existing specialty
retailers with a similar product mix and strong consumer reputation in
geographic markets in which we do not currently operate. We believe that we can
leverage the performance of an acquisition candidate by:
 
        - Applying our sales management and sales incentive strategies;
 
        - Adjusting the product mix to be compatible with our emphasis on higher
          margin audio and video products;
 
        - Applying our advertising and marketing strategies and programs,
          including our Automatic Price Protection and everyday competitive
          pricing programs;
 
        - Implementing our relationship selling and customer service
          philosophies; and
 
        - Utilizing our purchasing and distribution capabilities and
          administrative infrastructure.
 
                                       32
<PAGE>   35
 
We believe that acquisition opportunities are created by the fragmented nature
of the consumer electronics industry, the limited exit strategies available to
owners of local and regional specialty retailers, the competitive pressures
imposed by larger format retailers, and the insufficiency of capital necessary
to support inventory, advertising or expansion. We believe that we are a well
positioned consolidator because Tweeter:
 
        - Is known within the industry as a leading specialty retailer;
 
        - Utilizes a store size and concept which can be readily adapted to the
          acquired stores;
 
        - Has successfully consummated two strategic acquisitions;
 
        - Has developed an operational, administrative and marketing
          infrastructure with the proven capability to successfully integrate
          acquisitions;
 
        - Enjoys experienced and proven senior management, having an average of
          13 years of tenure with Tweeter (or its acquired companies); and
 
        - Would seek to offer potential employment and managerial opportunities
          within the consolidated enterprise to employees of the targeted
          retailer.
 
RECENT ACQUISITIONS
 
ACQUISITION OF BRYN MAWR
 
In May 1996, we completed the Bryn Mawr acquisition. Like the Tweeter, etc.
stores, the Bryn Mawr stores enjoyed considerable name recognition and targeted
similar service-oriented customers. Since the Bryn Mawr stores offered a product
mix similar to the Tweeter, etc. stores, we consummated the Bryn Mawr
acquisition with the goal of realizing increased revenues and store contribution
through the application of our established operational strategies to the
acquired stores. Towards that goal, we:
 
        - Increased advertising expenditures and refocused advertising to
          emphasize radio, television and direct marketing rather than print;
 
        - Implemented Tweeter's everyday competitive pricing and Automatic Price
          Protection programs;
 
        - Initiated a substantial sales associate training program to improve
          product knowledge and enhance relationship selling skills; and
 
        - Focused the sales staff on higher margin products, particularly audio
          products.
 
ACQUISITION OF HIFI BUYS
 
In May 1997, we completed the HiFi Buys acquisition. Like Tweeter, etc. and Bryn
Mawr, HiFi Buys had created a strong reputation among consumers as a specialty
retailer of high quality audio and video products. The HiFi Buys stores, at an
average size of 15,000 square feet, are larger than the average Tweeter, etc. or
Bryn Mawr stores. The HiFi Buys stores carried a broader product mix, however,
including more entry level product offerings and marketed heavily through
promotional newspaper advertising. Our integration strategy in the HiFi Buys
acquisition has been to increase store contribution by converting the HiFi Buys
product mix to one compatible with the Tweeter, etc. stores and to manage a
planned decrease in sales while increasing gross margins and reducing operating
expenses. Specifically, following the HiFi Buys acquisition we:
 
        - Adjusted the merchandise mix to increase the proportion of mid and
          high-end products and reduce the number of lower margin introductory
          products;
 
        - Altered store employee compensation to reduce the emphasis on
          promotional sales and focus incentives on gross margin and store
          contribution;
 
        - Reduced marketing expenditures and shifted marketing emphasis from
          promotional advertising toward Tweeter's traditional relationship
          selling and everyday competitive price message;
 
                                       33
<PAGE>   36
 
        - Converted the advertising program to emphasize electronic advertising
          and direct mail marketing as opposed to print media;
 
        - Implemented the Automatic Price Protection program; and
 
        - Eliminated $2.4 million of overhead by centralizing accounting,
          purchasing and other support infrastructure.
 
PENDING ACQUISITION OF HOME ENTERTAINMENT
 
On December 9, 1998, Tweeter agreed in principle to acquire the retail
operations of Home Entertainment, a seven store chain located in the Dallas and
Houston markets, for $8.2 million in cash, excluding acquisition costs. Home
Entertainment is a focused retailer of high quality audio and video products
with a 42-year operating history. We believe that there is a significant
opportunity to increase sales at the store level. In addition, Home
Entertainment operates a successful custom installation business, which we
believe can be applied in our other stores. We intend to open, over time, new
Home Entertainment stores in Dallas and Houston, as well as elsewhere in Texas.
We expect to continue the operation of the retail stores as well as the service
and distribution facilities. We expect to close this acquisition in February
1999. The closing is subject to various conditions, however, including
satisfactory completion of our due diligence investigation of Home
Entertainment, which currently is underway, and negotiation and execution of a
definitive asset purchase agreement. It is possible, therefore, that we will not
complete the planned acquisition.
 
STORE FORMAT AND OPERATIONS
 
STORE FORMAT
 
We currently operate 53 stores, comprised of 24 Tweeter, etc. stores in the New
England market, 18 Bryn Mawr stores in the Mid-Atlantic market, and 11 HiFi Buys
stores in the Southeast market. While our stores vary in size, the current
prototype is 10,000 square feet, with approximately 70% of square footage
devoted to selling space. Many stores utilize mezzanine level storage space to
reduce overall occupancy expense.
 
Tweeter's store concept combines the comfort of the home environment with
practical displays enabling consumers to sample and compare the features and
functions of products in various combinations. The store prototype is brightly
painted, often in pastel colors, with many stores exhibiting hand painted murals
and other decorative artwork. Unlike many of the competitors' stores, which
contain large, open spaces in which many different audio and video products are
tested and sampled, our stores feature individual sound rooms. The sound rooms
architecturally and acoustically resemble a home environment to enable the
customer to see and hear how products will perform at home. These sound rooms
allow the customer to listen to and to compare various combinations of
receivers, CD players, tape decks and speakers. In addition, each store contains
a traditional television wall displaying an extensive selection of televisions
and related products, and many stores contain a movie theater room, complete
with theater-style seats, which showcases Tweeter's home theater products. Other
displays, such as the "big red button," allow the customer to change, by pushing
a button, mono television sound into a five speaker or surround sound
experience. Each store also features a camcorder gallery which allows customers
to sample different camcorders, and to shoot videos of their children within the
adjacent children's play area. Some stores display a car on the selling floor
which features a state-of-the-art car stereo system and serves to exhibit our
installation capabilities. Most stores provide car stereo installation through
on-premises installation bays.
 
                                       34
<PAGE>   37
 
STORE OPERATIONS
 
Stores are typically staffed with a store manager, an assistant manager, 12
sales associates and two mobile electronics installers. We provide new sales
associates with five weeks of intensive classroom training, and all sales
associates receive five to fifteen days of ongoing training per year, both at
the store and at the regional training centers. The sales force receives
technical product and sales training prior to the introduction of significant
new products. Most stores are open seven days a week.
 
STORE ECONOMICS
 
Tweeter believes that it benefits from attractive store level economics. The
average investment by Tweeter for the eight new stores opened in the 27 months
ended September 30, 1998, including leasehold improvements, equipment, the cost
of inventory (net of payables), and preopening expenses was approximately
$860,000. The average net sales and store level cash flow, which excludes any
preopening expenses, allocated corporate overhead, depreciation and interest,
but includes occupancy expense and advertising, for fiscal 1998 was
approximately $3,672,000 and $379,000, respectively, for stores owned by Tweeter
throughout the period.
 
SITE SELECTION
 
Tweeter's stores average approximately 10,000 square feet and are typically
located in free-standing buildings or strip shopping centers within high traffic
shopping areas. New store sites are selected on the basis of several factors,
including physical location, demographic characteristics of the local market,
proximity to superstore competitors, access to highways or other major roadways,
and available lease terms. We look for co-tenants, such as bookstores, that are
likely to draw customers whom we would otherwise target within the site's
relevant market and believe that the proximity of superstore competitors is, on
balance, a positive factor due to increased customer traffic. We lease all of
our stores.
 
Set forth below is a table summarizing the locations, opening years, and years
of relocation where specified, of Tweeter's stores as of December 31, 1998:
 
<TABLE>
<CAPTION>
       TWEETER, ETC.                       BRYN MAWR                        HIFI BUYS
----------------------------   ---------------------------------   ----------------------------
                YEAR OPENED/                        YEAR OPENED/                   YEAR OPENED/
   LOCATION      RELOCATED          LOCATION         RELOCATED        LOCATION      RELOCATED
   --------     ------------        --------        ------------      --------     ------------
<S>             <C>            <C>                  <C>            <C>             <C>
Boston, MA         1972        Bryn Mawr, PA           1946        Norcross          1990
Cambridge, MA   1974/1998      Maple Shade, NJ         1978        Alpharetta, GA    1991
Newton, MA      1976/1995      Abington, PA            1981        Athens, GA        1991
Burlington, MA  1978/1996      Allentown, PA           1982        Buckhead, GA      1993
Dedham, MA         1980        Montgomeryville, PA     1984        Southlake, GA     1993
Framingham, MA     1983        Wilmington, DE       1985/1992      Tucker, GA        1993
Hyannis, MA     1983/1994      Harrisburg, PA       1986/1994      Marietta, GA      1994
New London, CT  1985/1998      Wilmington,DE           1987        Kennesaw, GA      1995
Hanover, MA        1986        Allentown, PA           1987        Smyrna, GA        1995
Danbury, CT     1986/1997      Baltimore, MD           1990        Gwinnet, GA       1996
Seekonk, MA        1988        Timonium, MD            1990        Birmingham, AL    1998
Warwick, RI        1989        King of Prussia, PA     1995
Newington, CT      1990        Glen Burnie, MD         1995
Avon, CT           1993        Princeton, NJ           1997
Peabody, MA        1993        Lancaster, PA           1997
Manchester, CT  1994/1998      Reading, PA             1997
Salem, NH          1994        York, PA                1997
Boston, MA         1995        Deptford, NJ            1998
Milford, CT        1995
Holyoke, MA        1996
Portsmouth, NH     1996
Nashua, NH         1996
Attleboro, MA      1997
Manchester, NH     1998
</TABLE>
 
                                       35
<PAGE>   38
 
MERCHANDISE
 
Our stores feature home and car audio systems and components, video products
such as large screen televisions, digital satellite systems, video cassette
recorders, camcorders, DVD players and other consumer electronics products such
as cellular phones and portable audio equipment. Tweeter offers custom home and
car stereo installation services and provides warranty and non-warranty repair
services through all of its stores. We also offer insurance replacement services
to insurance companies, providing replacement products to the policyholders of
those insurance companies. Additionally, Tweeter has a corporate sales division
which markets and sells to businesses, institutions and other organizations. Our
emphasis on mid to high-end products enables us to offer limited distribution
products and to be among the earliest retailers to offer new product innovations
on behalf of manufacturers. Limited distribution products accounted for
approximately 41% of our sales in fiscal 1998.
 
We stock products from over 50 vendors, including Adcom, Aiwa, Alpine, Bose,
Boston Acoustics, Denon, Eclipse, Kenwood, Klipsch, Mirage, Mission, Mitsubishi,
Monster Cable, Panasonic, Pioneer, ProScan, Rockford Fosgate, Sony and Yamaha.
Tweeter seeks to manage its product mix to maximize gross margin performance.
Historically, video products have yielded lower gross margin than audio
products. Total sales of video products have increased at rates faster than the
increases in audio product sales during the last several years as a result of
the increased customer interest in big screen televisions. Accordingly, we have
adopted a "Sell Audio with Video" strategy in order to enhance overall gross
margin through increased sales of higher margin audio products.
 
The table below sets forth the approximate percentages of revenues for each of
Tweeter's primary product categories for fiscal years 1996, 1997 and 1998. The
percentage of revenues represented by each product category may be affected by,
among other factors, competition, economic conditions, consumer trends, the
introduction into the market of new products, changes in our product mix, and
the timing of marketing events. The percentages are also impacted by
acquisitions of stores offering different mixes of products. In particular, the
increase in the percentage of revenue represented by video products in fiscal
1998 was primarily driven by inclusion of the acquired Hifi Buys stores. The
historical percentages set forth below may not be indicative of revenue
percentages for future periods:
 
                             PERCENTAGE OF REVENUES
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED SEPTEMBER 30,
                                                    ----------------------------
                 PRODUCT CATEGORY                   1996        1997        1998
                 ----------------                   ----        ----        ----
<S>                                                 <C>         <C>         <C>
Audio Equipment(1)................................   35%         33%         33%
Video Equipment(2)................................   36%         36%         43%
Mobile Equipment and Other(3).....................   29%         31%         24%
</TABLE>
 
---------------
(1) Includes speakers, cassette decks, receivers, turntables, compact disc
    players, mini disc players, amplifiers, preamplifiers, and portable audio
    equipment.
(2) Includes video cassette players, camcorders, televisions, projection
    televisions, DVD players, and satellite dishes.
(3) Includes car decks, amplifiers and speakers, car security products,
    navigation equipment, cellular phones, audio and video accessories, and
    extended performance guaranties.
 
PURCHASING AND INVENTORY
 
Tweeter's purchasing and inventory control functions are based at its executive
offices in Canton, Massachusetts. The purchasing decisions are made by our
buying team, which has primary responsibility for product selection, stocking
levels and pricing. Purchasing decisions are facilitated by our information
systems which analyze stocking levels and product sell-through. The purchasing
group continuously reviews new and existing products with a view towards
maintaining a wide range of high quality, brand-name consumer electronics
products within the product mix. In order to remain current with new and
developing products, we regularly host presentations by our major suppliers.
 
                                       36
<PAGE>   39
 
In addition to making direct purchases, we are a member of Progressive Retailers
Organization, a volume-buying group of 14 specialty electronics retailers across
the country. This affiliation often provides us with opportunities to obtain
additional vendor rebates, product discounts and promotional products. Tweeter
is not obligated to make purchases through Progressive Retailers Organization.
Tweeter's President serves on the Board of Directors of Progressive Retailers
Organization.
 
Tweeter sources products from more than 50 vendors, the largest of whom, Sony,
accounted for 22% of fiscal 1998 purchases. Tweeter does not maintain long term
commitments or exclusive contracts with any particular vendor, but instead
considers numerous factors, including price, credit terms, distribution, quality
and compatibility with its existing product mix in making its purchasing
decisions. Tweeter utilizes a sophisticated automatic replenishment system for
store inventory, maintaining stock levels and minimizing total dollars invested
in inventory. We believe that our relationship with our large vendors is
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.
 
Tweeter distributes products to stores through three regional distribution and
service centers. In August, we relocated to a new, 80,000 square feet facility
in Canton, Massachusetts which serves as our corporate headquarters and
distribution and service center for the Tweeter, etc. stores. The King of
Prussia, Pennsylvania distribution center is 50,000 square feet and services the
Bryn Mawr stores. The Atlanta, Georgia facility is 80,000 square feet and
services the HiFi Buys stores. We believe that these facilities are sufficient
to handle our planned expansion in these markets through at least the year 2000.
 
ADVERTISING AND MARKETING
 
Tweeter targets consumers seeking informed advice concerning product selection
and system integration of audio and video consumer electronics products. Our
marketing strategy differs from our primary competitors in that we rely
substantially on electronic media, primarily radio and an extensive direct
marketing effort. We believe advertising on specific radio stations and at
specific times allows us the flexibility to tailor our marketing message. Our
radio advertising campaigns seek to generate name recognition and to reinforce
identification of Tweeter as a source of high quality products at competitive
prices, staffed with a knowledgeable, attentive sales force. We complement our
radio strategy from time to time with television and print advertisements. 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.
 
We also rely on a sophisticated direct marketing campaign to our customers. We
have developed a comprehensive database-marketing program to match past customer
purchasing history to the next logical purchase option for that customer. For
example, we have distributed direct mail regarding surround sound products to
customers who recently purchased large screen televisions. We also distribute an
award-winning 100 page Buyer's Guide once a year and a smaller 36 page catalog
nine times per year. We believe that our relatively inexpensive direct mail
activities leverage and complement our general media advertising campaigns.
 
We believe that our commitment to providing competitive pricing on our products
is a critical component of our marketing and advertising strategy. In 1993, we
abandoned our promotional marketing approach and adopted an everyday competitive
pricing strategy, with fixed prices clearly marked on our products. Store
managers regularly visit the local competition to ensure the store's pricing
remains competitive. At the same time, our competitive prices are backed by our
Automatic Price Protection program. Under the Automatic Price Protection
program, if a customer purchases a consumer electronics product from one of our
stores and a competitor within 25 miles of that store advertises a lower price
within 30 days of the customer's purchase, we automatically send a check to
 
                                       37
<PAGE>   40
 
the customer for the difference. Unlike other price guarantee programs in place
within the industry, the refund process does not require the customer to call or
return to the store of purchase and request a price match refund. The Automatic
Price Protection program is intended to be hassle-free, customer friendly and
viewed as a reflection of Tweeter's commitment to customer service. Most
recently, in fiscal 1997, we implemented our "Wise Buys" program. Under this
program, Tweeter's buyers identify special, reduced-priced items, often
closeouts or last year's top-of-the-line models, which are purchased from the
manufacturer and offered to the consumer at a substantial discount from the
original retail price. We believe that the pricing of the Wise Buys items
represents substantial value to the consumer with little or no negative impact
to gross margin. Our advertisements frequently describe or refer to the
Automatic Price Protection and Wise Buys programs.
 
INFORMATION SYSTEMS
 
Tweeter utilizes a sophisticated, fully integrated mainframe based management
information system which updates after every transaction, and which is
accessible on a real time basis to management, sales associates and product
buyers. Extensive sales reporting and sales tracking is provided real time on
screen to store managers and individual sales associates which tracks category
sales and benchmarks key sales data for Tweeter. This system enables management
and store managers to review sales volume, gross margin and product mix on a per
store or per sales associate basis, allows for the viewing of open orders,
inventory value and mix, and tracks sales by product category, by sales
associate, and by store. We provide ongoing training and support in the use of
this system and compensate and benchmark the store managers based upon this
information.
 
Tweeter currently utilizes several software systems which require modification
or upgrading to accommodate the "Year 2000" changes needed for correct recording
of dates in the year 2000 and beyond. We believe that all such systems can be
changed by the end of 1999 and do not expect the cost of such changes to be
material to our financial condition or results of operations.
 
EMPLOYEES
 
As of December 31, 1998, Tweeter had 997 employees, comprised of 948 full-time
and 49 part-time employees. None of our employees are covered by collective
bargaining agreements, and we believe our relations with our employees are good.
 
INTELLECTUAL PROPERTY
 
The "Tweeter, etc.," "Bryn Mawr Stereo," "The Place for Bass," and "Wise Buys"
service marks have been registered with the United States Patent and Trademark
Office. Tweeter has not registered the "HiFi Buys" service mark. Tweeter has
submitted applications for registration of certain other of its service marks,
which applications are currently pending.
 
PROPERTIES
 
In addition to its stores, all of which are leased, Tweeter also leases two
distribution and office facilities in King of Prussia, Pennsylvania, and
Atlanta, Georgia, with lease terms expiring in 2011 and 2008, respectively. On
July 9, 1998, we purchased a facility in Canton, Massachusetts that serves as
our corporate headquarters and our New England service and distribution center.
The purchase price and related building improvements were approximately $5.3
million, which has been paid out of available cash or borrowings on our credit
facility.
 
LITIGATION
 
From time to time, Tweeter is involved in litigation in the ordinary course of
business. In the opinion of management, no such litigation is likely to have a
material adverse effect on our results of operations or financial condition.
 
                                       38
<PAGE>   41
 
                                   MANAGEMENT
 
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
 
The following table sets forth certain information with respect to executive
officers, directors and certain other key employees of Tweeter as of the date of
the offering:
 
<TABLE>
<CAPTION>
NAME                                        AGE                        POSITION
----                                        ---                        --------
<S>                                         <C>   <C>
EXECUTIVE OFFICERS AND DIRECTORS
Samuel Bloomberg..........................  46    Chairman, Chief Executive Officer and Director
Jeffrey Stone.............................  41    President, Chief Operating Officer, Treasurer and
                                                  Director
Joseph McGuire............................  38    Vice President, Chief Financial Officer and Chief
                                                  Information Officer
Jeffrey Bloomberg(1)......................  51    Director
Matthew Bronfman(2).......................  39    Director
Michael Cronin(1)(2)......................  44    Director
Steven Fischman...........................  56    Director
KEY EMPLOYEES
Roy Bertalotto............................  45    Vice President, New Store Development
Linda Christman...........................  43    Vice President, Human Resources
David Ginsburg............................  47    Vice President, Southeastern Region
Dori Ginsburg.............................  40    Vice President, Insurance Replacement
Albert Gordon.............................  39    Vice President, Operations and Corporate Finance
Noah Herschman............................  35    Vice President, Marketing
Bernard Sapienza..........................  35    Vice President, Purchasing
Paul Shindler.............................  42    Vice President, Training
</TABLE>
 
---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
 
Samuel Bloomberg is a co-founder of Tweeter and has served as director and/or
officer since its inception. Mr. Bloomberg has been Chief Executive Officer of
Tweeter since September 1983 and Chairman of the Board since 1986. Mr. Bloomberg
is the brother of Jeffrey Bloomberg.
 
Jeffrey Stone has served as President and Chief Operating Officer, Treasurer and
director of Tweeter since October 1990. From 1987 to 1990 Mr. Stone served as
the Executive Vice President of Bread & Circus, a specialty natural foods
supermarket chain and from 1983 to 1987 served as Vice President of Human
Resources and Training for Scandinavian Design, a specialty furniture retailer.
Mr. Stone is a Director of the Progressive Retailers Organization, the buying
group of specialty consumer electronics retailers of which Tweeter is a member.
 
Joseph McGuire has been a Vice President, Chief Financial Officer and Chief
Information Officer of Tweeter since May 1996. Prior to joining Tweeter, Mr.
McGuire was the Chief Financial Officer of Bryn Mawr Radio & Television Centre,
Inc. from 1987 to 1996.
 
Jeffrey Bloomberg has served as director of Tweeter from 1989 to the present.
From 1994 to the present, Mr. Bloomberg has also served as President of
Bloomberg Associates, Inc., an investment banking company. Prior to that, from
1985 to 1993, Mr. Bloomberg served as Senior Managing Director at Bear, Stearns
& Co. Inc., specializing in corporate finance and mergers and acquisitions. Mr.
Bloomberg is the brother of Samuel Bloomberg.
 
Matthew Bronfman has served as director of Tweeter since 1989. In 1990 Mr.
Bronfman served as director, and from 1991 to 1994 Mr. Bronfman served as
Chairman and Chief Executive Officer of Sterling Cellular Holdings, L.P., a
private cellular telephone company. From 1994 to the present,
 
                                       39
<PAGE>   42
 
Mr. Bronfman founded and has served as Chairman and Chief Executive Officer of
Perfumes Isabell, a fragrance and gift company.
 
Michael Cronin has served as director of Tweeter since November, 1995. From 1991
to the present Mr. Cronin has served as Managing Partner of Weston Presidio
Capital. Mr. Cronin also serves as director of Tekni-plex, Inc. and Casella
Waste Systems, Inc.
 
Steven Fischman has served as a director of Tweeter since the completion of
Tweeter's initial public offering. Since 1992, Mr. Fischman has been the
President of New England Development ("NED"), a regional mall developer based in
New England. Since 1996, Mr. Fischman has also served as Vice-Chairman of
WellsPark Group Limited Partnership, a mall management company formed by NED and
an unrelated partner. Prior to joining NED, Mr. Fischman was a director and
shareholder in the Boston law firm of Goulston & Storrs, P.C., which firm is
counsel to Tweeter. Mr. Fischman is also Chairman of the Board of Trustees of
Newton-Wellesley Hospital.
 
Roy Bertalotto has served as Vice President, New Store Development of Tweeter
since 1992. Prior to that, Mr. Bertalotto served as a District Sales Manager
from 1986 to 1988 and as Regional Vice President, Sales for eight southern New
England stores from 1988 to 1992.
 
Linda Christman has served as Vice President, Human Resources of Tweeter since
1997. Prior to that time, she served as the Director of Human Resources since
1987.
 
David Ginsburg has served as Vice President, Southeastern Region of Tweeter
since May 1997. Prior to joining Tweeter, Mr. Ginsburg served as a Vice
President of HiFi Buys Incorporated.
 
Dori Ginsburg has served as Vice President, Insurance Replacement of Tweeter
since May 1997. Prior to joining Tweeter, Ms. Ginsburg served as Vice President,
Insurance Replacement of HiFi Buys Incorporated.
 
Albert Gordon has served as Vice President, Operations and Corporate Finance of
Tweeter since 1995. From 1990 to 1994, Mr. Gordon served as Chief Financial
Officer of Boston Publishing Co., Inc. From 1987 to 1991, Mr. Gordon held
several management positions at The Westwood Group, a restaurant holding
company, most recently as Vice President of Marketing and as Chief Financial
Officer of its catalog business. From 1981 to 1983 Mr. Gordon served on the
audit staff at KPMG Peat Marwick and from 1985 to 1987 Mr. Gordon was a member
of brand management at Procter & Gamble.
 
Noah Herschman has served as Vice President, Marketing of Tweeter since 1994.
Prior to that, Mr. Herschman served as a Senior Product Buyer and Marketing
Director from 1990 to 1994 and served as a sales consultant for Tweeter from
1988 to 1990.
 
Bernard Sapienza has served as Vice President, Purchasing of Tweeter since 1994.
Prior to that, from 1989 to 1994, Mr. Sapienza served as a Senior Product Buyer
of Tweeter.
 
Paul Shindler has served as Vice President, Training of Tweeter since 1994.
Prior to that, Mr. Shindler served as Regional Vice President of Sales for the
northern region and Training Director of Tweeter from 1991 to 1994 and served in
various sales and training capacities for Tweeter from 1977 to 1987.
 
COMPOSITION OF THE BOARD OF DIRECTORS
 
Tweeter's Board of Directors currently consists of six members. The Board is
divided into three staggered classes, consisting of two Class I directors
(Messrs. Bronfman and Fischman), two Class II directors (Messrs. Samuel
Bloomberg and Cronin) and two Class III directors (Messrs. Stone and Jeffrey
Bloomberg). The initial terms of the three classes will expire in 1999, 2000 and
2001, respectively. Beginning in 1999, directors of each class will be chosen
for three-year terms upon the expiration of their current terms and each year
one class of directors will be elected by Tweeter stockholders. Tweeter believes
that classification of the Board of Directors facilitates continuity and
 
                                       40
<PAGE>   43
 
stability of its business strategies and policies as determined by the Board of
Directors. Holders of common stock have no right to cumulative voting in the
election of directors. Consequently, at each annual meeting of stockholders, the
holders of a majority of the common stock will be able to elect all of the
successors of the class of directors whose terms expire at that meeting.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
The Audit Committee of the Board of Directors makes recommendations concerning
the engagement of independent public accountants, reviews the plans for and
results of the audit engagement with the independent public accountants,
approves professional services provided by the independent public accountants
and review the adequacy of the Company's internal accounting controls. The Audit
Committee consists of Jeffrey Bloomberg and Michael Cronin.
 
The Compensation Committee of the Board of Directors establishes and implements
compensation policies and programs for Tweeter's executive officers and
exercises all powers of the Board of Directors in connection with Tweeter's
incentive compensation and benefit plans. The Compensation Committee of the
Board consists of Matthew Bronfman and Michael Cronin. In January 1996, the
members of the Board of Directors who were not members of the Compensation
Committee approved the grant to Matthew Bronfman of non-qualified stock options
to purchase 107,584 shares of the common stock at an exercise price of $1.524
per share. Such options, by their terms, were fully vested on the date of grant.
 
COMPENSATION OF DIRECTORS
 
Tweeter currently pays each Director $1,875 per quarter, provided such Director
attends the meetings of the directors scheduled for such quarter. All Directors
are reimbursed for reasonable expenses incurred in attending meetings. Under
current Director compensation arrangements, upon each subsequent election or
re-election, each Director who is not also an employee or affiliate of Tweeter
is granted options under Tweeter's 1998 Stock Option and Incentive Plan
exercisable into 1,750 shares of common stock, with an exercise price equal to
the fair market value of the common stock at the date of grant. Such options
vest over a three-year period. Tweeter's policy with respect to the level and
timing of option grants to Directors is currently under review by the
Compensation Committee and the Board of Directors, and may be revised for years
subsequent to the fiscal year ended September 30, 1998.
 
EXECUTIVE COMPENSATION
 
The following table sets forth the compensation earned by Tweeter's Chief
Executive Officer and each of the other executive officers of Tweeter (the
"Named Executives") for services rendered in all capacities to Tweeter during
the fiscal 1996, 1997 and 1998:
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                 LONG-TERM
                                                                COMPENSATION
                                                 ANNUAL         ------------
                                            COMPENSATION(1)      SECURITIES
                                           ------------------    UNDERLYING       ALL OTHER
NAME AND PRINCIPAL POSITION          YEAR   SALARY     BONUS      OPTIONS      COMPENSATION(2)
---------------------------          ----  --------   -------   ------------   ----------------
<S>                                  <C>   <C>        <C>       <C>            <C>
Samuel Bloomberg...................  1998  $258,769   $10,000       23,038         $    --
  CEO and Chairman                   1997  $204,876   $20,000       66,240         $65,818
  of the Board                       1996  $181,058   $43,100      125,226         $    --
Jeffrey Stone......................  1998  $249,106   $10,000       29,000         $    --
  President and Chief                1997  $204,037   $20,000       48,610         $ 5,288
  Operating Officer                  1996  $183,490   $41,042       66,366         $    --
Joseph McGuire.....................  1998  $164,635   $ 5,000        8,000         $    --
  Vice President,                    1997  $150,244   $ 5,300        2,624         $    --
  Chief Financial Officer            1996  $ 43,077   $    --           --         $    --
</TABLE>
 
---------------
(1) The compensation described in this table does not include medical or other
    benefits received by the Named Executives which are generally available to
    all salaried employees of Tweeter.
(2) Represents amount distributed to cover personal tax liability from Tweeter's
    prior status as a Subchapter "S" corporation for federal income tax
    purposes. On November 25, 1995, as part of a recapitalization, Tweeter
    elected to be treated as a "C" corporation for federal income tax purposes.
 
                                       41
<PAGE>   44
 
The following table sets forth information relating to grants of stock options
made during fiscal 1998 to each of the Named Executive Officers under Tweeter's
1998 Stock Option and Incentive Plan.
 
                          OPTION GRANTS IN FISCAL 1998
 
<TABLE>
<CAPTION>
                                                  PERCENT OF
                                                    TOTAL
                                    NUMBER OF      OPTIONS
                                    SECURITIES    GRANTED TO    EXERCISE                   GRANT
                                    UNDERLYING    EMPLOYEES      PRICE                      DATE
                                     OPTIONS      IN FISCAL       PER       EXPIRATION    PRESENT
               NAME                  GRANTED         YEAR        SHARE         DATE       VALUE(1)
               ----                 ----------    ----------    --------    ----------    --------
<S>                                 <C>           <C>           <C>         <C>           <C>
Samuel Bloomberg..................    23,038         10.1%       $17.00        2004          $0
Jeffrey Stone.....................    29,000         12.7%       $17.00        2004          $0
Joseph McGuire....................     8,000          3.5%       $17.00        2004          $0
</TABLE>
 
---------------
(1) The fair value of each stock option granted in fiscal 1998 under Tweeter's
    existing stock option plan was estimated using the Black-Scholes option
    pricing model assuming an expected volatility of 32%, a risk-free interest
    rate of 4%, an expected life of 3 years and no dividends.
 
The following table provides certain information with respect to options to
purchase common stock held by the Named Executives at September 30, 1998. No
options were exercised by Named Executives in fiscal 1998.
 
                   AGGREGATED OPTION EXERCISES IN FISCAL 1998
                       AND FISCAL YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                               NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                                               UNDERLYING OPTIONS AT       IN-THE-MONEY OPTIONS AT
                                                  FISCAL YEAR END              FISCAL YEAR END
                   NAME                      EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE
                   ----                      -------------------------    -------------------------
<S>                                          <C>                          <C>
Samuel Bloomberg...........................       208,916/23,038             $      2,031,560/0
Jeffrey Stone..............................       114,978/29,000             $      1,071,153/0
Joseph McGuire.............................        13,579/18,038                  $141,653/100,735
</TABLE>
 
EMPLOYMENT AGREEMENTS
 
The summaries of the various employment agreements set forth below are qualified
in their entirety by reference to such agreements, which are exhibits to the
Registration Statement of which this prospectus is a part.
 
BLOOMBERG AND STONE AGREEMENTS
 
Upon the completion of our initial public offering, we entered into five-year
employment agreements with Samuel Bloomberg, to serve as Tweeter's Chairman of
the Board and Chief Executive Officer, and with Jeffrey Stone, to serve as
Tweeter's President and Chief Operating Officer. The employment agreements
provide that Messrs. Bloomberg and Stone will each receive a base salary of
$300,000 per year through September 30, 1998, $325,000 from October 1, 1998 to
September 30, 1999, and thereafter at the annual rate of at least $325,000, plus
such increases as may be determined by the Compensation Committee of the Board
of Directors. Each of Messrs. Bloomberg and Stone will have the opportunity to
earn incentive bonuses based upon certain performance criteria, to be determined
by the Compensation Committee, and the opportunity to receive stock options and
other incentive awards under Tweeter's 1998 Stock Option and Incentive Plan.
 
The employment agreements provide for continued employment until termination by
either party. Tweeter, however, may terminate either employment agreement with
or without cause at any time. If either executive's employment is terminated by
Tweeter without cause, Tweeter is obligated to pay the respective executive an
amount equal to such executive's unvested accrued benefits under any stock
option plan, incentive plan or retirement plan plus severance pay calculated as
follows:
 
                                       42
<PAGE>   45
 
        - If the executive is terminated in during the first three years of the
          agreement, he will receive an amount equal his annual base salary in
          effect in the year of termination for three years following
          termination;
 
        - If the executive is terminated in the fourth year, he will receive an
          amount equal to his annual base salary in effect in the year of
          termination for two years following termination; and
 
        - If the executive is terminated in the fifth or any subsequent year of
          the agreement, he will receive an amount equal to his annual base
          salary in the year of termination.
 
The employment agreements also provide that if Tweeter and Messrs. Bloomberg and
Stone do not renew the agreements upon expiration, Tweeter may elect to pay such
executives two years severance in exchange for a two-year non-competition
arrangement.
 
MCGUIRE EMPLOYMENT AGREEMENT
 
Upon the completion of our initial public offering, we entered into an
employment agreement with Joseph McGuire to serve as Chief Financial Officer and
Chief Information Officer of the Company. Under the terms of this three-year
agreement, Mr. McGuire will earn a base annual salary of $185,000 and will have
the opportunity to earn yearly incentive bonuses based on performance criteria
(determined by the Compensation Committee). Mr. McGuire is also entitled to
receive stock options and other incentive awards under Tweeter's stock option
and incentive plans. Tweeter may elect, upon the expiration and non-renewal of
the agreements, to pay Mr. McGuire two years of severance pay in exchange for a
two-year non-competition agreement from Mr. McGuire. If Mr. McGuire's employment
is terminated by Tweeter without cause, Tweeter is obligated to pay Mr. McGuire
an amount equal to his base salary in the year of termination, and shall permit
his options and incentives to continue to vest for one year following
termination.
 
INSURANCE
 
Tweeter has obtained a directors' and officers' liability insurance policy in
the aggregate amount of $10 million. The directors' and officers' insurance
insures the directors and officers of Tweeter from any claim arising out of an
alleged wrongful act by the directors and officers in their respective
capacities as directors and officers and Tweeter to the extent that it has
indemnified a director or officer for such loss. Tweeter currently maintains
key-man life insurance on the life of Mr. Bloomberg in the amount of $1,000,000
and on the life of Mr. Stone in the amount of $5,000,000.
 
STOCK PLANS
 
1995 STOCK OPTION PLAN
 
On November 28, 1995, Tweeter adopted its 1995 Stock Option Plan. The 1995 Stock
Option Plan allowed Tweeter to issue (i) options to purchase common stock which
qualify as incentive stock options ("ISOs") under Section 422A(b) of the
Internal Revenue Code of 1986 to its employees and (ii) options to purchase
common stock which do not qualify as ISOs ("Non-Qualified Options") to
directors, officers, employees and consultants of Tweeter. Payment of the
exercise price may be made in cash, shares of common stock, a combination of
cash or stock or by any other method approved by the Board or the Compensation
Committee. Options are not assignable or transferable except by will or the laws
of descent and distribution. On June 1, 1998, Tweeter's Board of Directors voted
to terminate the 1995 Stock Option Plan effective on, and subject to, the
consummation of Tweeter's initial public offering. As of the date of this
prospectus, Tweeter had outstanding under the 1995 Stock Option Plan ISOs
exercisable into 737,475 shares of common stock and Non-Qualified Options
exercisable into 107,584 shares of common stock.
 
1998 STOCK OPTION AND INCENTIVE PLAN
 
Tweeter adopted the 1998 Stock Option and Incentive Plan on June 1, 1998 to
provide incentives to attract and retain executive officers, directors, key
employees and consultants. The summary of the
 
                                       43
<PAGE>   46
 
1998 Plan set forth below is qualified in its entirety by reference to the 1998
Plan, which is included as an exhibit to the Registration Statement of which
this prospectus is a part.
 
The aggregate number of shares of common stock issuable under the 1998 Plan is
1,458,217 shares. In addition, the number of shares of common stock issuable
under the 1998 Plan will increase, on each anniversary date of the adoption of
the 1998 Plan, to that number of shares equal to the lesser of (i) 2% of the
total number of shares of common stock that are issued and outstanding on a
fully diluted basis on each such anniversary date or (ii) 150,000 shares of
common stock. As options granted under the 1998 Plan are exercised, the number
of shares represented by such previously outstanding options will again become
available for issuance under the 1998 Plan up to a maximum of 100,000 shares of
common stock annually.
 
The 1998 Plan will expire five years following its adoption. Awards made
thereunder and outstanding at the expiration of the 1998 Plans will survive in
accordance with their terms.
 
The 1998 Plan is administered by the Compensation Committee of the Board of
Directors, and will allow Tweeter to issue one or more of the following: stock
options (ISOs and non-qualified options), restricted stock awards, stock
appreciation rights, common stock in lieu of certain cash compensation, dividend
equivalent rights, performance shares and performance units (collectively, "Plan
Awards").
 
In any plan year, no more than 25% of the shares reserved for issuance under the
1998 Plan, may be used for Plan Awards consisting of restricted stock. All
grants of restricted stock under the 1998 Plan will be subject to vesting over
seven years, subject, however, at the compensation committee's discretion, to
acceleration of vesting upon the achievement of specified performance goals.
 
The 1998 Plan also provides for the grant or issuance of Plan Awards to
directors of Tweeter who are not employees of Tweeter. These options will vest
over a period of three years; provided such non-employee director is not removed
before the end of his or her term.
 
INCENTIVE BONUS PLAN
 
Tweeter maintains an Incentive Bonus Plan for its senior employees and
executives, pursuant to which cash bonuses may be paid to such employees and
executives based on achievement of pre-established performance criteria. The
Compensation Committee of the Board of Directors administers the Bonus Plan, and
determines the applicable performance criteria and amounts issuable under this
Plan on an annual basis.
 
EMPLOYEE STOCK PURCHASE PLAN
 
An Employee Stock Purchase Plan is on the agenda for approval by our
stockholders at this year's annual meeting of stockholders and will go into
effect immediately if it is approved. We designed the Stock Purchase Plan to
encourage and assist employees in acquiring an equity ownership interest in
Tweeter. The term of the Stock Purchase Plan is twenty years.
 
The aggregate number of shares of common stock which may be sold under the Stock
Purchase Plan is 500,000 shares, subject to adjustment pursuant to the plan.
Under the plan, employees who meet criteria for eligibility may elect to have up
to 10% of their compensation for each payroll period deducted and applied to the
purchase of shares of common stock. The maximum amount that may be deducted for
each employee in any one calendar year is $5,000. As long as the plan is in
effect, on the last business day of each calendar quarter Tweeter will apply the
amounts deducted from each participating employee's compensation to the purchase
of newly issued shares of common stock. The purchase price of the shares will be
85% of the market value of the shares on the date of the purchase.
 
The summary of the Stock Purchase Plan set forth above is qualified in its
entirety by reference to the Stock Purchase Plan, which is included as an
exhibit to the Registration Statement of which this prospectus is a part.
 
                                       44
<PAGE>   47
 
                       PRINCIPAL AND SELLING STOCKHOLDERS
 
The following table sets forth certain information regarding the beneficial
ownership of Tweeter's common stock as of the date of this prospectus and as
adjusted to reflect the sale by Tweeter and the selling stockholders of the
shares of common stock offered hereby (assuming no exercise of the Underwriters'
over-allotment option), by (i) each person (or group of affiliated persons)
known by Tweeter to be the beneficial owner of more than 5% of the outstanding
common stock, (ii) each of Tweeter's Named Executives and directors, (iii) all
of Tweeter's executive officers and directors as a group and (iv) the selling
stockholders. Except as otherwise indicated in the footnotes to this table,
Tweeter believes that the persons named in this table have sole voting and
investment power with respect to all the shares of common stock indicated.
 
<TABLE>
<CAPTION>
                                              SHARES            NUMBER            SHARES
                                        BENEFICIALLY OWNED     OF SHARES    BENEFICIALLY OWNED
                                           PRIOR TO THE          BEING           AFTER THE
                                            OFFERING(1)         OFFERED         OFFERING(1)
                                        -------------------    ---------    -------------------
     NAME OF BENEFICIAL OWNER:(2)        NUMBER     PERCENT     NUMBER       NUMBER     PERCENT
     ----------------------------       ---------   -------    ---------    ---------   -------
<S>                                     <C>         <C>        <C>          <C>         <C>
DIRECTORS AND NAMED EXECUTIVES
  Samuel Bloomberg(3).................    822,243    12.7%       60,000       762,243    10.9%
  Jeffrey Stone(4)....................    305,145     4.8        30,000       275,145     4.0
  Joseph McGuire(5)...................     21,977       *         4,000        17,977       *
  Michael Cronin(6)...................    646,558    10.3       323,677       322,881     4.8
  Jeffrey Bloomberg(7)................    257,399     4.1        20,025       237,374     3.5
  Matthew Bronfman(8).................    112,443     1.8        25,000        87,443     1.3
  Steven Fischman.....................      4,000       *            --         4,000       *
Directors and Executive Officers as a
  Group (7 persons)(9)................  2,169,765    32.1       462,702     1,707,063    23.5
5% BENEFICIAL OWNERS
Advent International Group(10)........    883,872    14.0       442,480       441,392     6.5
Weston Presidio Offshore Capital
  C.V.(11)............................    646,558    10.3       323,677       322,881     4.8
PNC Capital Corp .....................    457,370     7.3       228,967       228,403     3.4
OTHER SELLING STOCKHOLDERS
BNP Venture Holding Corp.(12).........    286,401     4.6       143,377       143,024     2.1
Natio Vie Developement II, FCPR(13)...    182,968     2.9        89,903        93,065     1.4
Seacoast Capital Partners, L.P.(14)...    159,855     2.5        80,026        79,829     1.2
HFB Associates, LLC(15)...............    104,960     1.6        52,545        52,415       *
</TABLE>
 
---------------
   * Represents less than 1% of class.
 
 (1) Includes the number of shares and percentage ownership represented by such
     shares determined to be beneficially owned by a person in accordance with
     the rules of the Securities and Exchange Commission. The number of
     shares beneficially owned by a person includes shares of common stock that
     are subject to options or warrants held by that person that are currently
     exercisable or exercisable within 60 days of the date of this prospectus.
     Such shares are deemed outstanding for the purpose of computing the
     percentage of outstanding shares owned by such person. Such shares are not
     deemed outstanding, however, for the purposes of computing the percentage
     ownership of any other person.
 (2) Unless otherwise specified, the address of all persons who are executive
     officers or directors of Tweeter is in care of Tweeter, 10 Pequot Way,
     Boston, Massachusetts 02021.
 (3) Includes 32,730 shares held, in the aggregate by the Samuel Bloomberg
     Family Trusts for the benefit of Mr. Bloomberg's children and 7,540 shares
     held by Carolina Bloomberg, the wife of Mr. Bloomberg. Carolina Bloomberg's
     7,540 shares include 313 shares issuable upon the exercise of outstanding
     warrants. Mr. Bloomberg expressly disclaims beneficial ownership of the
     shares held by the Samuel Bloomberg Family Trusts and Carolina Bloomberg.
     Also includes 208,916 shares subject to options granted by Tweeter to Mr.
     Bloomberg exercisable within 60 days of the date of this prospectus.
 (4) Includes 114,978 shares subject to options granted by Tweeter to Mr. Stone
     exercisable within 60 days of the date of this prospectus.
 (5) Consists of 21,977 shares subject to options granted by Tweeter exercisable
     within 60 days of the date of this prospectus.
 (6) Includes shares held by Weston Presidio Offshore Capital Management C.V.
     ("Weston Presidio"). See Note 11 below. Mr. Cronin is a general partner of
     WP Capital Management, L.P., the general partner of Weston Presidio and, as
     such, may be deemed to share voting and investment power with respect to
     all shares held by Weston Presidio. Mr. Cronin expressly disclaims
     beneficial ownership of these shares, except to the extent of his pecuniary
     interest therein.
 
                                       45
<PAGE>   48
 
 (7) Includes 10,839 shares held, in the aggregate, by trusts for the benefit of
     Mr. Bloomberg's children. Mr. Bloomberg expressly disclaims beneficial
     ownership of these shares. Also includes 32,730 shares held, in the
     aggregate, by the Samuel Bloomberg Family Trusts, of which Mr. Bloomberg is
     a trustee. Mr. Bloomberg expressly disclaims beneficial ownership of these
     shares. Also includes 6,560 shares subject to options granted by Tweeter to
     Mr. Bloomberg exercisable within 60 days of the date of this prospectus and
     609 shares issuable upon exercise of outstanding warrants.
 (8) Includes 107,584 shares subject to options granted by Tweeter exercisable
     within 60 days of the date of this prospectus and 84 shares issuable upon
     the exercise of outstanding warrants.
 (9) See notes (3) through (8)
(10) Includes 642,041 shares held by Global Private Equity II Limited
     Partnership (including 12,281 shares issuable upon exercise of outstanding
     warrants) and 241,831 shares held by Advent Direct Investment Program
     Limited Partnership (including 4,627 shares issuable upon exercise of
     outstanding warrants). Its address is 101 Federal Street, Boston,
     Massachusetts 02110.
(11) Includes 11,832 shares issuable upon exercise of outstanding warrants. Its
     address is One Federal Street, Boston, Massachusetts 02110.
(12) Includes 3,383 shares issuable upon exercise of outstanding warrants. Its
     address is 12 Rue Chauchat 75009, Paris, France.
(13) Includes 158,213 shares held by Natio Vie Developpement II, FCPR (including
     3,383 shares issuable upon exercise of outstanding warrants)and 24,755
     shares held by Natio Nouveaux Marches Europe. The 89,903 shares being sold
     by Natio Vie Developpement II, FCPR includes 12,393 shares being sold by
     Natio Nouveaux Marches Europe. The address for both Natio Vie Developpement
     II, FCPR and Natio Nouveaux Marches Europe is 12 Rue Chauchat 75009 Paris,
     France.
(14) Consists of 159,855 shares issuable upon exercise of outstanding warrants.
     Its address is 55 Ferncroft Road, Danvers, Massachusetts 01923.
(15) Consists of 104,960 shares issuable upon exercise of outstanding warrants.
     Its address is 15 South Battery Place, Atlanta, Georgia 30342.
 
                                       46
<PAGE>   49
 
                              CERTAIN TRANSACTIONS
 
CERTAIN FINANCING TRANSACTIONS
 
On May 13, 1996, in connection with the Bryn Mawr acquisition, Tweeter sold
788,349 shares of Series A Preferred Stock for net proceeds of $5.1 million to
Advent Direct Investment Program Limited Partnership and Global Private Equity
II Limited Partnership, each a 5% stockholder of Tweeter, and to Carolina
Bloomberg, the spouse of Samuel Bloomberg.
 
On March 7, 1997, and in connection with a $2.0 million bridge loan from a
predecessor of BankBoston, our existing lender we entered into a Warrant and
Debenture Commitment with certain of our stockholders including Global Private
Equity II Limited Partnership, Weston Presidio Offshore Capital, C.V., Advent
Direct Investment Program Limited Partnership, BNP Venture Holding Corp.,
Jeffrey Bloomberg, Matthew Bronfman, Carolina Bloomberg, Harriet Bloomberg and
Armin Biller. Pursuant to the terms of the Warrant and Debenture Commitment, the
participating stockholders agreed, upon a put by BankBoston or at the request of
the Company, to purchase 10% Convertible Debentures in an aggregate amount of
$2.0 million. In consideration for this obligation, we issued warrants to the
participating stockholders to purchase 37,138 shares of common stock at an
exercise price of $6.46 per share. The debentures were never issued because the
bridge loan was paid in full on May 30, 1997.
 
On May 30, 1997, in connection with the HiFi Buys acquisition, Tweeter sold an
aggregate of 866,425 shares of its Series B Preferred Stock to additional and
existing investors at $8.08 per share. Among such investors were Weston Presidio
Offshore Capital, C.V., Advent Direct Investment Program Limited Partnership,
BNP Venture Holding Corp., PNC Capital Corp, Jeffrey Bloomberg, Matthew
Bronfman, Carolina Bloomberg and Harriet Bloomberg. At the same time, Tweeter
issued $15 million in senior subordinated notes and detachable warrants to
purchase an aggregate of up to 629,566 shares of common stock with an exercise
price of $.002 per share to PNC Capital Corp and Seacoast Capital Partners,
L.P., each a 5% stockholder of Tweeter. Each of PNC Capital Corp and Seacoast
Capital Partners, L.P. holds warrants to purchase 159,855 shares of common
stock. Seacoast Capital Partners, L.P. is selling 80,026 shares of common stock
issuable upon partial exercise of its warrants as a selling stockholder in the
offering.
 
OTHER TRANSACTIONS AND RELATIONSHIPS
 
In May 1996, in connection with the Bryn Mawr acquisition, Tweeter entered into
a consulting agreement with Fred Lokoff, the former owner of Bryn Mawr and a
former member of the Tweeter's Board of Directors. This consulting agreement was
amended as of April 23, 1997 and expires May 2000. Pursuant to the amended
agreement, we are obligated to pay Mr. Lokoff out-of-pocket expenses plus a
monthly payment of $20,833 for each month during the first year of the
Consulting Period, and $4,167 for each month during years three and four of the
Consulting Period. Tweeter also entered into two leases for facilities in
Pennsylvania and a lease for a facility in New Jersey with an affiliate of Mr.
Lokoff and agreed to sublease a portion of one of the facilities back to another
affiliate of Mr. Lokoff at no rental charge. During each of fiscal 1997 and
fiscal 1998, Tweeter paid approximately $670,000 in total rent under such
leases.
 
Tweeter leases space for its Crystal Mall store in Waterford, Connecticut from
an affiliate of New England Development. This mall is managed by WellsPark Group
Limited Partnership. Steven Fischman, a member of Tweeter's Board of Directors,
is the President of New England Development and the Vice Chairman of WellsPark
Group Limited Partnership. We paid such lessor $167,043 in rent and related
charges during fiscal 1997, and $204,594 in rent and related charges in fiscal
1998.
 
                                       47
<PAGE>   50
 
                          DESCRIPTION OF CAPITAL STOCK
 
The authorized capital stock of Tweeter consists of 30,000,000 shares of common
stock and 10,000,000 shares of preferred stock.
 
The following summary description of Tweeter's capital stock is not intended to
be complete and is qualified in its entirety by reference to the provisions of
applicable law and to Tweeter's Amended and Restated Certificate of
Incorporation (the "Charter") and Amended and Restated By-laws (the "By-laws"),
filed as exhibits to the Registration Statement of which this prospectus is a
part.
 
COMMON STOCK
 
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock which Tweeter may designate and issue in the future.
Upon the liquidation, dissolution or winding up of Tweeter, the holders of
common stock are entitled to receive ratably the net assets of Tweeter available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered by Tweeter in the offering
will be, when issued and paid for, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which Tweeter may designate and issue in the future.
 
PREFERRED STOCK
 
Tweeter's Charter authorizes its Board of Directors, subject to any limitations
prescribed by law, without stockholder approval, to issue shares of preferred
stock in one or more series. Each such series of preferred stock shall have such
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by the Board of Directors. The purpose of
authorizing the Board of Directors to issue preferred stock and determine its
rights and preferences is to eliminate delays associated with a stockholder vote
on specific issuances. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of Tweeter's outstanding voting stock. We have no present plans to
issue any shares of preferred stock. We have, however, authorized and reserved
shares of Series A Junior Preferred Stock for issuance in connection with the
Rights Plan discussed below. See "Risk Factors -- Effect of Certain Charter and
By-law Provisions; Antitakeover Provisions."
 
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
 
Tweeter is subject to the provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the Board of Directors or the business combination is approved in a
prescribed manner, or certain other conditions are satisfied. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an
 
                                       48
<PAGE>   51
 
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of Tweeter's voting
stock.
 
The By-laws provide that:
 
        - The number of directors shall be determined from time to time by
          resolution adopted by a majority of the Board of Directors;
 
        - Vacancies on the Board of Directors must be filled by the Board unless
          and until filled by the stockholders; and
 
        - Directors may be removed only for cause by the vote of the holders of
          at least 75% of the shares then entitled to vote at an election of
          directors.
 
The By-laws provide for a classified Board of Directors consisting of three
classes of directors having staggered terms of three years each, with each of
the classes being as nearly equal as possible. A single class of directors will
be elected each year at Tweeter's annual meeting of stockholders. Subject to
transition provisions, each director elected at each such meeting will serve for
a term ending on the date of the third annual meeting of stockholders after his
election and until his successor has been elected and duly qualified. See
"Management -- Composition of the Board of Directors."
 
The Charter empowers the Board of Directors, when considering a tender offer or
merger or acquisition proposal, to take into account any factors that the Board
of Directors determines to be relevant, including, without limitation:
 
        - The interests of Tweeter's stockholders, including the possibility
          that these interests might be best served by the continued
          independence of Tweeter;
 
        - Whether the proposed transaction might violate federal or state laws;
 
        - The consideration offered in the proposed transaction in relation to
          the then current market price for the outstanding capital stock of
          Tweeter, the market price for the capital stock of Tweeter over a
          period of years, the estimated price that might be achieved in a
          negotiated sale of Tweeter as a whole or in part or through orderly
          liquidation, the premiums over market price for the securities of
          other corporations in similar transactions, current political,
          economic and other factors bearing on securities prices and our
          financial condition and future prospects; and
 
        - The social, legal and economic effects upon employees, suppliers,
          customers, creditors and others having similar relationships with
          Tweeter, upon the communities in which it conduct its business and
          upon the economy of the state, region and nation.
 
Under the By-laws, special meetings of the stockholders may be called only by a
majority of the Board of Directors then in office, or by the Chairman of the
Board or the Chief Executive Officer, and only matters set forth in the notice
calling any such meeting may be considered at the meeting. The Charter provides
that stockholder actions must be taken at a meeting at which a quorum of
stockholders is present in person or by proxy and that stockholders will not be
entitled to take action by written consent in lieu of a meeting. The By-laws
provide that the Board of Directors may postpone a scheduled stockholders'
meeting, and the Chairman of the Board may adjourn a stockholders' meeting even
if a quorum is present. Nominations for election to the Board of Directors may
be made either by the Board or by holders of at least 1% of the issued and
outstanding voting shares of Tweeter who have held such stock for at least one
year. Stockholder nominations of director nominees who are not nominated by the
Board of Directors must be submitted to the Secretary of Tweeter not less than
120 days prior to the date when Tweeter first mailed to the stockholders its
proxy statement for the previous year's annual meeting.
 
The foregoing provisions could have the effect of delaying until the next annual
stockholders meeting stockholder actions which are favored by the holders of a
majority of Tweeter's then outstanding voting securities. These provisions may
also discourage another person or entity from
 
                                       49
<PAGE>   52
 
making a tender offer for Tweeter's common stock, because such person or entity,
even if it acquired a majority of the outstanding voting securities of Tweeter,
would be able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders' meeting, and not by
written consent.
 
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. The
Charter requires the affirmative vote of the holders of at least 75% of the
outstanding voting stock of Tweeter to amend or repeal any of the foregoing
Charter provisions. A 75% vote of stockholders is required for the stockholders
to adopt, amend or repeal any By-law provisions. The By-laws may also be amended
or repealed by a majority vote of the Board of Directors subject to any
limitations set forth in the By-laws.
 
STOCKHOLDER RIGHTS PLAN
 
Tweeter's Board of Directors adopted a Stockholder Rights Plan (the "Rights
Plan"), effective upon the consummation of Tweeter's initial public offering.
The Rights Plan makes it more difficult for a third party to acquire Tweeter or
large portions of its common stock. Set forth below is a general summary of the
Rights Plan. Such summary is qualified in its entirety by reference to the
Rights Plan, a copy of which is included as an exhibit to the Registration
Statement of which this prospectus is a part.
 
One preferred stock purchase right (a "Right") is attached to each share of
common stock including the shares of common stock issued and sold in this
offering. Each Right entitles its holder to purchase one one-thousandth of one
share (each, a "Unit") of Tweeter's Series A Junior Participating Cumulative
Preferred Stock, (the "Junior Preferred Stock") at a cash purchase price per
Unit of $100, subject to adjustment. The Rights and their exercise price will be
adjusted to take into account certain dilutive events.
 
The Junior Preferred Stock ranks prior and senior to the common stock with
respect to dividends and distributions but junior to any series or class of
preferred stock that is designated as senior to the Junior Preferred Stock. The
holders of the Junior Preferred Stock are entitled to receive quarterly
dividends when, as and if declared by the Board of Directors, commencing on the
first day of March, June, September or December occurring after the first
issuance of a share or fraction of a share of the Junior Preferred Stock, in an
amount per share equal to the greater of $1.00, or 1,000 times the aggregate per
share amount of all dividends declared on the common stock. Dividends accrue and
are cumulative but do not accrue interest. Except as otherwise provided by law
or set forth below, the holders of shares of Junior Preferred Stock vote
together with the common stock, and any other capital stock of Tweeter having
general voting rights, as one class. Each share of Junior Preferred Stock
entitles the holder thereof to 1,000 votes on all matters submitted to a vote.
 
Whenever dividends payable on any shares of Junior Preferred Stock are in
arrears in an amount equal to two full quarterly dividends (whether or not
declared and whether or not consecutive), the holders of the Junior Preferred
Stock, voting separately as a single class, have the right to elect two
directors of Tweeter at a special meeting of the stockholders or at Tweeter's
next annual meeting of stockholders and at each subsequent annual meeting of
stockholders. In such event, the size of the Board shall be increased
accordingly and the vacancies created thereby shall be filled by the vote of the
holders of the Junior Preferred Stock. Such election right shall terminate at
such time as all arrears in dividends shall have been paid or declared and set
apart for payment, whereupon the terms of office of all such Directors shall
terminate.
 
Upon the earlier to occur of the tenth calendar day after the announcement that
an "Acquiring Person" has acquired beneficial ownership of more than 15% of the
outstanding shares of common stock, or the tenth business day following the
announcement of a tender offer or exchange offer that, upon consummation, would
result in a person or group becoming the beneficial owner of more
                                       50
<PAGE>   53
 
than 15% of the outstanding shares of common stock, the rights separate from the
common stock and become exercisable. An "Acquiring Person" is defined as a
person or group of affiliated or associated persons that has acquired more than
15% of the outstanding shares of common stock, but is deemed to include any
underwriters in their capacities as such. No person who was a stockholder of
Tweeter immediately prior to the consummation of Tweeter's initial public
offering can become an Acquiring Person unless that person acquires beneficial
ownership of more than 20% of the outstanding common stock (other than common
stock issuable upon exercise of stock options granted under an incentive plan
approved by the Board of Directors).
 
At any time after a distribution date, the Board may, in its discretion,
exchange all or any part of the then outstanding and exercisable Rights for
shares of common stock or Units of Junior Preferred Stock. The exchange ratio is
one share of common stock or one Unit of Junior Preferred Stock for each Right.
However, the Board will not have the authority to effect such an exchange after
any person becomes the beneficial owner of 50% or more of Tweeter's common
stock. The Rights may be redeemed in whole but not in part, at a price of $0.001
per Right by the Board of Directors only until the earlier of the tenth calendar
year after a distribution date, or the expiration date of the Rights Plan. The
Board in its sole discretion may amend the Rights Plan until a distribution
date. After a distribution date, the Board may make certain amendments to the
Rights Agreement but none that will adversely affect the interests of Rights
holders.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
The Charter contains certain provisions permitted under the DGCL relating to the
liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty, except
in certain circumstances involving certain wrongful acts, such as:
 
     - For any breach of the director's duty of loyalty to Tweeter or its
       stockholders;
 
     - For acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;
 
     - Under Section 174 of the DGCL; or
 
     - For any transaction from which the director derives an improper personal
       benefit.
 
These provisions do not limit or eliminate Tweeter's or any stockholder's rights
to seek non-monetary relief, such as an injunction or rescission, in the event
of a breach of a director's fiduciary duty. These provisions will not alter a
director's liability under federal securities laws. The Charter also contains
provisions indemnifying the directors and officers of Tweeter to the fullest
extent permitted by the DGCL. We believe that these provisions will assist us in
attracting and retaining qualified individuals to serve as directors.
 
TRANSFER AGENT AND REGISTRAR
 
The transfer agent and registrar for Tweeter's common stock is Boston Equiserve,
150 Royall Street, Canton, MA 02021.
 
                                       51
<PAGE>   54
 
                                  UNDERWRITING
 
Each underwriter named below has agreed to purchase from Tweeter and the selling
stockholders the number of shares of common stock set forth opposite its name.
 
<TABLE>
<CAPTION>
                                                                NUMBER OF
                        UNDERWRITER                              SHARES
                        -----------                             ---------
<S>                                                             <C>
BT Alex. Brown Incorporated.................................
PaineWebber Incorporated....................................
Dain Rauscher Incorporated..................................
 
                                                                ---------
          Total.............................................    2,000,000
                                                                =========
</TABLE>
 
The underwriters will purchase the shares under an Underwriting Agreement with
Tweeter and the selling stockholders. The underwriters will pay Tweeter and the
selling stockholders the public offering price less the underwriting discount
specified on the cover page of this prospectus. Tweeter estimates that its
expenses for this offering will be $900,000. Certain conditions contained in the
Underwriting Agreement must be satisfied before the underwriters are required to
purchase the shares. The underwriters will either purchase all of the shares or
none of them.
 
The underwriters have advised Tweeter and the selling stockholders that they
will offer the shares directly to the public initially at the public offering
price and to certain dealers at the public offering price less a selling
concession not to exceed $          . The underwriters may allow and these
dealers may reallow a concession not to exceed $          to other dealers.
After the initial offering of the shares, the underwriters may change the public
offering price, the concession to selected dealers and the reallowance to other
dealers.
 
The underwriters will offer the shares subject to prior sale, withdrawal,
cancellation or modification of the offer of the shares without notice, and to
their receipt and acceptance of the shares. The underwriters may reject any
order to purchase shares.
 
Tweeter has granted the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to 300,000 additional
shares at the public offering price less the underwriting discount specified on
the cover page of this prospectus. To the extent that the underwriters exercise
such option, each of the underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by it shown in the above table bears to
2,000,000 shares, and Tweeter will be obligated to sell such shares to the
underwriters. The underwriters may exercise such option only to cover
over-allotments. If purchased, the underwriters will offer such additional
shares on the same terms as the other shares. If the underwriters exercise their
over-allotment option in full, the total public offering price will be
$          , the total underwriting discount will be $          , and the total
proceeds to Tweeter will be $          , before expenses.
 
Tweeter and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933 and to contribute to payments which the underwriters may be required to
make in respect thereof.
 
Tweeter, each of the officers and directors of Tweeter, and certain stockholders
of Tweeter, including all of the selling stockholders, have agreed, subject to
certain exceptions, not to offer, sell or otherwise dispose of any shares of
common stock for a period of 90 days after the date of this prospectus without
the prior written consent of the underwriters. Stockholders who have agreed to
this lock-up arrangement hold an aggregate of 3,167,422 shares of common stock
and warrants and options exercisable for 761,029 shares of common stock. The
underwriters may, in their sole discretion and at any time without notice,
release all or any portion of the shares subject to such lock-up agreements.
 
                                       52
<PAGE>   55
 
In connection with this offering, the underwriters and other persons
participating in this offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the common stock. Specifically, the
underwriters may over-allot in connection with this offering, creating a short
position in common stock for their own account. To cover a short position or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. The underwriters may also
impose a penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing common stock in this offering, if the
underwriters repurchase previously distributed common stock in transactions to
cover their short position, in stabilization transactions or otherwise. Finally,
the underwriters may bid for, and purchase, shares of common stock in market
making transactions. These activities may stabilize or maintain the market price
of the common stock above market levels that may otherwise prevail. The
underwriters are not required to engage in these activities and may stop any of
these activities at any time without notice.
 
In connection with this offering, certain underwriters and other selling group
members or their affiliates may engage in passive market making transactions in
the common stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M under the Securities Exchange Act of 1934, as amended. Rule 103
permits passive market making during the period when Regulation M would
otherwise prohibit market making activity by the participants in this offering.
Passive market making consists of displaying bids on the Nasdaq National Market
limited by the bid prices of independent market makers and making purchases
limited by such prices and effected in response to order flow. Rule 103 limits
the net purchases by a passive market maker on each day to a specified
percentage of the passive market maker's average daily trading volume in the
common stock during a specified period. The passive market maker must stop its
passive market making transactions for the rest of that day when such limit is
reached.
 
Certain of the underwriters have, from time to time, provided investment banking
and other financial advisory services to Tweeter, for which they have received
customary fees.
 
                                 LEGAL MATTERS
 
Goulston & Storrs, P.C., Boston, Massachusetts, will deliver an opinion to the
effect that the shares of common stock being offered hereby are validly issued,
fully paid and non-assessable. Kitt Sawitsky serves as Tweeter's Secretary and
Daniel Avery serves as Tweeter's Assistant Secretary. Mr. Sawitsky and Mr. Avery
are both directors and shareholders of Goulston & Storrs, P.C., counsel to
Tweeter. Certain legal matters related to this offering will be passed upon for
the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
 
                                    EXPERTS
 
The consolidated financial statements of Tweeter as of September 30, 1997 and
1998 and for each of the three years in the period ended September 30, 1998,
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report thereon appearing elsewhere
herein, and have been so included in reliance upon such report of Deloitte &
Touche LLP given upon the authority of said firm as experts in accounting and
auditing.
 
                                       53
<PAGE>   56
 
                             AVAILABLE INFORMATION
 
Tweeter files reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Investors may inspect and copy these
reports, proxy statements and other information at the SEC's Public Reference
Room the SEC maintains at 450 Fifth Street, N.W., Washington D.C. 20549 and at
the SEC's Regional Offices at Seven World Trade Center, New York, New York 10048
and 500 West Madison Street, Chicago, Illinois 60661. Investors may obtain
information on the operation of the SEC's Public Reference Room by calling the
SEC at 1(800)SEC-0330. This information also is available at the SEC's World
Wide Web site at http://www.sec.gov. This information also can be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
 
Tweeter filed a Registration Statement on Form S-1 under the Securities Act
relating to the common stock offered by this prospectus with the SEC in
Washington, D.C. This prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules to the
Registration Statement, certain portions having been omitted from this
prospectus in accordance with the rules and regulations of the SEC. Statements
contained in this prospectus concerning the contents of any contract or any
other document referred to are not necessarily complete; reference is made in
each instance to the copy of such contract or document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. For further information with respect to Tweeter and the
common stock offered hereby, we refer investors to the Registration Statement,
the exhibits thereto and the financial statements, notes and schedules filed as
a part thereof.
 
                                       54
<PAGE>   57
 
                         INDEX TO FINANCIAL STATEMENTS
 
TWEETER HOME ENTERTAINMENT GROUP, INC.
 
<TABLE>
<S>                                                           <C>
Independent Auditors' Report................................   F-2
Consolidated Balance Sheets as of September 30, 1997 and
  1998......................................................   F-3
Consolidated Statements of Income for the Years Ended
  September 30, 1996, 1997 and 1998.........................   F-4
Consolidated Statements of Stockholders' Equity (Deficit)
  for the Years Ended September 30, 1996, 1997 and 1998.....   F-5
Consolidated Statements of Cash Flows for the Years Ended
  September 30, 1996, 1997 and 1998.........................   F-6
Notes to Consolidated Financial Statements..................   F-7
</TABLE>
 
                                       F-1
<PAGE>   58
 
                          INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors and Stockholders of
Tweeter Home Entertainment Group, Inc.:
 
We have audited the accompanying consolidated balance sheets of Tweeter Home
Entertainment Group, Inc. as of September 30, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended September 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 1997 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles.
 
/s/ Deloitte & Touche LLP
 
Boston, Massachusetts
November 24, 1998 (December 9, 1998 as to Note 16)
 
                                       F-2
<PAGE>   59
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                    SEPTEMBER 30,
                                                              --------------------------
                                                                 1997           1998
                                                              -----------    -----------
<S>                                                           <C>            <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $ 1,156,837    $   776,709
  Accounts receivable, net of allowance for doubtful
    accounts of $631,000 at September 30, 1997 and $560,000
    at September 30, 1998...................................    5,472,779      6,207,837
  Inventory.................................................   31,160,043     38,362,311
  Deferred tax assets.......................................    1,220,481      1,598,352
  Prepaid expenses and other current assets.................      822,904        590,788
                                                              -----------    -----------
  Total current assets......................................   39,833,044     47,535,997
  Property and equipment, net...............................   17,967,504     23,978,118
  Deferred tax assets.......................................       59,397             --
  Other assets, net.........................................      331,870         35,789
  Goodwill, net.............................................   20,496,115     20,093,107
                                                              -----------    -----------
    TOTAL...................................................  $78,687,930    $91,643,011
                                                              ===========    ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current portion of long-term debt.........................  $   400,000    $        --
  Amount due to bank........................................    4,948,702      4,071,310
  Accounts payable..........................................   11,456,967     10,663,216
  Accrued expenses..........................................    8,392,505     12,006,824
  Customer deposits.........................................    1,255,024      1,422,557
  Deferred warranty.........................................    1,509,481      1,109,325
                                                              -----------    -----------
    Total current liabilities...............................   27,962,679     29,273,232
                                                              -----------    -----------
LONG-TERM DEBT:
  Note payable to bank......................................   14,500,000      5,250,000
  Subordinated debt.........................................   16,387,816             --
                                                              -----------    -----------
    Total long-term debt....................................   30,887,816      5,250,000
                                                              -----------    -----------
OTHER LONG-TERM LIABILITIES:
  Rent related accruals.....................................    2,421,082      2,821,202
  Deferred warranty.........................................    2,175,577      1,066,251
  Deferred tax liabilities..................................           --      1,423,283
  Other long-term liabilities...............................      318,780        198,660
                                                              -----------    -----------
    Total other long-term liabilities.......................    4,915,439      5,509,396
                                                              -----------    -----------
    Total liabilities.......................................   63,765,934     40,032,628
                                                              -----------    -----------
COMMITMENTS AND CONTINGENCIES (Note 9) REDEEMABLE
  CONVERTIBLE PREFERRED STOCK:
  Series A Convertible Preferred Stock, $.01 par value,
    authorized: 2,624,000 shares; 1,700,136 and 0 shares
    issued and outstanding in 1997 and 1998, respectively...   13,399,386             --
  Series B Convertible Preferred Stock, $.01 par value,
    authorized: 2,624,000 shares; 866,425 and 0 shares
    issued and outstanding in 1997 and 1998, respectively...    7,191,221             --
                                                              -----------    -----------
    Total...................................................   20,590,607             --
                                                              -----------    -----------
STOCKHOLDERS' EQUITY (DEFICIT)
  Preferred Stock, $.01 par value, 10,000,000 shares
    authorized; no shares issued and outstanding............           --             --
  Common stock, $.01 par value, 30,000,000 shares
    authorized; 2,755,202 shares issued in 1997; 7,521,763
    shares issued in 1998...................................       27,552         75,217
  Additional paid-in capital................................   (2,732,300)    46,840,737
  Retained earnings (deficit)...............................   (1,382,346)     6,701,244
  Note receivable from officer..............................      (31,500)            --
                                                              -----------    -----------
    Total...................................................   (4,118,594)    53,617,198
  Less treasury stock: 1,698,929 shares in 1997 and
    1,439,073 shares in 1998, at cost.......................   (1,550,017)    (2,006,815)
                                                              -----------    -----------
    Total stockholders' equity (deficit)....................   (5,668,611)    51,610,383
                                                              -----------    -----------
    TOTAL...................................................  $78,687,930    $91,643,011
                                                              ===========    ===========
</TABLE>
 
                See notes to consolidated financial statements.
                                       F-3
<PAGE>   60
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                        YEARS ENDED SEPTEMBER 30,
                                              ---------------------------------------------
                                                  1996            1997            1998
                                              ------------    ------------    -------------
<S>                                           <C>             <C>             <C>
Total revenue...............................  $ 80,606,727    $132,525,037    $ 232,288,571
Cost of sales...............................   (51,816,041)    (86,314,918)    (151,265,382)
                                              ------------    ------------    -------------
Gross profit................................    28,790,686      46,210,119       81,023,189
Selling expenses............................    21,993,070      35,567,940       56,906,541
Corporate, general and administrative
  expenses..................................     4,715,697       8,102,190       11,127,540
Amortization of goodwill....................       129,273         487,084          917,442
                                              ------------    ------------    -------------
Income from operations......................     1,952,646       2,052,905       12,071,666
Interest expense............................       616,879       1,807,660        2,752,810
                                              ------------    ------------    -------------
Income before income taxes..................     1,335,767         245,245        9,318,856
Income tax expense (benefit)................      (453,448)         98,962        3,723,969
                                              ------------    ------------    -------------
Income before extraordinary item............     1,789,215         146,283        5,594,887
                                              ------------    ------------    -------------
Extraordinary item -- early extinguishment
  of debt (less applicable income taxes of
  $244,557).................................            --              --          339,687
                                              ------------    ------------    -------------
NET INCOME..................................  $  1,789,215    $    146,283    $   5,255,200
                                              ============    ============    =============
Accretion of preferred stock................     1,035,942       2,156,356        2,514,043
                                              ------------    ------------    -------------
Net income (loss) available to common
  stockholders..............................  $    753,273    $ (2,010,073)   $   2,741,157
                                              ============    ============    =============
Basic earnings per share:
  Income (loss) available to common
     stockholders before extraordinary
     item...................................  $       0.39    $      (1.20)   $        1.24
  Extraordinary item........................            --              --            (0.14)
                                              ------------    ------------    -------------
  Net income (loss).........................  $       0.39    $      (1.20)   $        1.10
                                              ============    ============    =============
Diluted earnings per share:
  Income (loss) before extraordinary item...  $       0.38    $      (1.20)   $        1.11
  Extraordinary item........................            --              --            (0.07)
                                              ------------    ------------    -------------
  Net income (loss).........................  $       0.38    $      (1.20)   $        1.04
                                              ============    ============    =============
Weighted-average shares outstanding:
  Basic.....................................     1,940,272       1,672,507        2,486,271
                                              ============    ============    =============
  Diluted...................................     1,983,137       1,672,507        5,033,803
                                              ============    ============    =============
</TABLE>
 
                See notes to consolidated financial statements.
                                       F-4
<PAGE>   61
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                                                                                       NOTE
                                     COMMON STOCK       ADDITIONAL     RETAINED     RECEIVABLE       TREASURY STOCK
                                  -------------------     PAID-IN      EARNINGS        FROM      -----------------------
                                   SHARES     AMOUNT      CAPITAL      (DEFICIT)     OFFICER      SHARES       AMOUNT
                                  ---------   -------   -----------   -----------   ----------   ---------   -----------
<S>                               <C>         <C>       <C>           <C>           <C>          <C>         <C>
BALANCE, OCTOBER 1, 1995........  2,755,202   $27,552   $        --   $(2,453,479)   $(31,500)          --   $        --
  Treasury stock acquired.......                                                                 1,698,929    (1,550,017)
  Reclassification of
    undistributed losses upon
    Subchapter S revocation.....                         (3,057,683)    3,057,683
  Subchapter S distributions....                                         (729,750)
  Accretion of Series A
    Convertible Preferred
    Stock.......................                                       (1,035,942)
  Net income....................                                        1,789,215
                                  ---------   -------   -----------   -----------    --------    ---------   -----------
BALANCE, SEPTEMBER 30, 1996.....  2,755,202    27,552    (3,057,683)      627,727     (31,500)   1,698,929    (1,550,017)
  Issuance of warrants in
    connection with subordinated
    debt offering...............                            325,383
  Accretion of Series A
    Convertible Preferred
    Stock.......................                                       (1,802,520)
  Accretion of Series B
    Convertible Preferred
    Stock.......................                                         (353,836)
  Net income....................                                          146,283
                                  ---------   -------   -----------   -----------    --------    ---------   -----------
BALANCE, SEPTEMBER 30, 1997.....  2,755,202    27,552    (2,732,300)   (1,382,346)    (31,500)   1,698,929    (1,550,017)
  Accretion of Series A
    Convertible Preferred Stock
    through July 16, 1998.......                                       (1,640,863)
  Accretion of Series B
    Convertible Preferred Stock
    through July 16, 1998.......                                         (873,180)
  Conversion of warrants........                                         (363,908)                (259,856)      363,908
  Additional payment for
    treasury stock..............                                                                                (820,706)
  Conversion of Series A
    Convertible Preferred
    Stock.......................  1,700,136    17,001    10,543,922     4,479,325
  Conversion of Series B
    Convertible Preferred
    Stock.......................    866,425     8,664     6,828,721     1,227,016
  Issuance of common stock,
    net.........................  2,200,000    22,000    32,200,394
  Payment received on note
    receivable..................                                                       31,500
  Net income....................                                        5,255,200
                                  ---------   -------   -----------   -----------    --------    ---------   -----------
BALANCE, SEPTEMBER 30, 1998.....  7,521,763   $75,217   $46,840,737   $ 6,701,244    $     --    1,439,073   $(2,006,815)
                                  =========   =======   ===========   ===========    ========    =========   ===========
 
<CAPTION>
                                      TOTAL
                                  STOCKHOLDERS'
                                     EQUITY
                                    (DEFICIT)
                                  -------------
<S>                               <C>
BALANCE, OCTOBER 1, 1995........   $(2,457,427)
  Treasury stock acquired.......    (1,550,017)
  Reclassification of
    undistributed losses upon
    Subchapter S revocation.....            --
  Subchapter S distributions....      (729,750)
  Accretion of Series A
    Convertible Preferred
    Stock.......................    (1,035,942)
  Net income....................     1,789,215
                                   -----------
BALANCE, SEPTEMBER 30, 1996.....    (3,983,921)
  Issuance of warrants in
    connection with subordinated
    debt offering...............       325,383
  Accretion of Series A
    Convertible Preferred
    Stock.......................    (1,802,520)
  Accretion of Series B
    Convertible Preferred
    Stock.......................      (353,836)
  Net income....................       146,283
                                   -----------
BALANCE, SEPTEMBER 30, 1997.....    (5,668,611)
  Accretion of Series A
    Convertible Preferred Stock
    through July 16, 1998.......    (1,640,863)
  Accretion of Series B
    Convertible Preferred Stock
    through July 16, 1998.......      (873,180)
  Conversion of warrants........            --
  Additional payment for
    treasury stock..............      (820,706)
  Conversion of Series A
    Convertible Preferred
    Stock.......................    15,040,248
  Conversion of Series B
    Convertible Preferred
    Stock.......................     8,064,401
  Issuance of common stock,
    net.........................    32,222,394
  Payment received on note
    receivable..................        31,500
  Net income....................     5,255,200
                                   -----------
BALANCE, SEPTEMBER 30, 1998.....   $51,610,383
                                   ===========
</TABLE>
 
                See notes to consolidated financial statements.
                                       F-5
<PAGE>   62
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                      YEARS ENDED SEPTEMBER 30,
                                                              ------------------------------------------
                                                                  1996           1997           1998
                                                              ------------   ------------   ------------
<S>                                                           <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................  $  1,789,215   $    146,283   $  5,255,200
Adjustments to reconcile net income to net cash provided by
  (used in) operating activities:
  Extraordinary item........................................            --             --        566,145
  Depreciation and amortization.............................     1,383,235      2,798,404      3,920,362
  Loss on disposal of equipment.............................            --         18,845         58,749
  Deferred income tax provision (benefit)...................    (1,177,420)        71,040      1,104,809
  Changes in operating assets and liabilities, net of
    effects from acquisition of business:
    Increase in accounts receivable.........................      (631,945)    (1,251,986)      (703,558)
    Increase in inventory...................................    (2,411,139)    (6,534,336)    (7,202,268)
    (Increase) decrease in prepaid expenses and other
       current assets.......................................      (250,391)      (277,537)       185,123
    Increase (decrease) in accounts payable and accrued
       expenses.............................................       848,630       (936,490)     2,306,134
    Increase (decrease) in customer deposits................      (329,713)      (242,565)       167,533
    Increase in deferred rent...............................     1,441,315        357,195        400,120
    Decrease in deferred warranty...........................      (157,113)      (710,610)    (1,509,482)
    Increase (decrease) in other liabilities................            --        318,780       (120,120)
                                                              ------------   ------------   ------------
       Net cash provided by (used in) operating
         activities.........................................       504,674     (6,242,977)     4,428,747
                                                              ------------   ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..........................    (2,865,784)    (3,972,465)    (8,996,521)
Proceeds from sale of property and equipment................            --             --         13,350
Acquisition of business.....................................    (8,368,208)   (19,539,800)            --
                                                              ------------   ------------   ------------
       Net cash used in investing activities................   (11,233,992)   (23,512,265)    (8,983,171)
                                                              ------------   ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Amount due to bank..........................................       390,000      3,067,959       (877,392)
Proceeds from long-term borrowings, net of debt issue
  costs.....................................................     1,994,594     20,668,128             --
Payments of long-term debt..................................            --       (100,000)   (26,350,000)
Subchapter S distributions..................................      (729,750)            --             --
Issuance of preferred stock.................................    10,560,926      6,837,385             --
Issuance of common stock....................................            --             --     32,222,394
Additional payment for treasury stock.......................            --             --       (820,706)
Treasury stock acquired.....................................    (1,550,017)            --             --
                                                              ------------   ------------   ------------
       Net cash provided by financing activities............    10,665,753     30,473,472      4,174,296
                                                              ------------   ------------   ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............       (63,565)       718,230       (380,128)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................       502,172        438,607      1,156,837
                                                              ------------   ------------   ------------
CASH AND CASH EQUIVALENTS, END OF YEAR......................  $    438,607   $  1,156,837   $    776,709
                                                              ============   ============   ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest..................................................  $    538,718   $  1,538,077   $  3,179,757
                                                              ============   ============   ============
  Taxes.....................................................  $    860,541   $    358,000   $  3,552,989
                                                              ============   ============   ============
</TABLE>
 
                See notes to consolidated financial statements.
                                       F-6
<PAGE>   63
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
 
1.  BUSINESS OF THE COMPANY
 
New England Audio Co., Inc. ("NEA") was organized as a Massachusetts corporation
in 1972. On June 1, 1998 NEA effected a 1 for 1.524 reverse stock split. On June
5, 1998 NEA was reorganized as a Delaware holding company, whereby all of the
holders of capital stock, options and warrants of NEA exchanged their NEA
securities for identical securities of Tweeter Home Entertainment Group, Inc.
("TWEETER"), a Delaware corporation on a 1 for 1 basis. All share data in these
consolidated financial statements reflect the impact of the reverse stock split
and the reorganization. The consolidated financial statements include the
accounts of NEA, the wholly owned subsidiary of TWEETER, and NEA Delaware Inc.,
a Delaware corporation, the wholly owned subsidiary of NEA (collectively
referred to as the "Company"). On July 16, 1998, the Company completed an
initial public offering ("IPO"). As discussed in Notes 3 and 12, the Series A
Redeemable Convertible Preferred Stock and the Series B Redeemable Convertible
Preferred Stock (collectively the "Preferred Stock") automatically converted
into 2,566,561 shares of common stock upon the completion of the IPO. The
accompanying consolidated financial statements reflect this conversion as of
July 16, 1998.
 
The Company sells home audio, video, entertainment and electronic products
through a chain of fifty-two retail stores in New England, Mid-Atlantic and
Atlanta, Georgia markets. The Company operates under the names "Tweeter, Etc.,"
"Bryn Mawr Stereo & Video" and "HiFi Buys." The Company operates in a single
business segment of retailing audio and video consumer electronic products.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of Tweeter Home Entertainment Group, Inc. and its subsidiaries (the
"Company"). All material intercompany transactions have been eliminated in
consolidation.
 
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid instruments
purchased with maturities of three months or less to be cash equivalents for
balance sheet and cash flow statement purposes.
 
INVENTORIES -- Inventories, which consist primarily of goods for resale, are
stated at the lower of cost (average cost basis) or market.
 
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation and amortization are computed by the straight-line method over the
estimated useful lives of the respective assets. Amortization of improvements to
leased properties is based upon the remaining terms of the leases or the
estimated useful lives of such improvements, whichever is shorter. Furniture and
fixtures are depreciated between three and seven years. Automobiles and trucks
are depreciated over three years. Leasehold interests are amortized over the
remaining lives of the leases. The purchased building is depreciated over a
period of fifteen years.
 
GOODWILL -- Goodwill and other acquisition costs are being amortized on a
straight-line basis over periods from twelve to twenty-five years.
 
OTHER ASSETS -- Other assets include deferred financing costs that are being
amortized over the term of the financing, using the straight-line method, which
approximates the interest method. Some of the deferred financing costs were
written off during 1998 (see Note 14).
 
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the Company's
assets and liabilities which constitute financial instruments as defined in
Statement of Financial Accounting
                                       F-7
<PAGE>   64
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Standards ("SFAS") No. 107, "Disclosure about Fair Value of Financial
Instruments," approximates their recorded value.
 
LONG-LIVED ASSETS -- On an ongoing basis, the Company evaluates the carrying
value of its long-lived assets based upon estimated future undiscounted cash
flows relying on a number of factors, including operating results, business
plans and certain economic projections. In addition, the Company's evaluation
considers nonfinancial data such as changes in the operating environment,
competitive information, market trends and business relationships.
 
ACCOUNTING FOR ESTIMATES -- In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value of
certain assets and liabilities that are not readily apparent from other sources.
The primary estimates underlying the Company's consolidated financial statements
include allowances for potential bad debts, obsolete inventory, goodwill, the
useful lives of its long-lived assets, the recoverability of deferred tax assets
and other matters. Management bases its estimates on certain assumptions, which
they believe are reasonable in the circumstances, and do not believe that any
change in those assumptions in the near term would have a significant effect on
the consolidated financial position or results of operations. Actual results
could differ from these estimates.
 
REVENUE RECOGNITION -- Revenue from merchandise sales is recognized upon
shipment or delivery of goods. Service revenue is recognized when the repair
service is completed.
 
AUTOMATIC PRICE PROTECTION -- Under this program, if a customer purchases a
consumer electronics product from one of the Company's stores and a competitor
within twenty-five miles of the store advertises a lower price within thirty
days, the Company automatically sends a check to the customer for the
difference. The Company records the cost of its Automatic Price Protection
policy to costs of sales, and carries a reserve based on management's estimate
of future liability under the program.
 
EXTENDED WARRANTY SERVICE CONTRACTS -- Except as noted in the following
paragraphs, the Company offers extended warranty service contracts on behalf of
an unrelated third party on most of its products. These contracts are on a
nonrecourse basis to the Company. The Company includes revenues from the sale of
extended warranty contracts in net sales and records as cost of sales the
amounts due to the third party for the cost for such contracts at the time of
sale as the earnings process has been completed.
 
DEFERRED WARRANTY REVENUE -- On May 13, 1996 the Company acquired substantially
all of the assets, and assumed some of the liabilities, of Bryn Mawr Radio and
Television, Inc. and affiliate ("Bryn Mawr"). Bryn Mawr sold extended warranty
contracts beyond the normal manufacturer's warranty period, usually with terms
of coverage (including the manufacturer's warranty period) between twelve and
sixty months. All revenue from the sale of extended warranty contracts sold
through July 31, 1996 was deferred and the revenue is being amortized on a
straight-line basis over the contract period. All costs related to the contracts
are charged to expense when incurred. On August 1, 1996, the Company changed
Bryn Mawr's warranty sales to a third-party provider, in conformance with the
Company's practice of selling extended warranties. As part of the purchase, the
Company assumed the liability for the deferred warranty on Bryn Mawr's books as
of the transaction date.
 
On May 30, 1997 the Company acquired certain assets and assumed certain
liabilities of HiFi Buys, Inc. ("HiFi Buys"). HiFi Buys sold extended warranty
contracts beyond the normal manufacturer's warranty period, usually with terms
of coverage (including the manufacturer's warranty period) between twelve and
sixty months. All revenue from the sale of extended warranty contracts sold
through August 7, 1997 was deferred and the revenue is being amortized on a
straight-line basis over
                                       F-8
<PAGE>   65
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the contract period. Sales commission costs related to the contracts were also
deferred and the cost is being amortized on a straight-line basis over the
contract period. On August 8, 1997, the Company changed HiFi Buys' warranty
sales to a third-party provider, in conformance with the Company's practice of
selling extended warranties. As part of the purchase, the Company assumed the
liability for the deferred warranty on HiFi Buys' books as of the transaction
date, and the sales that continued through August 7, 1997.
 
INCOME TAXES -- Effective September 1, 1987, the stockholders elected to have
the Company taxed as an S Corporation for federal and certain state corporate
income tax purposes. As part of a recapitalization that occurred on November 28,
1995, the Company revoked the election made by it under Section 1362(a) of the
Internal Revenue Code. Upon revocation, the Corporation was changed from tax
treatment as an S Corporation to tax treatment as a C Corporation. As such, the
Company became responsible for federal and certain state income taxes, which
were formerly the responsibilities of its stockholders.
 
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax liabilities or
assets are recognized for the estimated tax effects of temporary differences
between financial reporting and taxable income and for loss carryforwards based
on enacted tax laws and rates.
 
STORE OPENING COSTS -- Costs of a noncapital nature incurred prior to store
openings are expensed as incurred.
 
STOCK-BASED COMPENSATION -- The Company, for the purposes of presentation in its
financial statements, follows the precepts set forth in Accounting Principles
Board Opinion No. 25 for computing compensatory aspects of stock-based
compensation. In compliance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has disclosed the required pro forma effect on net
income in Note 12.
 
DEFERRED RENT AND RENTAL EXPENSE -- Minimum rent expense is recorded using the
straight-line method over the related lease term. The difference between current
payments required and rent expense is reflected as deferred rent.
 
ADVERTISING -- Net costs for advertising, including electronic media, newspaper,
buyer's guides and catalogs, which are expensed as incurred, amounted to
$2,574,340, $3,561,573 and $3,957,746 for the years ended September 30, 1996,
1997 and 1998, respectively.
 
EARNINGS (LOSS) PER SHARE -- The Company computed earnings (loss) per share in
accordance with SFAS No. 128, "Earnings Per Share". Basic earnings (loss) per
share is calculated based on the weighted-average number of common shares
outstanding, adjusted for the nominal issuance of certain warrants. Diluted
earnings (loss) per share is based on the weighted average number of common
shares outstanding, adjusted for the nominal issuance of certain warrants,
shares of Preferred Stock outstanding, when dilutive, and dilutive potential
common shares (common stock options and warrants).
 
                                       F-9
<PAGE>   66
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share:
 
<TABLE>
<CAPTION>
                                                   YEARS ENDED SEPTEMBER 30,
                                            ---------------------------------------
                                               1996          1997           1998
                                            ----------    -----------    ----------
<S>                                         <C>           <C>            <C>
BASIC EARNINGS (LOSS) PER SHARE ("EPS"):
Numerator:
  Net income..............................  $1,789,215    $   146,283    $5,255,200
  Accretion of preferred stock
     dividends............................   1,035,942      2,156,356     2,514,043
                                            ----------    -----------    ----------
Net income (loss) available to common
  stockholder's...........................     753,273     (2,010,073)    2,741,157
Denominator:
  Weighted average common shares
     outstanding..........................   1,570,641      1,302,876     2,116,640
  Nominal issuance of warrants............     369,631        369,631       369,631
                                            ----------    -----------    ----------
Weighted average shares outstanding.......   1,940,272      1,672,507     2,486,271
                                            ----------    -----------    ----------
Basic EPS.................................  $     0.39    $     (1.20)   $     1.10
                                            ==========    ===========    ==========
DILUTED EARNINGS (LOSS) PER SHARE:
Numerator.................................  $  753,273    $(2,010,073)   $5,255,200
Denominator:
  Weighted average common shares
     outstanding..........................   1,940,272      1,672,507     2,486,271
  Potential common stock outstanding......      42,865             --     2,547,532
                                            ----------    -----------    ----------
Total.....................................   1,983,137      1,672,507     5,033,803
                                            ----------    -----------    ----------
Diluted EPS...............................  $     0.38    $     (1.20)   $     1.04
                                            ==========    ===========    ==========
</TABLE>
 
RECENT ACCOUNTING PRONOUNCEMENTS -- The Financial Accounting Standards Board
recently issued SFAS No. 130, "Reporting Comprehensive Income," SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," SFAS No.
132, "Employees' Disclosures About Pensions and Other Post Retirement Benefits,"
and SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The effect of adopting these Statements is not expected to be
material to the Company's consolidated financial position or results of
operations.
 
RECLASSIFICATION -- Various financial statement amounts for 1996 and 1997 have
been reclassified to conform to the classifications used in the September 30,
1998 consolidated financial statements.
 
3.  CHANGES IN CAPITAL STRUCTURE
 
On July 16, 1998, the Company successfully completed an IPO of its common stock,
resulting in net proceeds to the Company of $32.2 million, which was used to
retire outstanding debt. The offering also required the mandatory conversion of
all of the outstanding preferred stock into common stock, thereby eliminating
significant rights enjoyed by the preferred stockholders, and significantly
changing the capital structure of the Company. Among other rights, the preferred
stock had redemption provisions that guaranteed the holders a minimum return on
investment of 15% if the shares were redeemed. Mandatory redemption was to begin
in 2001, if the Company had not successfully completed an IPO resulting in net
proceeds to the Company of at least $15.0 million. In periods prior to the IPO,
the Company accreted preferred stock to its redemption value with a charge to
retained earnings. Upon conversion of the preferred stock to common stock, the
Company eliminated all balances related to the preferred stock through retained
earnings and additional paid-in capital.
 
                                      F-10
<PAGE>   67
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4.  PROPERTY AND EQUIPMENT
 
Major classifications of property and equipment are summarized below:
 
<TABLE>
<CAPTION>
                                                       SEPTEMBER 30,
                                                 --------------------------
                                                    1997           1998
                                                 -----------    -----------
<S>                                              <C>            <C>
Leasehold improvements.........................  $17,050,196    $18,942,726
Furniture and equipment........................    8,380,734     10,185,549
Building.......................................           --      3,063,897
Land...........................................           --        940,000
Automobiles and trucks.........................      247,950        370,074
Construction in progress.......................      865,503        475,912
Leasehold interests............................      165,000        165,000
                                                 -----------    -----------
                                                  26,709,383     34,143,158
Less accumulated depreciation and
  amortization.................................    8,741,879     10,165,040
                                                 -----------    -----------
                                                 $17,967,504    $23,978,118
                                                 ===========    ===========
</TABLE>
 
Depreciation and amortization (excluding amortization of goodwill) for the
fiscal years ended September 30, 1996, 1997 and 1998 aggregated $1,226,109,
$2,258,121 and $2,913,808, respectively.
 
5.  ACCRUED EXPENSES
 
Accrued expenses consist of the following:
 
<TABLE>
<CAPTION>
                                                        SEPTEMBER 30,
                                                  -------------------------
                                                     1997          1998
                                                  ----------    -----------
<S>                                               <C>           <C>
Compensation....................................  $1,422,106    $ 2,465,064
Advertising.....................................     900,952      1,832,127
Merchandise received not invoiced...............   1,576,413      1,748,947
Fringe benefits.................................     660,790      1,446,030
Sales taxes payable.............................     616,764      1,069,249
Group insurance.................................     220,826        255,000
Federal Income Taxes Payable....................     605,031             --
Other...........................................   2,389,623      3,190,407
                                                  ----------    -----------
                                                  $8,392,505    $12,006,824
                                                  ==========    ===========
</TABLE>
 
6.  DEFERRED WARRANTY REVENUE
 
As part of the acquisition of Bryn Mawr in May of 1996, the Company assumed the
deferred revenue on Bryn Mawr's books at that time. Amortization of the deferred
warranty revenue for the years ended September 30, 1996, 1997 and 1998 was
$253,529, $468,418 and $326,247, respectively, (see Note 2). Self-funded
extended warranty contract sales were $96,416 in the year ended September 30,
1996.
 
As part of the acquisition of HiFi Buys on May 30, 1997, the Company assumed the
deferred warranty revenue and expense related to the sale of self-funded
extended warranty contracts on HiFi Buys' books at the date of the acquisition.
Amortization of deferred warranty revenue was $478,145 and
 
                                      F-11
<PAGE>   68
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
$1,183,234 for the years ended September 30, 1997 and 1998, respectively, (see
Note 2). Self-funded extended warranty contract sales were $276,720 in the year
ended September 30, 1997.
 
7.  DEBT
 
Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                        SEPTEMBER 30,
                                                  -------------------------
                                                     1997           1998
                                                  -----------    ----------
<S>                                               <C>            <C>
Subordinated debt...............................  $16,787,816    $       --
Revolving term bank loan........................   14,500,000     5,250,000
                                                  -----------    ----------
Subtotal........................................   31,287,816     5,250,000
Less current portion............................      400,000            --
                                                  -----------    ----------
                                                  $30,887,816    $5,250,000
                                                  ===========    ==========
</TABLE>
 
On November 28, 1995, as part of a recapitalization, the Company repurchased
approximately 1,698,929 shares equaling 60% of its common stock from the
Company's then principal stockholder for cash and subordinated debt of $550,017
and $1,000,000, respectively. The subordinated debt (the "Redemption Note")
carried interest at an effective rate of 10.8% and became due upon the
consummation of the Company's IPO. Interest was payable on a quarterly basis.
The terms of the repurchase arrangement also required that should an IPO by the
Company occur on or before June 30, 1999, an additional payment of $650,000 plus
an amount equal to 9% interest per annum accruing on such amount from November
28, 1995 to the date of such offering be made (approximately $821,000 at the
time of the effective date of the offering). This incremental payment would be
made on the occurrence of an IPO, regardless of whether the Redemption Note was
still outstanding. This additional payment was made upon completion of the
Company's IPO. Also on November 28, 1995, $363,590 of long-term debt due to
officers and related parties was converted to Series A Redeemable Convertible
Preferred Stock ("Series A Preferred Stock") as part of the recapitalization. On
May 13, 1996, the remaining balance of the long-term debt due to officers and
related parties was converted to Series A Preferred Stock as part of the
recapitalization.
 
On May 13, 1996, in order to partially finance the acquisition of Bryn Mawr, the
Company amended its loan agreement with the bank. Among other things, this
amendment changed (a) the maximum balance from $6,000,000 to $12,000,000, (b)
the maturity date from September 30, 1997 to April 30, 1998, and (c) certain
financial covenants, the most restrictive of which continued to be the
maintenance of certain debt coverage and leverage ratios.
 
On March 7, 1997, the Company amended its loan agreement with the bank, and
entered into a Warrant and Debenture Commitment with certain of its
stockholders. This financing enabled the Company to borrow from the bank an
additional "Bridge Loan" of up to $2,000,000 due July 7, 1997. The proceeds of
these borrowings were used to fund store expansions. As a condition of providing
the Bridge Loan, the bank required a commitment from a third party to purchase
the Bridge Loan prior to maturity. Certain participating stockholders of the
Company entered into a Bridge Note Purchase Agreement with the bank, agreeing to
purchase upon a put by the bank or upon the Company's request 10% Convertible
Subordinated Debentures due 2000 (the "Debentures"), in an aggregate amount of
$2,000,000. The Debentures were never issued because the related Bridge Loan was
paid in full on May 30, 1997.
 
To induce the participating stockholders to enter into the Warrant and Debenture
Commitment, the Company issued warrants to the participating stockholders for
each month that they remained obligated under the Warrant and Debenture
Commitment. During the time that this commitment
 
                                      F-12
<PAGE>   69
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
was in effect, the Company issued warrants to purchase an aggregate of 37,138
shares of the Company's common stock, with an exercise price of $6.46 per share
and a term of five years. The Company repaid the Bridge Loan on May 30, 1997,
and the obligations of the participating stockholders terminated under the
Warrant and Debenture Commitment.
 
On May 30, 1997, in order to partially finance the acquisition of HiFi Buys, the
Company replaced its loan agreement with the bank with a new senior acquisition
and working capital financing agreement. Among other things, this new agreement
changed (a) the maximum balance from $14,000,000 to $20,000,000, (b) the
maturity date from April 30, 1998 to June 1, 2000, and (c) certain financial
covenants, the most restrictive of which continued to be the maintenance of
certain debt coverage and leverage ratios. The amount outstanding under the
agreement totaled $14,500,000 at September 30, 1997, and was collateralized by
the Company's inventory and certain other assets. The unpaid balances under this
agreement bore interest at the lender's base rate, or LIBOR plus 2% if the
Company committed the balances for a period of 30 days or more (8.16% at
September 30, 1997).
 
On May 30, 1997, as part of the acquisition of HiFi Buys, the Company entered
into a subordinated debt financing with a predecessor of HFB Associates, LLC
(the "Seller"), and issued a $1,200,000 subordinated term note to the Seller,
with principal payments made in thirty-six equal installments monthly. The
unpaid principal balance bears an annual interest rate of 9.5%. At September 30,
1997, the unpaid balance on this note was $1,100,000. The note was paid in full
in July 1998. In addition, the Company issued warrants to the Seller to purchase
104,960 shares of common stock with a ten-year term and an exercise price of
$8.08 per share.
 
On May 30, 1997, in order to partially finance the acquisition of HiFi Buys, the
Company entered into a senior subordinated debt financing with a group of
institutional investors, and issued $15,000,000 of Senior Subordinated
Promissory Notes (the "1997 Notes"), with warrants (see Note 12). The 1997 Notes
bore an annual interest rate of 12% on the unpaid principal balance. Principal
payments due under the 1997 Notes were $5,000,000 due on May 30 of 2002, 2003,
and 2004. The 1997 Notes were paid in full upon the completion of the Company's
IPO. The detachable warrants issued with the 1997 Notes are exercisable for up
to 629,566 shares of the Company's common stock, with an exercise price of $.002
per share. Because these warrants had a fair value of $325,383, such discount
was recorded on the debt. The discount accreted over the term of the debt. The
balance of the discount was charged to extraordinary items at the time of
repayment of these Notes (see Note 14).
 
As stated in Note 3, the Company completed an IPO of 2,710,000 shares of common
stock on July 16, 1998. The Company sold 2,200,000 shares and 510,000 shares
were sold by existing stockholders. Net proceeds received by the Company were
$32,200,000. The Company has used these net proceeds to repay (i) approximately
$14.5 million in outstanding indebtedness under its existing loan agreement with
BankBoston, N.A.; (ii) approximately $15.0 million in outstanding indebtedness
under the Senior Subordinated Promissory Notes dated May 30, 1997 issued in
connection with the HiFi Buys acquisition; (iii) approximately $1.9 million in
outstanding indebtedness under the Redemption Note dated November 28, 1995
issued in connection with a recapitalization pursuant to which the Company
repurchased common stock from certain of its stockholders which amount includes
a one-time payment of approximately $821,000 which became due to these
stockholders upon the consummation of the IPO; and (iv) approximately $771,000
to repay outstanding indebtedness under the Subordinated Note dated May 30, 1997
issued in connection with the HiFi Buys acquisition.
 
On July 20, 1998, the Company amended its loan agreement with the bank. Among
other things, this amendment changed (a) the maximum balance from $20,000,000 to
$30,000,000 (b) the maturity
                                      F-13
<PAGE>   70
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
date from June 1, 2000 to July 31, 2001, and (c) certain financial covenants,
the most restrictive of which continue to be the maintenance of certain debt
coverage and leverage ratios. The amount outstanding under the agreement totaled
$5,250,000 at September 30, 1998, and is collateralized by the Company's
inventory, and certain other assets. The unpaid balances under this agreement
bear interest at the lender's base rate, or LIBOR plus 2% if the Company commits
the balances for a period of thirty days or more (base rate of 8.5% at September
30, 1998).
 
8.  EMPLOYEE SAVINGS PLAN
 
In October 1985, the Company established an employee savings plan covering all
employees. Under the terms of the plan, which was adopted under Section 401(k)
of the Internal Revenue Code, the Company can match employee contributions. Such
matching contributions cannot exceed the employer's established annual
percentage of compensation, which was a maximum of 6% for the years ended
September 30, 1996, 1997 and 1998. The Company's contribution expense was
$75,000, $100,000 and $290,000 for the years ended September 30, 1996, 1997 and
1998, respectively.
 
9.  COMMITMENTS AND CONTINGENCIES
 
The Company leases most of its stores, installation centers, warehouses and
administrative facilities under operating leases. The lives of these leases
range from five to twenty years with varying renewal options. The leases provide
for base rentals, real estate taxes, common area maintenance charges and, in
some instances, for the payment of percentage rents based on sales volume. Rent
expense for the years ended September 30, 1996, 1997 and 1998 was $3,163,095,
$5,978,819 and $8,637,505 respectively. Percentage rent expense was, $64,964,
$47,243 and $41,833 for the years ended September 30, 1996, 1997 and 1998,
respectively.
 
Future minimum rental commitments under non cancelable operating leases as of
September 30, 1998 are as follows:
 
<TABLE>
<S>                                             <C>
Year ended September 30, 1999.................  $ 8,446,493
Year ended September 30, 2000.................    8,336,893
Year ended September 30, 2001.................    7,957,409
Year ended September 30, 2002.................    7,544,449
Year ended September 30, 2003.................    6,985,012
Thereafter....................................   38,053,030
                                                -----------
     Total....................................  $77,323,286
                                                ===========
</TABLE>
 
On June 23, 1998 the Company completed the purchase of a facility in
Massachusetts to serve as the corporate headquarters, service center and
distribution center in Massachusetts. The purchase price for this facility was
$3.95 million, and the Company has spent an additional $1.40 million in related
building improvements. The Company expects to finance the purchase and related
improvements with a mortgage of $3.32 million.
 
Effective upon the consummation of the IPO, the Company has entered into
employment agreements with certain key employees. These agreements provide for
continued employment with termination by either party. Under certain
circumstances, the key employees could receive an amount up to three times their
annual base salary.
 
                                      F-14
<PAGE>   71
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10.  INCOME TAXES
 
The Company accounts for income taxes in accordance with the provisions of SFAS
No. 109, "Accounting for Income Taxes." SFAS No. 109 requires an asset and
liability approach, and deferred taxes are determined based on the estimated
future tax effects of differences between the financial statement and tax basis
of assets and liabilities given the provisions of enacted tax laws.
 
The provision (benefit) for income taxes under SFAS No. 109 consisted of the
following:
 
<TABLE>
<CAPTION>
                                                    YEARS ENDED SEPTEMBER 30,
                                               ------------------------------------
                                                  1996         1997         1998
                                               ------------------------------------
<S>                                            <C>            <C>        <C>
Current:
  Federal....................................  $   563,777    $21,821    $2,081,039
  State......................................      160,195      6,101       538,121
                                               -----------    -------    ----------
                                                   723,972     27,922     2,619,160
Deferred:
  Current deferral...........................     (176,615)    71,040     1,104,809
  Tax rate increase on temporary differences
     resulting from the revocation of the S
     Corporation election....................   (1,000,805)        --            --
                                               -----------    -------    ----------
                                               $  (453,448)   $98,962    $3,723,969
                                               ===========    =======    ==========
</TABLE>
 
The tax effects of significant temporary differences comprising the Company's
current and long-term net deferred tax assets are as follows:
 
<TABLE>
<CAPTION>
                                                               SEPTEMBER 30,
                                                         --------------------------
                                                            1997           1998
                                                         --------------------------
<S>                                                      <C>            <C>
Accruals and reserves..................................  $   574,272    $ 1,129,773
Deferred revenue.......................................      646,209        468,579
                                                         -----------    -----------
Net deferred tax assets -- current.....................    1,220,481      1,598,352
                                                         -----------    -----------
Deferred rent..........................................    1,036,466      1,191,676
Depreciation...........................................      854,091        663,705
Deferred revenue.......................................      931,364        450,384
Amortization and other.................................   (2,762,524)    (3,729,048)
                                                         -----------    -----------
Net deferred tax assets (liabilities) -- long-term.....       59,397     (1,423,283)
                                                         -----------    -----------
Total net deferred tax assets..........................  $ 1,279,878    $   175,069
                                                         ===========    ===========
</TABLE>
 
                                      F-15
<PAGE>   72
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
The Company has determined that it is more likely than not that it will fully
realize the deferred tax assets. Consequently, no valuation allowance was
established as of September 30, 1997 and September 30, 1998. A reconciliation
between the statutory and effective income tax rates is as follows:
 
<TABLE>
<CAPTION>
                                                     YEARS ENDED SEPTEMBER 30,
                                                     --------------------------
                                                      1996      1997      1998
                                                     ------     -----     -----
<S>                                                  <C>        <C>       <C>
Statutory income tax rate..........................   34.0%     34.0%     34.0%
State income taxes net of federal benefit..........    5.8%      5.8%      5.5%
Change in tax status...............................  (74.9)%      --%       --%
Other..............................................    1.2%      0.5%      0.5%
                                                     -----      ----      ----
Effective income tax rate..........................  (33.9)%    40.3%     40.0%
                                                     =====      ====      ====
</TABLE>
 
11.  ACQUISITIONS
 
BRYN MAWR -- On May 13, 1996, the Company acquired the principal operating
assets and assumed certain liabilities of Bryn Mawr. This transaction has been
accounted for as a purchase and, accordingly, the results of operations of the
Company's business relating to Bryn Mawr have been included in the consolidated
statements of income since the acquisition date. The allocation of the purchase
price resulted in goodwill of $5,600,900, which is being amortized over
twenty-five years using the straight-line method. The net assets acquired at
fair market value on May 13, 1996 were allocated as follows:
 
<TABLE>
<S>                                                           <C>
Inventory...................................................  $ 5,043,100
Property and equipment......................................    6,860,400
Other assets................................................      837,800
Accounts payable and accrued expenses.......................   (9,689,300)
                                                              -----------
     Net assets acquired....................................    3,052,000
Total purchase price and related costs......................    8,652,900
                                                              -----------
     Goodwill...............................................  $ 5,600,900
                                                              ===========
</TABLE>
 
HIFI BUYS -- On May 30, 1997, the Company acquired the principal operating
assets and assumed certain liabilities of HiFi Buys. This transaction has been
accounted for as a purchase and, accordingly, the results of operations of the
Company's business relating to HiFi Buys have been included in the consolidated
statements of income since the acquisition date. The allocation of the purchase
price resulted in goodwill of $15,826,949, which is being amortized over
twenty-five years using the straight-line method. The net assets acquired at
fair market value on May 30, 1997 were allocated as follows:
 
<TABLE>
<S>                                                           <C>
Inventory...................................................  $ 9,273,400
Property and equipment......................................    2,771,700
Accounts receivable.........................................    1,428,800
Other assets................................................      236,500
Accounts payable and accrued expenses.......................   (9,483,100)
                                                              -----------
     Net assets acquired....................................    4,227,300
Total purchase price and related costs......................   20,054,249
                                                              -----------
     Goodwill...............................................  $15,826,949
                                                              ===========
</TABLE>
 
                                      F-16
<PAGE>   73
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
The following unaudited pro forma financial information reflects the
consolidated results of operations for the Company for the years ended September
30, 1996 and 1997 as though the acquisitions had occurred on the first day of
each fiscal year. The pro forma operating results are presented for comparative
purposes only and do not purport to present the Company's actual operating
results had the acquisitions been consummated on October 1, 1995 or results
which may occur in the future.
 
<TABLE>
<CAPTION>
                                                        YEARS ENDED SEPTEMBER 30,
                                                       ----------------------------
                                                           1996            1997
                                                       ------------    ------------
<S>                                                    <C>             <C>
Net sales............................................  $207,359,183    $196,462,686
Net income...........................................     1,441,943         625,748
Net income (loss) available to common stockholders...       406,001      (1,530,608)
Basic earnings (loss) per share......................          0.21           (0.92)
Diluted earnings (loss) per share....................          0.20           (0.92)
</TABLE>
 
The Company had also previously recorded approximately $809,000 of goodwill in
connection with prior acquisitions.
 
Accumulated amortization of goodwill was approximately $1,227,000 and $2,144,000
for the years ended September 30, 1997 and 1998, respectively.
 
12.  STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
 
COMMON STOCK -- Holders of common stock are entitled to dividends if declared by
the Board of Directors, and each share carries one vote. The common stock has no
cumulative voting, redemption or preemptive rights.
 
SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK -- Series A and Series B
Convertible Preferred Stock were entitled to significant additional rights
beyond those granted to the common stock. These classes of stock were converted
to common stock upon the IPO of the Company's common stock on July 16, 1998 (see
Note 3). Some of the rights that previously existed on this class of stock are
as follows:
 
        Voting Rights -- Each preferred share was entitled to one vote for each
     common stock into which it is then convertible.
 
        Representative Directors -- Holders of a majority of the shares of
     Series A and Series B Convertible Preferred Stock and Investor Common
     Stock, voting separately as a single class, were entitled to elect two
     members of the Board of Directors. Holders of Series A and Series B
     Convertible Preferred Stock were also entitled to elect additional members
     of the Board of Directors under certain circumstances.
 
        Conversion Provisions -- All Convertible Preferred Stock was
     automatically convertible to common stock upon the completion of a public
     offering resulting in net proceeds to the Company of not less than
     $15,000,000. As of the date of the initial public offering (July 16, 1998),
     the conversion price under most circumstances of a Series A Preferred Share
     was $6.46. The conversion price of a Series B Preferred Share was $8.08. At
     the offering price of $17.00 per share, mandatory conversion was required
     under the terms of the Preferred Stock Agreement.
 
        Dividends -- No dividends shall were to be paid on the Common Stock
     unless the shares of Series A and Series B Convertible Preferred Stock
     received the same dividends that such shares
 
                                      F-17
<PAGE>   74
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     would have received had they been converted into Common Stock prior to the
     record date for such dividend.
 
        Liquidation Preference -- In the event of involuntary liquidation,
     dissolution or winding up of the Company, each holder of Series A and
     Series B Convertible Preferred Stock was entitled to receive, prior and in
     preference to any distribution of any assets to holders of any other
     capital stock of the Company, the sum of (a) $6.46 or $8.08 per share for
     Series A and Series B, respectively, plus (b) an amount in the form of a
     dividend equal to a 15% rate of return compounded annually from the date of
     original issuance.
 
        Redemption Provisions -- Series A and Series B Convertible Preferred
     Stock were redeemable if (a) such redemption would not violate any of the
     existing subordination agreements between the Company and its Senior
     Lender, and (b) the Company had the consent of the Senior Subordinated
     Noteholders. Mandatory redemption of 6.5% of the total outstanding shares
     of both Series A and Series B, was required to occur on the last day of
     March, June, September and December commencing in 2001. The redemption
     price was equal to $6.46 per share for Series A and $8.08 per share for
     Series B, plus an amount in the form of a dividend equal to a 15% rate of
     return compounded annually and calculated from the original issue date.
     This Preferred Stock dividend was accreted using the interest method from
     the time of issuance, and this accretion was reversed upon the conversion
     to common stock.
 
        Reserved Shares -- As of September 30, 1997, there were 2,566,561 shares
     of common stock reserved for issuance upon conversion of the Preferred
     Stock. As of September 30, 1997 and 1998, there were 855,400 and 1,458,217
     shares, respectively, of common stock reserved for issuance upon the
     exercise of options granted under the Company's Stock Option Plans.
 
As of September 30, 1997 and 1998 there were 771,664 shares and 511,808 shares,
respectively, of common stock issuable upon the exercise of outstanding
warrants.
 
On November 28, 1995 the Company purchased 1,698,929 shares of common stock from
the former majority stockholder for $1,550,017 in cash and the Redemption Note.
The terms of the repurchase arrangement also required that should an IPO by the
Company occur on or before June 30, 1999, an additional payment of $650,000 plus
an amount equal to 9% interest per annum accruing on such amount from November
28, 1995 to the date of such offering (approximately $821,000 at the time of the
effective date of the Company's IPO). This incremental payment would be made on
the occurrence of the IPO, regardless of whether the Redemption Note was still
outstanding. Also on November 28, 1995, the Company authorized and issued
2,624,000 shares and 911,781 shares, respectively, of Series A Convertible
Preferred Stock. In exchange for the shares issued, the Company received net
cash proceeds of $5,469,110.
 
On January 16, 1996, the Board of Directors authorized a ten-for-one stock
split. All share data in these financial statements reflect the impact of the
split (see Note 1).
 
On May 13, 1996, the Company issued an additional 788,349 shares of Series A
Convertible Preferred Stock for net proceeds to the Company of $5,091,818 in
order to partially finance the acquisition of Bryn Mawr.
 
During the period from March 7, 1997 through May 30, 1997, the Company issued
warrants to purchase 37,138 shares of common stock to certain stockholders who
participated in a Warrant and Debenture Commitment relating to a Bridge Loan
financing (see Note 7). The warrants have a five-year term and an exercise price
of $6.46 per share. The Company hired an independent appraiser to determine the
fair value of the warrants as of the issue date. The warrants were issued at or
above the fair value of the underlying stock; consequently, the Company has not
assigned value to nor
 
                                      F-18
<PAGE>   75
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
recorded an expense for this warrant issuance. All of the warrants issued as
part of this transaction were outstanding and exercisable at September 30, 1997
and September 30, 1998.
 
On May 30, 1997, the Company issued 866,425 shares of Series B Convertible
Preferred Stock for net proceeds to the Company of $6,837,385 in order to
partially finance the acquisition of HiFi Buys. Series B Convertible Preferred
Stock is subject to essentially the same terms and conditions as the Series A
Convertible Preferred Stock, except that the conversion price of Series B is
$8.08 per share.
 
On May 30, 1997, the Company issued warrants to purchase 629,566 shares of
common stock in connection with a subordinated debt offering in order to
partially finance the acquisition of HiFi Buys. The warrants have a ten-year
term, an exercise price of $.01, and are subject to certain transfer
restrictions. The Company hired an independent appraiser to determine the fair
value of the warrants as of the issue date. That value was appraised to be
$0.517 per share. Accordingly, the Company placed an aggregate value on the
warrants of $325,383. All of the warrants issued as part of this transaction
were outstanding as of September 30, 1997 and 369,710 are outstanding as of
September 30, 1998. These warrants became immediately exercisable upon the
consummation of the Company's IPO.
 
On May 30, 1997, the Company issued warrants to purchase 104,960 shares of
common stock in connection with the subordinated debt issued to the seller of
HiFi Buys. These warrants have a term of five years from the date of the IPO.
The Company hired an independent appraiser to determine the fair value of the
warrants as of the issue date. The warrants were issued at or above the fair
value of the underlying stock; consequently, the Company has not assigned value
to nor recorded an expense for these warrants. The warrants have an exercise
price of $8.08 per share and are outstanding and exercisable at September 30,
1998.
 
The weighted average exercise price for all warrants outstanding at September
30, 1997 and 1998, respectively, is $1.42 and $2.13. The following table
summarizes information regarding stock warrants outstanding at September 30,
1998:
 
<TABLE>
<CAPTION>
                NUMBER
             OUTSTANDING
                 AND           WEIGHTED-
AVERAGE      EXERCISABLE        AVERAGE
EXERCISE   AT SEPTEMBER 30,    REMAINING
 PRICES          1998         LIFE (YEARS)
--------   ----------------   ------------
<S>        <C>                <C>
 $0.01         369,710            8.70
  6.46          37,138            8.40
  8.08         104,960            8.70
 -----         -------            ----
 $2.13         511,808            8.68
</TABLE>
 
INITIAL PUBLIC OFFERING -- On July 16, 1998, the Company completed an IPO of
2,710,000 shares of common stock. The Company sold 2,200,000 shares and 510,000
shares were sold by existing stockholders. Net proceeds received by the Company
were $32.2 million. Net proceeds were used to repay indebtedness (see Note 7).
There were no payments made to directors or officers of the Company, or to
persons owning ten percent or more of any class of equity securities of the
Company or to any affiliate of the Company, except that the Company repaid
approximately $5.0 million on account of a promissory note, as described in Note
7, to one of the institutional investors. This investor beneficially owned 11.2%
of the Company's common stock, immediately prior to the Offering.
 
COMMON STOCK INCENTIVE PLANS -- In November of 1995, the Company implemented a
stock option plan, under which incentive and nonqualified stock options may be
granted to management, key
 
                                      F-19
<PAGE>   76
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
employees and outside directors to purchase shares of the Company's common
stock. The exercise price for incentive stock options for employees and
nonqualified options for outside directors range from $.61 to $17.00 per share.
Options are generally exercisable over a period from one to ten years from the
date of the grant and are dependent on the vesting schedule associated with the
grant. Options for 388,779, 568,274 and 658,076 shares were exercisable under
the 1995 Stock Option Plan at September 30, 1996, 1997 and 1998, respectively.
There were 30,438 shares available for future grants at September 30, 1997.
 
On June 1, 1998, the Company terminated the 1995 Stock Option Plan, and adopted
the 1998 Stock Option and Incentive Plan (the "1998 Plan") to provide incentives
to attract and retain executive officers, directors, key employees and
consultants. The aggregate number of shares of common stock issuable under the
1998 Plan is equal to 1,458,217. In addition, the number of shares of common
stock issuable under the 1998 Plan will increase, on each anniversary date of
the adoption of the 1998 Plan, to that number of shares equal to the lesser of
(i) 2% of the total number of shares of common stock that are issued and
outstanding on a fully diluted basis on each such anniversary date or (ii)
150,000 shares of common stock. As options granted under the 1998 Plan are
exercised, the number of shares represented by such previously outstanding
options will again become available for issuance under the 1998 Plan up to a
maximum of 100,000 shares of common stock annually. There were no shares
exercisable under the 1998 Stock Option Plan at September 30, 1998. There were
1,458,217 shares available for future grants at September 30, 1998.
 
The 1998 Plan is administered by the Compensation Committee of the Board of
Directors, and will allow the Company to issue one or more of the following:
stock options (incentive stock option's and non-qualified options), restricted
stock awards, stock appreciation rights, common stock in lieu of certain cash
compensation, dividend equivalent rights, performance shares and performance
units (collectively, "Plan Awards"). The 1998 Plan will expire five years
following its adoption. Awards made thereunder and outstanding at the expiration
of the 1998 Plan will survive in accordance with their terms.
 
In any plan year no more than 25% of the shares reserved for issuance under the
1998 Plan may be used for Plan Awards consisting of restricted stock. All grants
of restricted stock under the 1998 Plan will be subject to vesting over seven
years, subject, however, at the Administrator's discretion, to acceleration of
vesting upon the achievement of specified performance goals.
 
The 1998 Plan also provides for the grant or issuance of Plan Awards to
directors of the Company who are not employees of the Company. These options
will vest over a period of three years; provided such non-employee director is
not removed before the end of his or her term. On June 1, 1998, the Board of
Directors authorized the grant of options ("June 1998 Options") under the 1998
Plan, exercisable for a total of 209,988 shares of common stock, to certain
officers, directors and employees of the Company. All such June 1998 Options
were granted upon the consummation of the IPO, and the exercise price for all
such June 1998 Options is $17.00 per share.
 
                                      F-20
<PAGE>   77
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
The following summarizes transactions under the stock option plans:
 
<TABLE>
<CAPTION>
                                                                            WEIGHTED-
                                                                             AVERAGE
                                            NUMBER OF       PER SHARE       EXERCISE
                                             SHARES       OPTION PRICE        PRICE
                                            ---------    ---------------    ---------
<S>                                         <C>          <C>                <C>
October 1, 1995
  Granted.................................    604,424    $ 0.61 to $7.10     $ 2.31
  Exercised...............................         --                 --         --
  Canceled................................         --                 --         --
                                            ---------                        ------
September 30, 1996........................    604,424    $ 0.61 to $7.10     $ 2.31
  Granted.................................    232,602    $ 6.46 to $8.08     $ 7.59
  Exercised...............................         --                 --         --
  Canceled................................     11,289    $ 0.61 to $6.46     $ 1.77
                                            ---------                        ------
September 30, 1997........................    825,737    $ 0.61 to $8.08     $ 3.72
  Granted.................................    229,270    $7.24 to $17.00     $15.74
  Exercised...............................         --                 --         --
  Canceled................................     10,282    $ 0.61 to $7.24     $ 3.24
                                            ---------                        ------
September 30, 1998........................  1,044,725    $0.61 to $17.00     $ 6.48
                                            =========
</TABLE>
 
The following summarizes information about all stock options outstanding at
September 30, 1998:
 
<TABLE>
<CAPTION>
                                                   WEIGHTED-         NUMBER OF
                                   SHARES           AVERAGE           OPTIONS
                                OUTSTANDING        REMAINING        EXERCISABLE
EXERCISE                      AT SEPTEMBER 30,    CONTRACTUAL     AT SEPTEMBER 30,
PRICES                              1998          LIFE (YEARS)          1998
--------                      ----------------    ------------    ----------------
<S>                           <C>                 <C>             <C>
$ 0.61......................       215,676            7.3             172,146
  0.67......................       111,878            7.4             111,878
  1.52......................       107,584            7.2             107,584
  6.46......................       133,023            7.6              98,142
  7.10......................        44,148            7.7              44,148
  7.24......................       179,860            8.8              71,288
  8.08......................        52,890            8.8              52,890
 14.21......................           328            9.4                  --
 17.00......................       199,338            3.3                  --
                                 ---------                            -------
Total.......................     1,044,725            6.9             658,076
                                 =========                            =======
</TABLE>
 
The weighted-average exercise price of all options outstanding as of September
30, 1997 and 1998 is $3.72 and $6.48, respectively.
 
For purposes of determining the disclosure required by SFAS No. 123, the fair
value of each stock option granted in 1996, 1997 and 1998 under the Company's
stock option plan was estimated on
 
                                      F-21
<PAGE>   78
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the date of grant using the Black-Scholes option-pricing model. Key assumptions
used to apply this pricing model were as follows:
 
<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,
                                                        --------------------
                                                        1996    1997    1998
                                                        ----    ----    ----
<S>                                                     <C>     <C>     <C>
Risk free interest rate...............................  6.21%   5.69%   5.67%
Expected life of option grants (years)................   5.0     4.0     3.3
Expected volatility of underlying stock...............  54.5%   54.5%   54.5%
</TABLE>
 
Had compensation cost for stock option grants during the years ended September
30, 1996, 1997 and 1998 been determined under the provisions of SFAS No. 123,
the Company's net income would have been approximately $1,742,600, $136,000 and
$5,033,000, respectively. Pro forma diluted earnings (loss) per share would have
been $0.36, $(1.21) and $1.00 for the years ended September 30, 1996, 1997 and
1998, respectively.
 
13.  RELATED PARTY TRANSACTIONS
 
In May 1996, in connection with the acquisition of Bryn Mawr, the Company
entered into a consulting agreement with Bryn Mawr's former owner and a former
director of the Company ("BMFO") for a term of four years (the "Consulting
Period"). This consulting agreement was amended as of April 23, 1997 and
currently the Company is obligated to pay BMFO a monthly salary of approximately
$21,000 for each month during the first year after the commencement date of the
agreement, and approximately $4,200 for each month during years three and four
of the Consulting Period plus out-of-pocket expenses. No compensation or
expenses were to be paid to BMFO for the second year of the Consulting Period.
The Company also entered into certain lease agreements for three facilities in
Pennsylvania with an affiliate of BMFO. Total yearly payments under these
agreements aggregates to approximately $670,000.
 
14.  EXTRAORDINARY ITEM
 
In connection with the IPO on July 16, 1998, the Company recorded an
extraordinary charge against current period income for the early extinguishment
of debt. The Company wrote off deferred financing costs of $286,009 related to
the 1997 Notes. The Company also wrote off $280,136 representing the unamortized
portion of the discount related to the warrants issued in conjunction with the
1997 Notes. The gross amount of the extraordinary item was $566,145. The net
effect of $339,687, after tax benefit of $226,458, was recorded in the
consolidated statement of income as an extraordinary item.
 
                                      F-22
<PAGE>   79
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
15.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
 
The following is a tabulation of the quarterly results of operations for the
fiscal years ended September 30, 1997 and 1998, respectively.
 
<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                          ------------------------------------------------------
                                          DECEMBER 31,    MARCH 31,    JUNE 30,    SEPTEMBER 30,
                                              1996          1997         1997          1997
                                          ------------    ---------    --------    -------------
                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>             <C>          <C>         <C>
FISCAL YEAR 1997
Total revenue...........................    $34,988        $25,595     $28,211        $43,731
Gross profit............................     12,300          9,102       9,659         15,149
Net income (loss).......................      1,350            (47)       (698)          (459)
Net income (loss) available to common
  stockholders..........................        896           (495)     (1,234)        (1,178)
Basic earnings (loss) per share.........       0.54          (0.30)      (0.74)         (0.70)
Diluted earnings (loss) per share.......        0.4          (0.30)      (0.74)         (0.70)
</TABLE>
 
<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                          ------------------------------------------------------
                                          DECEMBER 31,    MARCH 31,    JUNE 30,    SEPTEMBER 30,
                                              1997          1998         1998          1998
                                          ------------    ---------    --------    -------------
<S>                                       <C>             <C>          <C>         <C>
FISCAL YEAR 1998
Total revenue...........................    $74,617        $54,512     $49,676        $53,483
Gross profit............................     25,381         19,468      17,419         18,754
Net income..............................      3,173          1,139         204            599
Net income (loss) available to common
  stockholders..........................      2,381            347        (588)           738
Basic earnings (loss) per share.........       1.42           0.21       (0.35)          0.11
Diluted earnings (loss) per share.......       0.69           0.17       (0.35)          0.11
</TABLE>
 
16.  SUBSEQUENT EVENTS
 
On December 9, 1998, the Company reached an agreement in principle to acquire
certain assets and liabilities of the retail operations of Home Entertainment,
Inc. for consideration of approximately $8,200,000. The source of cash for the
purchase price will be borrowings made under the Company's revolving line of
credit. Home Entertainment, Inc. operates seven consumer electronics retail
stores in the Dallas and Houston markets. The Company will continue the
operation of the retail stores as well as the service and distribution
facilities.
 
                                   **********
 
                                      F-23
<PAGE>   80
 
------------------------------------------------------
------------------------------------------------------
 
INVESTORS MAY RELY ONLY ON THE INFORMATION IN THIS PROSPECTUS. TWEETER, THE
SELLING STOCKHOLDERS AND THE UNDERWRITERS HAVE NOT AUTHORIZED ANYONE TO PROVIDE
ANY DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY SHARES OF TWEETER'S COMMON STOCK TO ANY
PERSON IN ANY JURISDICTION WHERE IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE OF SHARES MEANS THAT INFORMATION IN THIS PROSPECTUS IS
CORRECT OR COMPLETE AFTER THE DATE OF THIS PROSPECTUS.
 
                                ---------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
Prospectus Summary....................    3
Risk Factors..........................    9
Price Range of Common Stock...........   15
Use of Proceeds.......................   15
Dividend Policy.......................   15
Capitalization........................   16
Selected Consolidated Financial and
  Operating Data......................   17
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.......................   20
Business..............................   30
Management............................   39
Principal and Selling Stockholders....   45
Certain Transactions..................   47
Description of Capital Stock..........   48
Underwriting..........................   52
Legal Matters.........................   53
Experts...............................   53
Available Information.................   54
Index to Financial Statements.........  F-1
</TABLE>
 
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
 
                                2,000,000 Shares
 
                                  TWEETER HOME
                                 ENTERTAINMENT
                                  GROUP, INC.
 
                                  Common Stock
                         ------------------------------
 
                                   PROSPECTUS
                         ------------------------------
 
                                 BT ALEX. BROWN
 
                            PAINEWEBBER INCORPORATED
 
                             DAIN RAUSCHER WESSELS
                    A DIVISION OF DAIN RAUSCHER INCORPORATED
                                          , 1999
 
------------------------------------------------------
------------------------------------------------------
<PAGE>   81
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
The following table sets forth the various expenses to be incurred in connection
with the sale and distribution of the securities being registered. Tweeter will
pay all of these expenses.
 
<TABLE>
<S>                                                           <C>
SEC registration fee........................................  $ 17,983
NASD filing fee.............................................     6,969
Nasdaq listing fee..........................................    17,500
Printing, engraving and mailing expenses....................   350,000
Legal fees and expenses.....................................   200,000
Accounting fees and expenses................................   250,000
Transfer agent fees and expenses............................     5,000
Miscellaneous...............................................    52,548
                                                              --------
          TOTAL.............................................  $900,000
                                                              ========
</TABLE>
 
ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
Tweeter's Charter generally limits the liability of its Directors to Tweeter to
the fullest extent permitted from time to time by Delaware law. The DGCL
permits, but does not require, Tweeter to indemnify its directors, officers,
employees or agents, and expressly provides that the indemnification provided
for under the DGCL shall not be deemed exclusive of any indemnification right
under any By-law, vote of stockholders or disinterested directors, or otherwise.
The DGCL permits indemnification against expenses and certain other liabilities
arising out of legal actions brought or threatened against such persons for
their conduct on behalf of a corporation; provided, however, that each such
person acted in good faith and in a manner that he reasonably believed was in or
not opposed to Tweeter's best interests and, in the case of a criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The DGCL does not allow indemnification of directors in the case of an action by
or in the right of a corporation (including stockholder derivative suits) unless
the directors successfully defend the action or indemnification is ordered by
the court.
 
The Charter provides that Tweeter's Directors and executive officers shall be
and, in the discretion of the Board of Directors, other officers and non-officer
employees may be indemnified by Tweeter to the fullest extent authorized by
Delaware law, as it now exists or may in the future be amended, against all
expenses and liabilities actually and reasonably incurred in connection with
service for or on behalf of Tweeter. The By-laws also provide that the right of
directors and officers to indemnification shall be a contract right and shall
not be exclusive of any other right now possessed or hereafter acquired under
any By-law, agreement, vote of stockholders, or otherwise. The Charter contains
a provision permitted by Delaware law that generally eliminates the personal
liability of directors for monetary damages for breaches of their fiduciary
duty, including breaches involving negligence or gross negligence in business
combinations, unless the director has breached his or her duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or a knowing
violation of law, paid a dividend or approved a stock repurchase in violation of
the DGCL or obtained an improper personal benefit. The provision does not alter
a director's liability under the Federal securities laws. In addition, this
provision does not affect the availability of equitable remedies, such as an
injunction or rescission, for breach of fiduciary duty.
 
Reference is also made to the underwriting agreement, which is filed as Exhibit
1.1 to this Registration Statement.
 
                                      II-1
<PAGE>   82
 
ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.
 
Set forth in chronological order is information regarding the number of shares
of capital stock sold, the number of options granted by Tweeter, and the amount
of debt securities issued by Tweeter since December 31, 1995, the consideration
received by Tweeter for such shares, options and debt instruments and
information relating to the section of the Securities Act, or rule of the
Securities and Exchange Commission under which exemption from registration is
claimed. None of these securities were registered under the Securities Act. No
sale of securities involved the use of an underwriter and no commissions were
paid in connection with the sales of securities, except that we paid a placement
fee of $500,000 to BankBoston, N.A., in connection with the subordinated loan
referred to in paragraph 4 below.
 
        1.  On May 13, 1996, we issued an aggregate of 788,349 shares of Series
     A Redeemable Convertible Preferred Stock to Advent Direct Investment
     Program Limited Partnership, Global Private Equity II Limited Partnership
     and Carolina Bloomberg at a purchase price of $6.46 per share. These shares
     were converted into 788,349 shares of common stock upon consummation of our
     initial public offering. The securities were sold pursuant to Section 4(2)
     and Regulation D under the Securities Act.
 
        2.  On March 7, 1997, in connection with a $2.0 million bridge loan from
     Tweeter's existing lender, the Company sold to Weston Presidio Offshore
     Capital, C.V., Natio Vie Developpement II, FCPR, BNP Venture Holding Corp.,
     Jeffrey Bloomberg, Harriet Bloomberg, Armin Biller, Matthew Bronfman,
     Advent Direct Investment Program Limited Partnership, Global Private Equity
     II Limited Partnership and Carolina Bloomberg, pursuant to the terms of a
     Warrant and Debenture Commitment dated as of March 7, 1997, warrants
     initially exercisable for an aggregate of 37,138 shares of common stock.
     The purchase price for each warrant was $0.15 multiplied by the number of
     shares of common stock which could initially be purchased upon exercise in
     full of each warrant. The exercise price for each such warrant is $6.46 per
     share. The securities were sold pursuant to Section 4(2) and Regulation D
     under the Securities Act.
 
        3.  On May 30, 1997, as part of the total purchase price for the HiFi
     Buys acquisition, we issued a Warrant to HiFi Buys Incorporated, now known
     as HFB Associates LLC, exercisable for 104,960 shares of common stock. The
     exercise price for such HFB Associates warrant is $8.08 per share. We also
     issued the HiFi Buys Note to HiFi Buys Incorporated at such time. The
     securities were sold pursuant to Section 4(2) and Regulation D under the
     Securities Act.
 
        4.  On June 2, 1997, we issued the 1997 Notes in the aggregate amount of
     $15,000,000 to PNC Capital Corp, Exeter Venture Lenders, L.P., Exeter
     Equity Partners and Seacoast Capital Partners, L.P. We also issued to these
     lenders warrants exercisable for an aggregate of 629,566 shares of common
     stock. The exercise price under each such warrant is $.002 per share. The
     securities were sold pursuant to Section 4(2) and Regulation D under the
     Securities Act.
 
        5.  On June 2, 1997, we issued an aggregate of 866,425 shares of Series
     B Redeemable Convertible Preferred Stock to Weston Presidio Offshore
     Capital C.V., Natio Vie Developpement II, FCPR, BNP Venture Holding Corp.,
     Jeffrey Bloomberg, Harriet Bloomberg, Matthew Bronfman, Advent Direct
     Investment Program Limited Partnership, Carolina Bloomberg, PNC Capital
     Corp, Exeter Venture Lenders, L.P. and BancBoston Investments Inc., at a
     purchase price of $8.08 per share. These shares were converted into 866,425
     shares of common stock upon consummation of our initial public offering.
     The securities were sold pursuant to Section 4(2) and Regulation D under
     the Securities Act.
 
        6.  During the past three years, the Company has granted options to
     purchase an aggregate number of 1,066,296 shares to purchase common stock
     to 326 individuals (some of which
 
                                      II-2
<PAGE>   83
 
     have terminated their employment with the Company, all of whom were at the
     time of grant Tweeter's employees or directors, pursuant to its 1995 Stock
     Option Plan. These options have been granted under Section 4(2) of the
     Securities Act and/or Rule 701 under the Securities Act.
 
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENTS.
 
(a) See the Exhibit Index included immediately preceding the exhibits to this
Registration Statement.
 
(b) Schedule II is included in this Registration Statement. All other schedules
are not required under the instructions relating to the applicable accounting
regulations of the Securities and Exchange Commission or are inapplicable, and
therefore have been omitted.
 
ITEM 17.  UNDERTAKINGS.
 
(a) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
 
(b) The undersigned registrant hereby undertakes that:
 
        (1) For purposes of determining any liability under the Securities Act,
     the information omitted from the form of prospectus filed as part of this
     registration statement in reliance upon Rule 430A and contained in a form
     of prospectus filed by the registrant pursuant to under Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act shall be deemed to be part of this
     registration statement as of the time it was declared effective; and
 
        (2) For the purpose of determining any liability under the Securities
     Act, each post-effective amendment that contains a form of prospectus shall
     be deemed to be a new registration statement relating to the securities
     offered therein, and that offering of such securities at that time shall be
     deemed to be the initial bona fide offering thereof.
 
                                      II-3
<PAGE>   84
 
                                   SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts on January 13, 1999.
 
                                          TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                                          By:       /s/ JEFFREY STONE
 
                                            ------------------------------------
                                            Jeffrey Stone
                                            President and Chief Operating
                                              Officer
 
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been duly signed below by the following persons in the capacities
and on the dates indicated.
 
<TABLE>
<CAPTION>
                     SIGNATURE                                   TITLE                     DATE
                     ---------                                   -----                     ----
<C>                                                  <S>                            <C>
 
               /s/ SAMUEL BLOOMBERG                  Director, Chairman of the       January 13, 1999
---------------------------------------------------    Board and Chief Executive
        Samuel Bloomberg, By Jeffrey Stone;            Officer
               His Attorney-in-Fact.
 
                 /s/ JEFFREY STONE                   Director and President          January 13, 1999
---------------------------------------------------    (Principal Executive
                   Jeffrey Stone                       Officer)
 
                /s/ JOSEPH MCGUIRE                   Vice President and Chief        January 13, 1999
---------------------------------------------------    Financial Officer
                  Joseph Mcguire                       (Principal Financial
                                                       Officer and Principal
                                                       Accounting Officer)
 
               /s/ JEFFREY BLOOMBERG                 Director                        January 13, 1999
---------------------------------------------------
       Jeffrey Bloomberg, By Jeffrey Stone,
               His Attorney-in-Fact.
 
               /s/ MATTHEW BRONFMAN                  Director                        January 13, 1999
---------------------------------------------------
        Matthew Bronfman, By Jeffrey Stone,
               His Attorney-in-Fact.
 
                /s/ MICHAEL CRONIN                   Director                        January 13, 1999
---------------------------------------------------
         Michael Cronin, By Jeffrey Stone,
               His Attorney-in-Fact.
</TABLE>
 
                                      II-4
<PAGE>   85
 
                                                                     SCHEDULE II
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                         ADDITIONS
                                BALANCE AT   ---------------------------------   DEDUCTIONS   BALANCE AT
                                BEGINNING    CHARGED TO COSTS     CHARGED TO       NET OF       END OF
DESCRIPTION                     OF PERIOD      AND EXPENSES     OTHER ACCOUNTS   WRITE-OFFS     PERIOD
-----------                     ----------   ----------------   --------------   ----------   ----------
<S>                             <C>          <C>                <C>              <C>          <C>
Years ended
  September 30, 1998..........     $631            $ 13              $ --           $84          $560
  September 30, 1997..........      440             191                --            --           631
  September 30, 1996..........       15             427                --             2           440
</TABLE>
 
                                       S-1
<PAGE>   86
 
                                 EXHIBIT INDEX
 
(a) EXHIBITS:
 
<TABLE>
<CAPTION>
EXHIBIT NO.                                DESCRIPTION
-----------                                -----------
<C>           <C>  <S>                                                           <C>
   **1.1      --   Form of Underwriting Agreement.
    *3.1      --   Amended and Restated Certificate of Incorporation of the
                   Company.
    *3.2      --   Amended and Restated By-Laws of the Company.
    *4.1      --   Specimen Certificate representing the common stock.
    *4.2      --   Shareholders' Rights Agreement.
   **5.1      --   Opinion of Goulston & Storrs, P.C. with respect to the
                   legality of the shares being offered.
   *10.1      --   Amended and Restated Registration Rights Agreement, dated as
                   of May 30, 1997, as amended, among the Company and the
                   shareholders and warrantholders listed therein, as amended.
   *10.2      --   Warrant Purchase Agreement among the Company, PNC Capital
                   Corp, Seacoast Capital Partners, L.P. and Exeter Venture
                   Lenders, L.P., dated as of May 30, 1997, as amended.
   *10.3      --   Stock Purchase Warrant issued to PNC Capital Corp dated June
                   5, 1998 for 209,855 shares of common stock of the Company.
   *10.4      --   Stock Purchase Warrant issued to Seacoast Capital Partners,
                   L.P. dated June 5, 1998 for 209,855 shares of common stock
                   of the Company.
   *10.7      --   Common Stock Warrant issued to HiFi Buys Incorporated dated
                   June 5, 1998 for 104,960 shares of common stock of the
                   Company.
   *10.8      --   Form of common stock Purchase Warrant dated June 5, 1998
                   issued by the Company pursuant to the Warrant and Debenture
                   Commitment.
   *10.9      --   1995 Stock Option Plan.
   *10.10     --   1998 Plan.
   *10.12     --   Employment Agreement between the Company and Samuel
                   Bloomberg to be effective upon the offering.
   *10.13     --   Employment Agreement between the Company and Jeffrey Stone
                   to be effective upon the offering.
   *10.14     --   Employment Agreement between the Company and Joseph McGuire
                   to be effective upon the offering.
   *10.15     --   Employment Agreement between the Company and Fred Lokoff,
                   dated as of May 13, 1996 and amended as of April 23, 1997.
   *10.17     --   Asset Purchase Agreement, dated as of May 30, 1997, between
                   the Company and HiFi Buys Incorporated.
   *10.18     --   Purchase and Sale Agreement between Chadwick-Miller Inc. and
                   New England Audio Co., Inc. for premises at 10 Pequot Way,
                   Canton, MA, dated March 31, 1998.
</TABLE>
<PAGE>   87
 
<TABLE>
<CAPTION>
EXHIBIT NO.                                DESCRIPTION
-----------                                -----------
<C>           <C>  <S>                                                           <C>
   *10.19     --   Progressive Retailers Organization, Inc. Policy and
                   Procedures Manual.
  **10.20     --   Form of Employee Stock Purchase Plan submitted to vote of
                   stockholders.
  **11        --   Statement Re Computation of Per Share Earnings.
   *21.1      --   Subsidiaries of the Company.
  **23.1      --   Consent of Deloitte & Touche LLP
    23.2      --   Consent of Goulston & Storrs, P.C., counsel to the Company
                   (included in Exhibit 5.1).
  **24.1      --   Power of Attorney (included on Signature Page).
  **27.1      --   Financial Data Schedule.
</TABLE>
 
---------------
 * Filed as an exhibit to the Registrant's Registration Statement on Form S-1
   (Registration Number 333-51015) or amendments thereto and incorporated herein
   by reference.
 
** Filed herewith.
[{"type": "S-1", "sequence": "1", "description": "TWEETER HOME ENTERTAINMENT GROUP, INC.", "secsgml_size_bytes": 334245}]
{"company-data": {"conformed-name": "TWEETER HOME ENTERTAINMENT GROUP INC", "cik": "0001060390", "assigned-sic": "5731", "irs-number": "043417513", "state-of-incorporation": "DE", "fiscal-year-end": "0331"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-70543", "film-number": "99505877"}, "business-address": {"street1": "10 PEQUOT WAY", "city": "CANTON", "state": "MA", "zip": "02021", "phone": "7818303000"}}
1
 
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1999
 
                                                      REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                            ------------------------
DELAWARE                             5731                            04-3417513
   (STATE OR OTHER JURISDICTION       (PRIMARY STANDARD INDUSTRIAL             (I.R.S. EMPLOYER
        OF INCORPORATION)             CLASSIFICATION CODE NUMBER)            IDENTIFICATION NO.)
------------------------
 
                                 10 PEQUOT WAY
 
                          CANTON, MASSACHUSETTS 02021
                                 (781) 830-3000
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------
 
                    JOSEPH MCGUIRE, CHIEF FINANCIAL OFFICER
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
                                 10 PEQUOT WAY
                          CANTON, MASSACHUSETTS 02021
                                 (781) 830-3000
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
                            ------------------------
 
                          COPIES OF COMMUNICATIONS TO:
TIMOTHY B. BANCROFT, ESQ.                          EDWIN L. MILLER, JR., ESQ.
              GOULSTON & STORRS, P.C.                         TESTA, HURWITZ & THIBEAULT, LLP
                400 ATLANTIC AVENUE                                   125 HIGH STREET
            BOSTON, MASSACHUSETTS 02110                         BOSTON, MASSACHUSETTS 02110
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:  As soon as
practicable after the effective date of this Registration Statement.
 
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
 
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
 
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
 
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
 
                            ------------------------
 
                        CALCULATION OF REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
                                                           PROPOSED MAXIMUM          PROPOSED MAXIMUM
    TITLE OF EACH CLASS OF           AMOUNT TO BE         OFFERING PRICE PER        AGGREGATE OFFERING          AMOUNT OF
  SECURITIES TO BE REGISTERED       REGISTERED(1)              SHARE(2)                  PRICE(2)           REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value       2,300,000 Shares            $28.125                 $64,687,500             $17,983.00
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
(1) Includes 300,000 shares that the underwriters have the right to purchase
    from the Registrant to cover over-allotments, if any.
 
(2) Estimated solely for the purpose of determining the registration fee
    pursuant to Rule 457(c) under the Securities Act of 1933 on the basis of the
    average of the high and low prices of the Registrant's common stock on
    January 7, 1999, as reported by Nasdaq.
 
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2
 
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. TWEETER
AND THE UNDERWRITERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
 
                                                           SUBJECT TO COMPLETION
                                                                JANUARY 13, 1999
 
                                2,000,000 SHARES
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
TWEETER LOGO                     BRYN MAWR LOGO                  HI FI BUYS LOGO
                                  COMMON STOCK
 
This is a public offering of 2,000,000 shares of common stock of Tweeter Home
Entertainment Group, Inc. Tweeter is a specialty retailer of mid to high-end
audio and video consumer electronics products. Tweeter is selling 500,000 shares
in this offering, and the selling stockholders identified in this prospectus are
selling 1,500,000 shares.
 
Tweeter's common stock is quoted on the Nasdaq National Market under the symbol,
"TWTR." On January 11, 1999, the last reported sale price of the common stock
was $30.625 per share.
 
AN INVESTMENT IN THE COMMON STOCK OF TWEETER INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 9.
PER SHARE                TOTAL
                                              ---------                -----
Public offering price................           $                      $
  Underwriting discount................           $                      $
  Proceeds to Tweeter..................           $                      $
  Proceeds to the selling
     stockholders......................           $                      $
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
 
Tweeter has granted the underwriters the right to purchase up to 300,000
additional shares to cover any over-allotments.
 
                            ------------------------
 
The shares should be delivered through the facilities of the Depository Trust
Company on or about             , 1999.
 
BT ALEX. BROWN
 
                         PAINEWEBBER INCORPORATED
                                               DAIN RAUSCHER WESSELS
                                                  A DIVISION OF DAIN RAUSCHER
                                                         INCORPORATED
 
                                           , 1999
3
 
                DESCRIPTION OF INSIDE FRONT COVER PAGE GRAPHICS
 
The graphics on the inside front cover page consist of one photograph headed by
a solid field with inset text heading and three different logos, which solid
field heading and photograph are located in the top of two thirds of the page.
 
The photograph (without solid field heading) measures approximately 7.675 inch
(width) by 5.25 inch (length). The solid field heading measures approximately
7.675 inch (width) by 1.875 inch (length) (based on an 8.5 inch by 11 inch
page). The entire graphic is centered from side-to-side. The text in the solid
field heading reads "Tweeter Home Entertainment Group." Below the text heading
are the three logos from left to right as follows:
 
        1. "Tweeter, etc.;"
 
        2. "Bryn Mawr Stereo & Video;" and
 
        3. "HiFi Buys."
 
The photograph is a store-deep perspective showing general store layout and
product displays with a checkout counter in the foreground where three employees
are assisting customers.
 
           DESCRIPTION OF INSIDE FRONT COVER FOLDOUT INSERT GRAPHICS
 
The graphics on the inside front cover foldout insert consist of eight
photographs of various sizes which approximately measure from 1.75 inch (width)
by 1.75 inch (length) up to 4 inch (width) by 2.75 inch (length) (based on an 11
inch by 17 inch page), overlapping three black, 0.25 inch-high horizontal lines
with inset white text, equally vertically spaced, the first of which is
approximately 2.25 inch from the top of the page.
 
Beginning at the top third of the page, there are two photographs overlapping
the first horizontal line, one showing the exterior of a Tweeter, etc. store and
one showing the showroom of the same. The text on the first horizontal line to
which these two photographs relate reads "24 Tweeter, etc. Locations in New
England."
 
In the second third of the page there are two photographs overlapping the second
horizontal line, one showing the exterior of a Bryn Mawr Stereo & Video store
and one showing the showroom of the same. The text on the second horizontal line
to which these two photographs relate reads "18 Bryn Mawr Stereo & Video
Locations in the Mid-Atlantic."
 
In the bottom third of the page there are two photographs overlapping the third
horizontal line, one showing the exterior of a HiFi Buys store and one showing a
car stereo showroom. The text on the third horizontal line to which these two
photographs relate reads "11 HiFi Buys Locations in Southeast."
 
Below the third horizontal line are two photographs, side-by-side, with 0.375
inch black borders, the left of which shows a large screen television, the right
of which shows a home theater room in a Tweeter, etc. store. Above these two
photographs is the caption "Products on the Cutting Edge."
 
The insert has text centered at the bottom of the left half of the insert
reading "Automatic Price Protection(SM)."
4
 
                 DESCRIPTION OF INSIDE BACK COVER PAGE GRAPHICS
 
The back cover page graphics consist of three geographic maps which measure
approximately 3.125 inch (width) by 2.75 inch (length) (based on an 8.5 inch by
11 inch page) vertically aligned to the left side of the page, three logos with
captions vertically aligned in the top-right quadrant of the page, and a fourth
geographic map, unbordered, measures approximately 2.5 inch (width) by 3.875
inch (length) (based on an 8.5 inch by 11 inch page) in the bottom-right
quadrant of the page.
 
The three vertically aligned geographic maps on the left side of the page depict
the regions of the U.S.A. in which Tweeter has stores. Gray dots mark store
locations and states in which Tweeter stores are located are offset by white
fill in each of the maps the following order from top to bottom:
 
        1. Connecticut, Massachusetts, New Hampshire and Rhode Island;
 
        2. Delaware, Maryland, New Jersey and Pennsylvania; and
 
        3. Georgia and Alabama.
 
The three logos vertically aligned in the top-right quadrant of the page read
from top to bottom with captions centered below each (shown in parentheses
below) as follows:
 
        1. "Tweeter, etc. (24 Locations);"
 
        2. "Bryn Mawr Stereo & Video (18 Locations);" and
 
        3. "HiFi Buys (11 Locations)."
 
The unbordered geographic map in the bottom-right quadrant of the page is a
composite of the other three geographic maps described above, depicting coastal
states (plus West Virginia and Vermont) from Alabama to New Hampshire, Gray dots
mark store locations and states in which Tweeter stores are located are offset
by white fill.
5
 
                               PROSPECTUS SUMMARY
 
Investors should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus before making an investment decision.
 
This prospectus contains forward-looking statements regarding Tweeter's
performance, strategy, plans, objectives, expectations, beliefs and intentions.
The actual outcome of the events described in these forward-looking statements
could differ materially. Therefore, this prospectus, and especially the sections
entitled "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," contains a discussion of
some of the factors and risks that could contribute to those differences.
 
                                    TWEETER
 
Tweeter is a specialty retailer of mid to high-end audio and video consumer
electronics products. We operate 53 stores under the Tweeter, etc. name in the
New England market, the Bryn Mawr Stereo & Video name in the Mid-Atlantic market
and the HiFi Buys name in the Southeast market. Our stores feature an extensive
selection of home and car audio systems and components, portable audio equipment
and home video products, including large screen televisions, DVD players,
digital satellite systems, video cassette recorders and camcorders. We
differentiate ourselves by focusing on consumers who seek audio and video
products with advanced features, functionality and performance. We do not offer
personal computers or home office equipment. We seek to build name recognition
and customer loyalty by combining quality products and knowledgeable sales
associates with a high level of service and competitive prices. Audio Video
International Magazine recognized us as the "Consumer Electronics Retailer of
the Year" in both 1996 and 1997. The TWICE Consumer Electronics Retail Registry
named us the fastest growing consumer electronics retailer in the United States
in 1997 and 1998.
 
BUSINESS STRATEGY
 
Our goal is to become the nation's leading specialty retailer of high quality
audio and video products to our targeted customer base. To achieve this
objective, we have implemented an operating model that includes:
 
        - A deep merchandise selection focused on mid to high-end audio and
          video products, including limited distribution products which
          accounted for approximately 41% of our sales for fiscal 1998;
 
        - Exceptional customer service based upon relationship and
          knowledge-based selling that is critical to higher-end products;
 
        - Every day competitive pricing featuring our patented Automatic Price
          Protection program; and
 
        - A dynamic and inviting retail environment.
 
We believe that the quality and knowledge of our sales associates is critical to
our success and represents a significant competitive advantage. Sales
consultants initially receive five weeks of intensive classroom training and
five to fifteen days of additional training per year, both in the store and at
regional training centers. Our relationship selling model encourages sales
associates to promote a comfortable, trusting, low pressure sales environment
that engenders long term customer loyalty. An integral part of our relationship
selling model is our Automatic Price Protection program. We designed this
program to remove pricing concerns from the purchase decision and to allow
customers and the sales staff to focus on product functionality, performance and
quality. Under the Automatic Price Protection program, if a customer purchases a
consumer electronics product from one of our stores and a competitor within 25
miles of the store advertises a lower price
 
                                        3
6
 
within 30 days, we automatically send a check to the customer for the difference
without requiring the customer to request the payment.
 
STORE FORMAT
 
Our store prototype is 10,000 square feet with brightly painted interiors, often
in pastel colors. Many stores exhibit hand painted murals and other decorative
artwork. Unlike many competitors whose stores contain large, open spaces, our
stores feature individual sound rooms with practical displays that allow
customers to sample and compare the features and functions of products in
various combinations. The sound rooms architecturally and acoustically resemble
a home or car environment so the customer can hear and see how products will
perform. Each store contains a traditional television wall, and many stores
contain a movie theater room complete with theater-style seats to showcase home
theater products. Some stores display a car on the selling floor that features a
state-of-the-art car stereo system.
 
INDUSTRY
 
We believe that the consumer electronics industry is large, growing and
fragmented, with significant consolidation opportunities. We estimate that
retail sales of audio and video products were approximately $30 billion in 1997.
We also estimate that between 1990 and 1997, the audio and video segments
expanded at a compound annual growth rate of 2.3%. We believe that new digital
technologies present the possibility for accelerated growth. The expansion of
large format national chains has created competitive pressures for smaller
specialty stores that may be successfully differentiated but lack an adequate
scale of operations or purchasing power to operate on a stand-alone basis. We
believe that these regional specialty operations provide acquisition
opportunities.
 
GROWTH STRATEGY
 
Tweeter has developed an aggressive growth strategy to:
 
        - Open new stores in current regional markets and relocate certain
          stores to more favorable sites; and
 
        - Selectively pursue acquisitions in new regional markets and achieve
          operating improvements by converting the acquired company to its core
          operating model, and leverage distribution, marketing and corporate
          infrastructure.
 
During fiscal 1998, we opened two Tweeter, etc. stores and three Bryn Mawr
stores. We intend to open 11 new stores in fiscal 1999, one of which is now
open. These stores do not include the seven Home Entertainment stores that we
intend to acquire in February 1999. We believe that our acquisitions of Bryn
Mawr in May 1996 and of HiFi Buys in May 1997 and our pending acquisition of
Home Entertainment described below provide us with platforms from which to open
new stores within and around their markets.
 
THE BRYN MAWR ACQUISITION
 
In May 1996, we acquired the 13 store Bryn Mawr chain located in the
Mid-Atlantic market for $8.7 million, including acquisition costs. We
implemented strategic initiatives within the acquired stores focused on
increasing sales and store contribution. Specifically, we:
 
        - Increased advertising expenditures during the quarter following the
          acquisition and refocused advertising to emphasize radio, television
          and direct marketing rather than print;
 
        - Implemented our every day competitive pricing and Automatic Price
          Protection programs;
 
                                        4
7
 
        - Initiated a substantial sales associate training program to improve
          product knowledge and enhance relationship selling skills; and
 
        - Focused the sales staff on higher margin products, particularly audio
          products.
 
These initiatives enabled us to generate comparable store sales increases at
Bryn Mawr of 36.9% during the period from June 1, 1996 through September 30,
1996 as compared to the same period of the prior year, 4.7% during fiscal 1997
and 19.3% during fiscal 1998. On a pro forma basis assuming completion of the
Bryn Mawr acquisition as of October 1, 1995, store contribution for Bryn Mawr
improved from 3.1% in fiscal 1996 to 6.8% in fiscal 1997 and 7.8% in fiscal
1998.
 
THE HIFI BUYS ACQUISITION
 
In May 1997, we acquired the ten store HiFi Buys chain located in the greater
Atlanta, Georgia market for $19.7 million, including acquisition costs. Like
Tweeter, etc. and Bryn Mawr, HiFi Buys had created a strong reputation among
consumers with a specialized focus on audio and video products. The HiFi Buys
stores, at an average size of 15,000 square feet, are larger than the Tweeter,
etc. or Bryn Mawr stores. The HiFi Buys stores carried a broader product mix,
however, including more entry level product offerings and marketed heavily
through promotional newspaper advertising. Our integration strategy in the HiFi
Buys acquisition has been to convert the HiFi Buys product mix to one compatible
with Tweeter's, increase gross margins and reduce operating expenses.
Specifically, following the HiFi Buys acquisition we:
 
        - Adjusted the merchandise mix to increase the proportion of mid and
          high-end products and reduce the number of lower margin introductory
          products;
 
        - Altered store employee compensation to reduce the emphasis on
          promotional sales and focus incentives on gross margin and store
          contribution;
 
        - Reduced marketing expenditures and shifted marketing emphasis from
          promotional advertising toward Tweeter's traditional relationship
          selling and everyday competitive price message;
 
        - Converted the advertising program to emphasize electronic advertising
          and direct mail marketing as opposed to print media;
 
        - Implemented the Automatic Price Protection program; and
 
        - Eliminated $2.4 million of overhead by centralizing accounting,
          purchasing and other support infrastructure.
 
As a result, comparable store sales decreased 29.9% during the period from the
acquisition through September 30, 1997 and decreased 5.2% in fiscal 1998. At the
same time, on a pro forma basis assuming completion of the HiFi Buys acquisition
as of October 1, 1996, store contribution improved from 4.3% in fiscal 1997 to
9.9% in fiscal 1998.
 
PENDING ACQUISITION OF HOME ENTERTAINMENT
 
On December 9, 1998, Tweeter agreed in principle to acquire the retail
operations of Home Entertainment of Texas, Inc., a seven store chain located in
the Dallas and Houston markets, for $8.2 million in cash, excluding acquisition
costs. Home Entertainment is a focused retailer of high quality audio and video
products with a 42-year operating history. We believe that there is a
significant opportunity to increase sales at the store level. In addition, Home
Entertainment operates a successful custom installation business, which we
believe can be applied in our other stores. We intend to open, over time, new
Home Entertainment stores in Dallas and Houston, as well as elsewhere in Texas.
We expect to continue the operation of the retail stores as well as the service
and distribution facilities. We expect to close this acquisition in February
1999. The closing is subject to various conditions, however, including
satisfactory completion of our due diligence
 
                                        5
8
 
investigation of Home Entertainment, which currently is underway, and
negotiation and execution of a definitive asset purchase agreement. It is
possible, therefore, that we will not complete the planned acquisition.
 
Tweeter is a Massachusetts corporation organized in 1972 and reorganized as a
Delaware corporation in June 1998. In this prospectus, the terms "Tweeter,"
"we," "us," and "our " mean Tweeter Home Entertainment Group, Inc. and its
predecessors and subsidiaries, unless otherwise required by the context.
"Tweeter, etc." means our New England stores. Tweeter's principal executive
offices are located at 10 Pequot Way, Canton, Massachusetts 02021. Our telephone
number is (781) 830-3000.
 
                                  THE OFFERING
Shares offered by Tweeter...........................    500,000 shares
Shares offered by the selling stockholders..........    1,500,000 shares
Shares to be outstanding after the offering.........    6,792,512 shares(1)
Use of proceeds.....................................    To fund possible acquisitions,
                                                        including the pending acquisition of
                                                        Home Entertainment, and other general
                                                        corporate purposes.
Nasdaq National Market symbol.......................    TWTR
---------------
(1) Excludes 301,953 shares of common stock issuable upon exercise of warrants
    outstanding after the date of this offering, with a weighted average
    exercise price of $3.61 per share. Also excludes 1,044,725 shares of common
    stock issuable upon exercise of options outstanding as of December 31, 1998,
    with a weighted average exercise price of $6.48 per share. See Notes 7 and
    12 of Notes to Tweeter's Consolidated Financial Statements.
 
Unless we indicate otherwise, all information in this prospectus assumes no
exercise of the over-allotment option granted by Tweeter to the underwriters.
 
                                        6
9
 
                      SUMMARY FINANCIAL AND OPERATING DATA
                (IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
FISCAL YEAR ENDED SEPTEMBER 30,
                                                              -------------------------------------------------
                                                               1994      1995     1996(1)   1997(2)      1998
                                                              -------   -------   -------   --------   --------
STATEMENT OF OPERATIONS DATA:
    Total revenue...........................................  $47,401   $60,121   $80,607   $132,525   $232,289
 
    Gross profit............................................   16,489    20,954    28,791     46,210     81,024
 
    Income from operations..................................    1,344     2,238     1,953      2,053     12,072
 
    Interest expense........................................      426       629       617      1,808      2,753
 
    Income before income taxes..............................      918     1,609     1,336        245      9,319
    Income tax expense (benefit)(3).........................       --      (174)     (453)        99      3,724
                                                              -------   -------   -------   --------   --------
    Income before extraordinary item........................      918     1,783     1,789        146      5,595
    Extraordinary item(4)...................................       --        --        --         --       (340)
                                                              -------   -------   -------   --------   --------
    Net income..............................................      918     1,783     1,789        146      5,255
                                                              =======   =======   =======   ========   ========
    Accretion of preferred stock............................       --        --     1,036      2,156      2,514
                                                              -------   -------   -------   --------   --------
    Net income (loss) available to common stockholders......  $   918   $ 1,783   $   753   $ (2,010)  $  2,741
                                                              =======   =======   =======   ========   ========
    Basic earnings (loss) per share
    Net income (loss) available to common stockholders
      before extraordinary item.............................     0.27      0.53      0.39      (1.20)      1.24
      Extraordinary item....................................       --        --        --         --      (0.14)
                                                              -------   -------   -------   --------   --------
      Net income (loss).....................................  $  0.27   $  0.53   $  0.39   $  (1.20)  $   1.10
                                                              =======   =======   =======   ========   ========
    Diluted earnings (loss) per share
    Net income (loss) available to common stockholders
      before extraordinary item.............................     0.27      0.53      0.38      (1.20)      1.11
      Extraordinary item....................................       --        --        --         --      (0.07)
                                                              -------   -------   -------   --------   --------
      Net income (loss).....................................  $  0.27   $  0.53   $  0.38   $  (1.20)  $   1.04
                                                              =======   =======   =======   ========   ========
    Weighted average shares outstanding(5)
      Basic.................................................    3,371     3,371     1,940      1,673      2,486
                                                              =======   =======   =======   ========   ========
      Diluted...............................................    3,371     3,371     1,983      1,673      5,034
                                                              =======   =======   =======   ========   ========
OPERATING DATA:
    Store contribution(6)...................................  $ 3,985   $ 5,550   $ 6,798   $ 10,642   $ 24,117
    Stores open at beginning of period......................       14        16        18         33         47
    New stores..............................................        2         2         2          4          5
    Relocated stores........................................        1         1         1          1          2
    Closed stores...........................................        0         0         0          0          0
    Stores acquired.........................................        0         0        13         10          0
    Stores open at end of period............................       16        18        33         47         52
COMPARABLE STORE SALES DATA:(7)
    Tweeter, etc............................................     11.2%     12.5%      1.6%      -4.5%      28.6%
    Bryn Mawr...............................................                         36.9%       4.7%      19.3%
    HiFi Buys...............................................                                   -29.9%      -5.2%
    Consolidated............................................     11.2%     12.5%      5.6%      -7.2%      12.5%
SEPTEMBER 30, 1998
                                                              -------------------------
                                                              ACTUAL     AS ADJUSTED(8)
                                                              -------    --------------
BALANCE SHEET DATA:
    Working capital.........................................  $18,263       $ 26,621
    Total assets............................................   91,643        100,002
    Long term debt, excluding current portion...............    5,250              0
    Stockholder's equity (deficit)..........................   51,610         65,219
(footnotes on following page)
 
                                        7
10
 
(footnotes from previous page)
 
---------------
 
(1) The fiscal year 1996 data includes results of the Bryn Mawr acquisition from
    May 13, 1996, which was accounted for using the purchase method (see Note 11
    of Notes to Tweeter's Consolidated Financial Statements).
 
(2) The fiscal year 1997 data includes results of the HiFi Buys acquisition from
    June 1, 1997, which was accounted for using the purchase method (see Note 11
    of Notes to Tweeter's Consolidated Financial Statements).
 
(3) Tweeter operated as an S corporation through November 1995 and was not
    subject to federal and certain state corporate income taxes. In connection
    with the recapitalization that occurred on November 26, 1995, Tweeter
    revoked its S election, and became subject to taxation as a C corporation.
    If Tweeter had been taxed as a C corporation, it would have recorded income
    tax expense of $661,000 for fiscal 1995 and $550,000 for fiscal 1996.
 
(4) In connection with its initial public offering, Tweeter recorded an
    extraordinary charge against current period income for the early
    extinguishment of debt. Tweeter wrote off deferred financing costs of
    $286,009 related to the issuance of certain senior subordinated promissory
    notes in 1997. Tweeter also wrote off $280,136 representing the unamortized
    portion of the discount related to the warrants issued in conjunction with
    the 1997 notes. The gross amount of the extraordinary item was $566,145. The
    net effect of $339,687, after tax benefit of $226,458, was recorded in the
    consolidated statement of income as an extraordinary item.
 
(5) Shares outstanding include 407,542 shares issuable upon exercise of stock
    options and warrants outstanding as of September 30, 1997, and 522,410
    shares issuable upon exercise of stock options and warrants outstanding as
    of September 30, 1998, after applying the treasury stock method.
 
(6) Refers to gross profit after deducting selling expenses including labor,
    advertising, store level operations and pre-opening expenses. Store
    contribution is presented to provide additional information about Tweeter
    and should not be considered in isolation or as a substitute for operating
    income, cash flow from operating activities and other income or cash flow
    data prepared in accordance with generally accepted accounting principles,
    or as a measure of Tweeter's profitability or liquidity. Tweeter's
    calculation of store contribution may not be comparable to similarly titled
    items reported by other companies.
 
(7) Stores are included in the comparable store base after they are in operation
    for 12 full months. Acquired stores are included if the store was open for
    12 full months as of the date of acquisition. Remodeled or relocated stores
    are excluded from the comparable store base until they have completed 12
    full months of operation from the date the remodeling was completed, or
    re-opened after relocation.
 
(8) Adjusted to reflect the sale of 500,000 shares of common stock offered
    hereby at an assumed public offering price of $30.625 (the closing price on
    January 11, 1999), after deducting the estimated underwriting discount and
    offering expenses payable by Tweeter.
 
                                        8
11
 
                                  RISK FACTORS
 
The value of an investment in Tweeter will be subject to the significant risks
inherent in its business. Investors should consider carefully the risks and
uncertainties described below and the other information in this prospectus
before deciding whether to invest. If any of the events described below actually
occur, our business, financial condition or operating results could be adversely
affected in a material way. This could cause the trading price of our common
stock to decline, perhaps significantly.
 
This prospectus contains forward-looking statements regarding Tweeter's
performance, strategy, plans, objectives, expectations, beliefs and intentions.
The actual outcome of the events described in these forward-looking statements
could differ materially. The following is a discussion of some of the factors
and risks that could contribute to those differences.
 
RISKS ASSOCIATED WITH GROWTH
 
Tweeter's success depends in large part on its ability to open, or acquire
through strategic acquisitions, new stores in both existing and new geographic
markets and to operate those stores profitably. We may not be able to achieve
our planned expansion or to effectively integrate any new stores into our
existing operations. The opening of additional stores in new geographic markets
could present competitive and merchandising challenges different from those we
currently or previously faced within our existing geographic markets. In
addition, we may incur higher costs related to advertising, administration and
distribution as we enter new markets.
 
There are a number of factors which could affect our ability to open or acquire
new stores consistent with our business plan. These factors also affect the
ability of any newly opened or acquired stores to achieve sales and
profitability levels comparable with our existing stores, or to become
profitable at all. These factors include:
 
        - The identification and acquisition of suitable sites and the
          negotiation of acceptable leases for such sites;
 
        - The identification of existing audio and video consumer electronics
          retailers appropriate for strategic acquisition;
 
        - The successful consummation of such acquisitions;
 
        - The obtaining of governmental and other third-party consents, permits
          and licenses needed to operate such additional sites;
 
        - The hiring, training and retention of skilled personnel;
 
        - The availability of adequate management and financial resources;
 
        - The adaptation of our distribution and other operational and
          management systems to an expanded network of stores;
 
        - The ability and willingness of vendors to supply on a timely basis at
          competitive prices; and
 
        - Continued consumer demand for our products at levels that can support
          acceptable profit margins.
 
In addition, our rapid expansion through the opening or acquisition of new
stores will place significant demands on our management, resources, operations
and information systems. Such expansion requires us to expend significant effort
and additional resources to ensure the continuing adequacy of our financial
controls, operating procedures, information systems, product purchasing and
distribution systems and employee training programs. We also need to attract and
retain additional qualified personnel, including new store managers, for such
new stores.
 
                                        9
12
 
Our continued growth also depends on our ability to increase sales in our
existing stores. The opening of additional stores in an existing market could
result in lower net sales at our existing stores in that market.
 
RISKS ASSOCIATED WITH ACQUISITIONS
 
Integration of newly acquired stores may involve significant delay or expense.
Additional suitable acquisition candidates may not be identified. Further, we
may not consummate acquisitions of any identified candidates, such as the
pending acquisition of Home Entertainment, and new stores acquired through such
acquisitions may not operate profitably or integrate successfully into our
operations. Previously acquired stores have had, and newly acquired stores may
have, different merchandising, advertising, store format and operating
approaches from ours, and our success in integrating such stores will depend on
our ability to effect significant changes in the operations of such stores to
conform to our approach in these areas. We may not be successful in effecting
such changes without an adverse effect on the revenues or profitability of such
stores. In addition, future acquisitions could involve the issuance of equity
securities which could dilute the holdings of existing stockholders. Future
acquisitions could also involve the incurrence of debt and contingent
liabilities, and amortization expenses related to goodwill and other intangible
assets, any of which could have a material adverse effect on our results of
operations or financial condition.
 
DEPENDENCE ON KEY PERSONNEL
 
Our success depends upon the active involvement of senior management personnel,
particularly Samuel J. Bloomberg, Tweeter's Chief Executive Officer and Chairman
of the Board, and Jeffrey Stone, Tweeter's President and Chief Operating
Officer. The loss of the full-time services of Messrs. Stone or Bloomberg or
other members of senior management could have a material adverse effect on
Tweeter's results of operations and financial condition. Except for employment
contracts with Messrs. Stone and Bloomberg, and with Joseph McGuire, the Chief
Financial Officer and Chief Information Officer of Tweeter, Tweeter does not
have employment agreements with any members of its senior management team.
 
RISKS ASSOCIATED WITH COMPETITION
 
The retail consumer electronics industry is highly competitive. Tweeter
currently competes against a diverse group of retailers, including several
national and regional large format merchandisers and superstores, such as
Circuit City and Best Buy, which sell, among other products, audio and video
consumer electronics products similar and often identical to those Tweeter
sells. Tweeter also competes in particular markets with a substantial number of
retailers that specialize in one or more types of consumer electronic products
that Tweeter sells. Certain of these competitors have substantially greater
financial resources than Tweeter that may increase their ability to purchase
inventory at lower costs or to initiate and sustain predatory price competition.
In addition, the large format stores are continuing to expand their geographic
markets, and such expansion may increase price competition within those markets.
Best Buy recently entered the New England market. A number of different
competitive factors could have a material adverse effect on Tweeter's results of
operations and financial condition, including:
 
        - Increased operational efficiencies of competitors;
 
        - Competitive pricing strategies;
 
        - Expansion by existing competitors;
 
        - Entry by new competitors into markets in which Tweeter is currently
          operating; or
 
        - Adoption by existing competitors of innovative store formats or retail
          sales methods.
 
SEASONAL AND QUARTERLY FLUCTUATIONS IN SALES
 
Seasonal shopping patterns affect our business, like that of many retailers. The
fourth calendar quarter, which is Tweeter's first fiscal quarter and which
includes the December holiday shopping
 
                                       10
13
 
period, has historically contributed, and is expected to continue to represent,
a substantial portion of Tweeter's operating income for its entire fiscal year.
As a result, any factors negatively affecting Tweeter during such calendar
quarter of any year, including adverse weather or unfavorable economic
conditions, would have a material adverse effect on Tweeter's results of
operations for the entire year. More generally, Tweeter's quarterly results of
operations and also may fluctuate based upon such factors as:
 
        - The timing of new store openings and new store acquisitions;
 
        - The amount of store pre-opening expenses;
 
        - The amount of net sales contributed by new and existing stores;
 
        - The mix of consumer electronic products sold in its stores;
 
        - Profitability of sales of particular products; and
 
        - Other competitive factors.
 
FLUCTUATIONS IN COMPARABLE STORE SALES
 
A number of factors have historically affected, and will continue to affect,
Tweeter's comparable store sales results, including, among other factors:
 
        - Competition;
 
        - General regional and national economic conditions;
 
        - Consumer trends;
 
        - Changes in Tweeter's product mix;
 
        - Timing of promotional events;
 
        - New product introductions; and
 
        - Tweeter's ability to execute its business strategy effectively.
 
Tweeter does not expect comparable store sales to increase at historical rates,
and comparable store sales may decrease in the future. Changes in Tweeter's
comparable store sales results could cause the price of the common stock to
fluctuate substantially.
 
POTENTIAL NEED FOR ADDITIONAL FINANCING
 
Financing for the opening and acquisition of new stores may be in the form of
debt or equity or both and may not be available on terms acceptable to Tweeter,
if at all. We estimate that the average cash investment, including pre-opening
expenses for tenant fit-out, demonstration and inventory (net of payables),
required to open a store to be approximately $860,000. The actual cost of
opening a store may be significantly greater than such current estimates,
however, and we may need to seek additional debt and/or equity financing in
order to fund our continued expansion through 1999 and beyond. In addition, our
ability to incur additional indebtedness or issue equity or debt securities
could be limited by covenants in present and future loan agreements and debt
instruments. Additional issuances of equity by Tweeter may result in dilution to
existing stockholders.
 
LACK OF GEOGRAPHICAL DISPERSION
 
Tweeter currently operates 53 stores, of which:
 
        - 24 are operated under the Tweeter, etc. name in the New England
          market;
 
        - 18 are operated under the Bryn Mawr name in the Mid-Atlantic market;
          and
 
        - 11 are operated under the HiFi Buys name in the Southeast market.
 
The lack of wider geographical dispersion of Tweeter's current stores makes it
vulnerable to adverse events in these markets, including weather, regional
competition or unfavorable regional economic conditions.
 
                                       11
14
 
CHANGES IN CONSUMER DEMAND AND PREFERENCES
 
Tweeter's success depends on its ability to anticipate and respond in a timely
manner to consumer demand and preferences regarding audio and video consumer
electronics products and changes in such demand and preferences. Consumer
spending patterns, particularly discretionary spending for products such as
those Tweeter markets, are affected by, among other things, prevailing economic
conditions. In addition, the periodic introduction and availability of new
products and technologies at price levels which generate wide consumer interest
stimulate the demand for audio and video consumer electronics products. Also,
many products which incorporate the newest technologies, such as DVD and
high-definition television, are subject to significant technological and pricing
limitations and to the actions and cooperation of third parties such as
television broadcasters or movie distributors. It is possible that these
products or other new products will never achieve widespread consumer
acceptance. Furthermore, the introduction or expected introduction of new
products or technologies may depress sales of existing products and
technologies. Significant deviations from the projected demand for products
Tweeter sells would have a materially adverse effect on its results of
operations and financial condition, either from lost sales or lower margins due
to the need to mark down excess inventory. Any sustained failure by Tweeter to
identify and respond to changes in consumer demand and preferences would have a
material adverse effect on Tweeter's results of operations and financial
condition.
 
DEPENDENCE ON SUPPLIERS
 
The success of Tweeter's business and growth strategy depends to a significant
degree upon its suppliers, particularly its brand-name suppliers of stereo and
video equipment such as Sony, Mitsubishi, Yamaha, Boston Acoustics and
Panasonic. Tweeter does not have any supply agreements or exclusive arrangements
with any vendors. Tweeter typically orders its inventory through the issuance of
individual purchase orders to vendors. In addition, Tweeter relies heavily on a
relatively small number of suppliers. Tweeter's two largest suppliers accounted
for approximately 36% of its sales during fiscal 1998. The loss of any of these
key vendors or the failure by Tweeter to establish and maintain relationships
with these or other vendors could have a material adverse effect on Tweeter's
results of operations and financial condition and its expansion. It is possible,
especially given Tweeter's growth strategy, that Tweeter will be unable to
acquire sufficient quantities or an appropriate mix of consumer electronic
products at acceptable prices, if at all. Specifically, Tweeter's ability to
establish additional stores in existing markets and to penetrate new markets
depends to a significant extent on the willingness and ability of vendors to
supply those additional stores, and vendors may not be willing or able to do so.
As we continue to open or acquire new stores, the inability or unwillingness of
suppliers to supply some or all of their products to us at acceptable prices in
one or more markets could have a material adverse effect on our results of
operations and financial condition.
 
INVENTORY PURCHASED FROM FOREIGN VENDORS
 
Tweeter purchases a significant portion of its inventory from overseas vendors,
particularly vendors headquartered in Japan. Changes in trade regulations,
currency fluctuations or other factors may increase the cost of items Tweeter
purchases from foreign vendors or create shortages of such items, which could in
turn have a material adverse effect on Tweeter's 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 and may limit or eliminate Tweeter's ability to successfully
differentiate itself from other competitors, thereby resulting in an adverse
effect on Tweeter's sales, margin or competitive position.
 
DEPENDENCE UPON MEMBERSHIP IN BUYING GROUP
 
Tweeter is a member of the Progressive Retailers Organization, a volume buying
group currently comprised of 14 consumer electronics retailers located
throughout the country, which provides its members with market information and
negotiates purchase terms with vendors on behalf of its
 
                                       12
15
 
members. Any future termination of Tweeter's membership in this group could have
a material adverse effect on Tweeter's results of operations and financial
condition. In addition, rebates paid to Tweeter by product manufacturers through
this group depend on the sales volumes achieved by the group's other members, as
well as Tweeter, and therefore decreased sales performance by these other
members could reduce the amounts of such rebates payable to Tweeter. Any such
reduction could in turn have a material adverse effect on Tweeter's results of
operations and financial condition.
 
UNCERTAINTY OF INTELLECTUAL PROPERTY RIGHTS
 
Our "Tweeter, etc." and "Bryn Mawr Stereo" service marks have been registered
with the United States Patent and Trademark Office. Tweeter has not registered
the "HiFi Buys" service mark and is aware that other consumer electronics
retailers use the name "HiFi Buys" outside Tweeter's current geographical
markets. Tweeter has submitted applications for registration of certain other of
its service marks, which applications are currently pending. Tweeter may be
unable to successfully register such service marks. In addition, Tweeter's
service marks, whether registered or unregistered, and patents may not be
effective to protect its intellectual property rights, and infringement or
invalidity claims may be asserted by third parties in the future. Any such
assertions, if proven to be true, could have a material adverse effect on
Tweeter's results of operations and financial condition.
 
SIGNIFICANT OWNERSHIP BY PRINCIPAL STOCKHOLDERS
 
Upon completion of this offering, our executive officers, directors and
principal stockholders and their affiliates will own approximately 34.2% of
Tweeter's outstanding common stock. As a result, those parties might be able to
influence significantly Tweeter's affairs if they were to act together.
 
EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER PROVISIONS
 
Tweeter's corporate charter and by-laws as well as certain provisions of
Delaware General Corporation Law, contain provisions which may deter, discourage
or make more difficult a change in control of Tweeter, even if such a change in
control would be in the interest of a significant number of Tweeter's
stockholders or if such change in control would provide such stockholders with a
substantial premium for their shares over then current market prices. For
example, the charter authorizes Tweeter's Board of Directors to issue one or
more classes of preferred stock, having such designations, rights and
preferences as they determine, and such issuances may, among other things, have
an adverse effect on the rights of holders of common stock.
 
Tweeter's stockholders have no right to take action by written consent and may
not call special meetings of stockholders. Any amendment of the by-laws by the
stockholders or certain provisions of the charter requires the affirmative vote
of at least 75% of the shares of voting stock then outstanding. The charter also
provides for the staggered election of directors to serve for one, two and
three-year terms, and for successive three-year terms thereafter, subject to
removal only for cause upon the vote of not less than 75% of the shares of
common stock represented at a stockholders' meeting.
 
In addition, under the terms of Tweeter's Stockholder Rights Plan, in general,
if a person or group acquires more than 15% of the outstanding shares of common
stock (an "Acquiring Person"), all other stockholders of Tweeter would have the
right to purchase securities from Tweeter at a discount to such securities' fair
market value, thus causing substantial dilution to the holdings of the Acquiring
Person. The Stockholder Rights Plan may inhibit a change in control and,
therefore, could adversely affect the stockholders' ability to realize a premium
over the then-prevailing market price for the common stock in connection with
such a transaction.
 
SHARES ELIGIBLE FOR FUTURE SALE
 
Following this offering, Tweeter will have 6,792,512 shares of common stock
outstanding. Of such shares, the 2,710,000 shares sold in Tweeter's initial
public offering and the 2,000,000 offered
                                       13
16
 
hereby will be freely tradable. Substantially all of the remaining outstanding
shares are subject to lock-up agreements with the underwriters, pursuant to
which the holders of those shares have agreed, with certain exceptions, not to
sell, offer or contract to sell, sell short, engage in certain hedging
transactions with respect to, or otherwise dispose of any shares of common stock
for a period of 90 days after the date of this prospectus (the "Lock-up
Period"), without the prior written consent of BT Alex. Brown Incorporated. Upon
expiration of the Lock-up Period, these shares will be available for sale in the
public market, subject in certain circumstances to the provisions of Rule 144
under the Securities Act of 1933.
 
As of January 1, 1999, approximately 1,044,725 shares of common stock were
issuable pursuant to options under Tweeter's stock plans and 301,953 shares of
common stock were issuable upon the exercise of warrants. Of the 1,044,725
shares issuable pursuant to such options, 723,313 shares are currently
exercisable. Of those 723,313 shares, 378,802 shares are freely tradable and
344,511 shares are subject to lock-up agreements. All shares issuable upon the
exercise of warrants are subject to lock-up agreements. In addition, the holders
of approximately 2,053,632 shares of common stock will have certain rights to
registration of their shares under the Securities Act. Sales of substantial
amounts of common stock in the public market, or the perception that such sales
could occur, could have a material adverse effect on the market price of the
common stock.
 
VOLATILITY OF STOCK PRICE
 
The trading price of our common stock has been and is likely to continue to be
highly volatile and could be subject to wide fluctuations in response to a
variety of internal and external factors. The stock market in general, and the
Nasdaq National Market in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of particular companies. The trading prices of many companies'
stocks are at or near historical highs and these trading prices and multiples
are substantially above historical levels. These trading prices and multiples
may not be sustained. These broad market factors may have a material adverse
effect on the market price of our common stock, regardless of our actual
operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class-action litigation has
often been instituted against such companies. Such litigation, if instituted,
could result in substantial costs and a diversion of management's attention and
resources, which would materially adversely affect Tweeter's results of
operations and financial condition.
 
YEAR 2000 COMPLIANCE
 
We have begun contacting our suppliers to determine whether Year 2000 issues
will affect their supply of goods to us. Any disruption in our supply chain
could have a material adverse affect on our results of operation and financial
condition. In addition, although we anticipate minimal internal business
interruption due to Year 2000 problems, we expect any problems which may arise
to develop during our peak sales period. During this time, it is possible that
Tweeter may lose communications links with certain store locations, that
Tweeter's stores may close due to loss of electric power, that Tweeter's stores'
and storage facilities' security systems may not operate and that individual
stores may be unable to process transactions, send purchase orders or engage in
similar normal business activities. Any large scale failure to operate during
this period may have a material adverse effect on Tweeter's results of
operations and financial condition.
 
DILUTION
 
Investors participating in the offering will incur immediate and substantial
dilution in the amount of $23.77 per share, based upon an assumed public
offering price of $30.625 per share (the closing price on January 11, 1999). To
the extent that currently outstanding options or warrants to purchase common
stock are exercised, there will be further dilution.
 
                                       14
17
 
                          PRICE RANGE OF COMMON STOCK
 
Tweeter's common stock trades on the Nasdaq National Market under the symbol
"TWTR." Public trading in the common stock commenced on July 16, 1998. Prior to
that date, there was no public market for the common stock. The following table
sets forth, for the periods indicated, the high and low sale prices for the
common stock as reported by Nasdaq:
HIGH      LOW
                                                        ------    ------
Fourth Quarter Fiscal 1998 (from July 16, 1998).......  $21.13    $11.25
First Quarter Fiscal 1999.............................  $31.00    $10.63
Second Quarter Fiscal 1999 (through January 11,
  1999)...............................................  $31.13    $26.75
As of December 31, 1998, there were approximately 1,000 holders of record of the
common stock.
 
                                USE OF PROCEEDS
 
Tweeter estimates that it will receive net proceeds of $13,608,593, ($22,313,749
if the underwriters' over-allotment option is exercised in full) from the sale
of the 500,000 shares of common stock offered by it hereby, based upon an
assumed public offering price of $30.625 per share (the closing price on January
11, 1999) and after deducting the estimated underwriting discount and expenses
payable by Tweeter. Tweeter will use such proceeds to fund possible strategic
acquisitions, including the pending acquisition of Home Entertainment, and for
working capital purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Pending Acquisition."
 
Pending use as described above, any remaining net proceeds of this offering will
be invested in investment-grade, interest-bearing instruments. Tweeter will not
receive any proceeds from the sale of common stock by the selling stockholders.
 
                                DIVIDEND POLICY
 
Tweeter does not anticipate paying any cash dividends. Payment of future
dividends, if any, will depend upon Tweeter's results of operations, financial
condition, cash requirements and other factors deemed relevant by its Board of
Directors. Our current credit facility restricts the payment of dividends. See
"Management Discussion and Analysis -- Liquidity and Capital Resources."
 
                                       15
18
 
                                 CAPITALIZATION
 
The following table sets forth the equity capitalization of Tweeter as of
September 30, 1998, (i) on an actual basis and (ii) as adjusted to reflect the
application of the estimated net proceeds from the sale of 500,000 shares of
common stock offered by Tweeter hereby, based upon an assumed public offering
price of $30.625 per share (the closing price on January 11, 1999). At September
30, 1998, Tweeter had total long-term debt outstanding of $5,250,000, all of
which was repaid prior to December 31, 1998. This table should be read in
conjunction with the Tweeter's consolidated financial statements and the notes
thereto appearing elsewhere in this prospectus.
SEPTEMBER 30, 1998
                                                              --------------------------
                                                                ACTUAL       AS ADJUSTED
                                                              -----------    -----------
Stockholders' equity:
     Preferred stock, $.01 par value, 10,000,000 shares
       authorized, no shares issued and outstanding actual
       and as adjusted......................................  $        --    $        --
     Common stock, $.01 par value, 30,000,000 shares
       authorized; 6,082,690 shares outstanding actual and
       6,582,690 shares outstanding as adjusted(1)..........       75,217         80,217
     Additional paid-in capital.............................   46,840,737     60,444,331
     Retained earnings......................................    6,701,244      6,701,244
     Treasury stock, 1,439,073 shares at cost...............   (2,006,815)    (2,006,815)
                                                              -----------    -----------
          Total stockholders' equity (deficit)..............  $51,610,383    $65,218,977
                                                              ===========    ===========
---------------
(1) Excludes 511,808 shares of common stock issuable upon exercise of warrants
    outstanding as of September 30, 1998, with a weighted average exercise price
    of $2.13 per share. Also excludes 1,044,725 shares of common stock issuable
    upon exercise of options outstanding at the date of this prospectus, with a
    weighted average exercise price of $6.48 per share. See Notes 7 and 12 of
    Notes to Tweeter's Consolidated Financial Statements.
 
                                       16
19
 
               SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
           (IN THOUSANDS, EXCEPT PER SHARE AND NUMBER OF STORES DATA)
 
Set forth below is selected financial and operating data for, and as of the end
of, each of the five years ended September 30, 1998. The selected statement of
operations and balance sheet data for each of the five years ended September 30,
1998 have been derived from financial statements of Tweeter, which have been
audited by its independent auditors. The balance sheets as of September 30, 1997
and September 30, 1998, and the related statements of income, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
September 30, 1998, and the audit report thereon, are included elsewhere in this
prospectus. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Tweeter's Consolidated Financial Statements and the Notes
thereto included elsewhere in this prospectus.
FISCAL YEAR ENDED SEPTEMBER 30,
                                                     ---------------------------------------------------------
                                                      1994        1995       1996(1)     1997(2)        1998
                                                     -------     -------     -------     --------     --------
STATEMENT OF OPERATIONS:
  Total revenue....................................  $47,401     $60,121     $80,607     $132,525     $232,289
  Cost of sales....................................   30,912      39,167      51,816       86,315      151,265
                                                     -------     -------     -------     --------     --------
    Gross profit...................................   16,489      20,954      28,791       46,210       81,024
  Selling expenses.................................   12,504      15,404      21,993       35,568       56,907
  Corporate, general and administrative expenses...    2,576       3,247       4,716        8,102       11,128
  Amortization of goodwill.........................       65          65         129          487          917
                                                     -------     -------     -------     --------     --------
  Income from operations...........................    1,344       2,238       1,953        2,053       12,072
  Interest expense.................................      426         629         617        1,808        2,753
                                                     -------     -------     -------     --------     --------
  Income before taxes..............................      918       1,609       1,336          245        9,319
  Income tax expense (benefit)(3)..................       --        (174)       (453)          99        3,724
                                                     -------     -------     -------     --------     --------
  Income before extraordinary item.................      918       1,783       1,789          146        5,595
  Extraordinary item (less applicable income
    taxes)(4)......................................       --          --          --           --         (340)
                                                     -------     -------     -------     --------     --------
  Net income.......................................      918       1,783       1,789          146        5,255
                                                     =======     =======     =======     ========     ========
  Accretion of preferred stock.....................       --          --       1,036        2,156        2,514
                                                     -------     -------     -------     --------     --------
  Net income (loss) available to common
    stockholders...................................  $   918     $ 1,783     $   753     $ (2,010)    $  2,741
                                                     =======     =======     =======     ========     ========
  Basic earnings per share
    Net income (loss) available to common
      stockholders before extraordinary item.......     0.27        0.53        0.39        (1.20)        1.24
    Extraordinary item.............................       --          --          --           --        (0.14)
                                                     -------     -------     -------     --------     --------
    Net income (loss)..............................  $  0.27     $  0.53     $  0.39     $  (1.20)    $   1.10
                                                     =======     =======     =======     ========     ========
  Diluted earnings per share
  Net income (loss) available to common
    stockholders before extraordinary item.........     0.27        0.53        0.38        (1.20)        1.11
    Extraordinary item.............................       --          --          --           --        (0.07)
                                                     -------     -------     -------     --------     --------
    Net income (loss)..............................  $  0.27     $  0.53     $  0.38     $  (1.20)    $   1.04
                                                     =======     =======     =======     ========     ========
  Weighted average shares outstanding(5)
    Basic..........................................    3,371       3,371       1,940        1,673        2,486
                                                     =======     =======     =======     ========     ========
    Diluted........................................    3,371       3,371       1,983        1,673        5,034
                                                     =======     =======     =======     ========     ========
OPERATING DATA:
  Store contribution(6)............................  $ 3,985     $ 5,550     $ 6,798     $ 10,642     $ 24,117
  Stores open at beginning of period...............       14          16          18           33           47
  New stores.......................................        2           2           2            4            5
  Relocated stores.................................        1           1           1            1            2
  Closed stores....................................        0           0           0            0            0
  Stores acquired..................................        0           0          13           10            0
  Stores open at end of period.....................       16          18          33           47           52
BALANCE SHEET DATA:
  Working capital..................................  $   835     $ 1,590     $ 1,897     $ 11,857     $ 18,263
  Total assets.....................................   12,562      15,162      38,619       78,688       91,643
  Long term debt, excluding current portion........    7,955       8,705      10,700       30,875        5,250
  Redeemable convertible preferred stock...........        0           0      11,597       20,591            0
  Stockholder's equity (deficit)...................   (4,122)     (2,457)     (3,984)      (5,669)      51,610
(footnotes following Other Store Data)
 
                                       17
20
 
                                OTHER STORE DATA
                     (IN THOUSANDS, EXCEPT OPERATING DATA)
FISCAL YEAR ENDED SEPTEMBER 30,
                                                 ---------------------------------------------------
                                                  1994       1995       1996       1997       1998
                                                 -------    -------    -------    -------    -------
TWEETER, ETC. DATA:
  Total revenue................................  $47,401    $60,121    $68,577    $74,049    $97,711
  Store contribution(6)........................    3,985      5,550      7,089      6,338     11,880
  Store contribution margin....................      8.4%       9.2%      10.3%       8.6%      12.2%
  Stores open at beginning of period...........       14         16         18         20         22
  New stores...................................        2          2          2          2          2
  Relocated stores.............................        1          1          1          1          2
  Closed stores................................        0          0          0          0          0
  Stores open at end of period.................       16         18         20         22         24
BRYN MAWR DATA:
  Total revenue................................                        $12,030    $35,432    $51,768
  Store contribution(6)........................                           (291)     2,414      4,029
  Store contribution margin....................                           -2.4%       6.8%       7.8%
  Stores open at beginning of period...........                              0         13         15
  New stores...................................                              0          2          3
  Relocated stores.............................                              0          0          0
  Closed stores................................                              0          0          0
  Stores acquired..............................                             13          0          0
  Stores open at end of period.................                             13         15         18
HIFI BUYS DATA:
  Total revenue................................                                   $23,044    $82,810
  Store contribution(6)........................                                     1,890      8,208
  Store contribution margin....................                                       8.2%       9.9%
  Stores open at beginning of period...........                                         0         10
  New stores...................................                                         0          0
  Relocated stores.............................                                         0          0
  Closed stores................................                                         0          0
  Stores acquired..............................                                        10         10
  Stores open at end of period.................                                        10         10
CONSOLIDATED DATA:
  Corporate, general and administrative
    expenses...................................    2,576      3,247      4,716      8,102     11,128
  Amortization of goodwill.....................       65         65        129        487        917
                                                 -------    -------    -------    -------    -------
  Income from operations.......................  $ 1,344    $ 2,238    $ 1,953    $ 2,053    $12,072
                                                 =======    =======    =======    =======    =======
COMPARABLE STORE SALES DATA:(7)
  Tweeter, etc.................................     11.2%      12.5%       1.6%      -4.5%      28.6%
  Bryn Mawr....................................                           36.9%       4.7%      19.3%
  HiFi Buys....................................                                     -29.9%      -5.2%
  Consolidated.................................     11.2%      12.5%       5.6%      -7.2%      12.5%
(footnotes appear on following page)
 
                                       18
21
 
(footnotes from previous pages)
 
---------------
 
(1) Includes results of the Bryn Mawr acquisition from May 13, 1996, which was
    accounted for using the purchase method. See Note 11 of Notes to Tweeter's
    Consolidated Financial Statements.
 
(2) Includes results of the HiFi Buys acquisition from May 30, 1997, which was
    accounted for using the purchase method. See Note 11 of Notes to Tweeter's
    Consolidated Financial Statements.
 
(3) Tweeter operated as an S corporation through November 1995 and was not
    subject to federal and certain state corporate income taxes. In connection
    with the recapitalization that occurred on November 26, 1995, Tweeter
    revoked its S election, and became subject to taxation as a C corporation.
    If Tweeter had been taxed as a Corporation, it would have recorded income
    tax expense of $661,000 for fiscal 1995 and $550,000 for fiscal 1996.
 
(4) In connection with its initial public offering, Tweeter recorded an
    extraordinary charge against current period income for the early
    extinguishment of debt. Tweeter wrote off deferred financing costs of
    $286,009, related to the issuance of certain senior subordinated promissory
    notes issued in 1997. Tweeter also wrote off $280,136 representing the
    unamortized portion of the discount related to the warrants issued in
    conjunction with the 1997 notes. The gross amount of the extraordinary item
    was $566,145. The net effect of $339,687, after tax benefit of $226,458, was
    recorded in the consolidated statement of income as an extraordinary item.
 
(5) Shares outstanding include 407,540 shares issuable upon exercise of stock
    options and warrants outstanding as of September 30, 1997 and 522,410 shares
    issuable upon exercise of stock options and warrants outstanding as of
    September 30, 1998, after applying the treasury stock method.
 
(6) Refers to gross profit after deducting selling expenses including labor,
    advertising, store level operations and pre-opening expenses. Store
    contribution is presented to provide additional information about Tweeter
    and is commonly used as a performance measurement by retail companies. Store
    contribution should not be considered in isolation or as a substitute for
    operating income, cash flow from operating activities and other income or
    cash flow data prepared in accordance with generally accepted accounting
    principles, or as a measure of Tweeter's profitability or liquidity.
    Tweeter's calculation of store contribution may not be comparable to
    similarly titled items reported by other companies
 
(7) Stores are included in the comparable store base after they are in operation
    for 12 full months. Acquired stores are included if the store was open for
    12 full months as of the date of acquisition and the related figures are
    based on the acquired company's financial statements. Remodeled or relocated
    stores are excluded from the comparable store base until they have completed
    12 full months of operation from the date the remodeling was completed, or
    re-opened after relocation.
 
                                       19
22
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This prospectus contains forward-looking statements regarding Tweeter's
performance, strategy, plans, objectives, expectations, beliefs and intentions.
The actual outcome of the events described in these forward-looking statements
could differ materially. Therefore, this prospectus, and especially the sections
entitled "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" contains a discussion of
some of the factors and risks that could contribute to those differences.
 
OVERVIEW
 
Tweeter is a specialty retailer of mid to high-end audio and video consumer
electronics products under the Tweeter, etc., Bryn Mawr and HiFi Buys names. We
opened our first Tweeter, etc. store in New England in 1972. Over 26 years, we
have refined our retail concept to meet the needs of consumers seeking brand
name products with advanced features, functionality and performance which we
sell through our highly trained, relationship-driven sales force. We believe
that our effective merchandising and superior customer service has enabled us to
generate substantial customer loyalty.
 
In 1995, Tweeter adopted an aggressive growth strategy to:
 
        - Open new stores in current regional markets and relocate certain
          stores to more favorable sites; and
 
        - Selectively pursue acquisitions in new regional markets and achieve
          operating improvements by converting the acquired companies to its
          core operating model and leveraging distribution, marketing and
          corporate infrastructure.
 
To support this growth strategy, we obtained equity investments in fiscal 1996
of approximately $10.6 million, net of issuance costs, from a group of investors
led by Weston Presidio and Advent International (the "1996 Investors"). In May
1996, Tweeter completed the Bryn Mawr acquisition. In May 1997, we raised an
additional $21.5 million, consisting of $6.8 million of equity and $14.7 million
of subordinated debt from the 1996 Investors and a new group of investors. We
used the proceeds primarily to finance the HiFi Buys acquisition. Both
acquisitions were accounted for by the purchase method of accounting. By
December 31, 1998, Tweeter had grown to 53 stores. In December 1998, Tweeter
agreed in principle to acquire the retail operations of Home Entertainment.
 
Tweeter seeks to increase sales, profitability and asset productivity at
acquired companies by converting them to our standard operating model with
enhanced training for sales personnel, superior customer service, improved
merchandising focused on higher-end audio and video equipment and more stringent
operating controls. We also have aggressively expanded corporate infrastructure
over the past two years to support anticipated higher levels of growth,
including expanding our management team with the addition of senior financial,
information systems, and buying personnel. We have made enhancements to our
management information systems with the addition of a new mainframe and
operating platform, and to our distribution and administrative infrastructure to
enable us to support all three regions on an integrated basis.
 
Prior to their acquisition by Tweeter, both Bryn Mawr and HiFi Buys operated at
substantially lower store contribution margins than Tweeter's existing
operations. Consequently, converting these stores to our operating model
adversely affected results in fiscal 1996 and 1997, as we converted these stores
to our operating model. The timing of the acquisitions resulted in the peak,
holiday sales period being excluded from the operations of the acquired stores
during the year of the acquisition, thus exacerbating the negative impact of
these acquisitions on Tweeter's results.
 
                                       20
23
 
BRYN MAWR
 
Subsequent to the Bryn Mawr acquisition, we implemented a variety of strategic
initiatives to convert Bryn Mawr to our core operating model. These initiatives
were primarily focused on increasing sales and gross margin, rather than
reducing operating expenses, in order to improve store contribution. These
initiatives included:
 
        - Increasing advertising expenditures and refocusing advertising to
          emphasize radio, television and direct marketing rather than print;
 
        - Implementing Tweeter's everyday competitive pricing and Automatic
          Price Protection programs;
 
        - Initiating a substantial sales associate training program to improve
          product knowledge and enhance relationship selling skills; and
 
        - Focusing the sales staff on higher margin products, particularly audio
          products.
 
Primarily as a result of these initiatives, comparable store sales increased
36.9% at Bryn Mawr during the period from the acquisition, May 13, 1996, through
September 30, 1996 versus the same period for the prior year. Comparable store
sales at Bryn Mawr increased 4.7% during fiscal 1997 and 19.3% during fiscal
1998. On a pro forma basis, assuming the Bryn Mawr acquisition as of October 1,
1995, store contribution increased from 3.1% to 6.8% in fiscal 1997 and 7.8% in
fiscal 1998, primarily due to the leveraging of expenses on a higher sales base
as well as an increase in gross margin.
 
The following table sets forth total revenues in thousands and store
contribution as a percentage of total revenues for Bryn Mawr on a standalone
basis:
PRO FORMA
                                       YEAR ENDED              YEAR ENDED            YEAR ENDED
                                  SEPTEMBER 30, 1996(1)    SEPTEMBER 30, 1997    SEPTEMBER 30, 1998
                                  ---------------------    ------------------    ------------------
Total revenue...................         $33,525                $35,432               $51,768
Store contribution..............       3.1%                    6.8%                  7.8%
---------------
(1) The pro forma results are presented as if the Bryn Mawr acquisition had
    occurred on October 1, 1995 and reflect the results of Bryn Mawr for a
    period under prior ownership. The pro forma results are based upon available
    information and certain assumptions that we believe are reasonable under the
    circumstances. The pro forma results are not necessarily indications of what
    our results would have been for the period had we completed the Bryn Mawr
    acquisition as of the date indicated.
 
HIFI BUYS
 
As with the Bryn Mawr acquisition, Tweeter initiated a series of strategic
initiatives subsequent to the HiFi Buys acquisition. In contrast to Bryn Mawr,
however, these initiatives combined a planned decrease of revenues with a
planned increase in gross margin and a substantial decrease in operating
expenses to generate increased store contribution. Specifically, we:
 
        - Adjusted the merchandise mix to increase the proportion of mid and
          high-end products and reduce the number of lower margin introductory
          products;
 
        - Altered store employee compensation to reduce the emphasis on
          promotional sales and focus incentives on gross margin and store
          contribution;
 
        - Reduced marketing expenditures and shifted marketing emphasis from
          promotional advertising toward our traditional relationship selling
          and everyday competitive price message;
 
        - Converted the advertising program to emphasize electronic advertising
          and direct mail marketing as opposed to print media;
 
                                       21
24
 
        - Implemented the Automatic Price Protection program; and
 
        - Eliminated $2.4 million of overhead by centralizing accounting,
          purchasing and other support infrastructure.
 
Primarily as a result of these initiatives, Tweeter experienced a planned
decline in comparable store sales of 29.9% at HiFi Buys during the period from
the acquisition, June 1, 1997, through September 30, 1997 versus the same period
for the prior year. In addition to the elimination of lower end items from the
product mix and reduced advertising, the comparable store sales decline was
exacerbated by a relatively high sales level during June to September 1996 due
to the Olympic Games in Atlanta. Comparable store sales declined 5.2% in fiscal
1998 at HiFi Buys. Pro forma for the HiFi Buys acquisition as of October 1,
1996, store contribution improved to 9.9% in fiscal 1998 from 4.3% in the prior
year.
 
The following table sets forth total revenues in thousands and store
contribution as a percentage of total revenues for HiFi Buys on a standalone
basis:
PRO FORMA
                                           YEAR ENDED              YEAR ENDED
                                     SEPTEMBER 30, 1997(1)     SEPTEMBER 30, 1998
                                     ----------------------    ------------------
Total revenue......................         $72,410                 $82,810
Store contribution.................       4.3%                     9.9%
---------------
(1) The pro forma results are presented as if the HiFi Buys acquisition had
    occurred on October 1, 1996 and reflect the results of HiFi Buys for a
    period under prior ownership. The pro forma results are based upon available
    information and certain assumptions that Tweeter believes are reasonable
    under the circumstances. The pro forma results are not necessarily
    indications of what our results would have been for the period had we
    completed the HiFi Buys acquisition as of the date indicated.
 
PENDING ACQUISITION
 
On December 9, 1998, Tweeter agreed in principle to acquire the retail
operations of Home Entertainment of Texas, Inc., a seven store chain located in
the Dallas and Houston markets. Home Entertainment reported retail revenue of
$25 million for the year ended June 30, 1998. We expect the purchase price to be
$8.2 million in cash, excluding acquisition costs. We intend to open new Home
Entertainment stores in Dallas and Houston, as well as elsewhere in Texas. We
expect to continue the operation of the retail stores as well as the service and
distribution facilities. We expect to close this acquisition in February 1999.
The closing is subject to various conditions, however, including satisfactory
completion of our due diligence investigation of Home Entertainment, which
currently is underway, and negotiation and execution of a definitive asset
purchase agreement. It is possible, therefore, that we will not complete the
planned acquisition.
 
                                       22
25
 
RESULTS OF OPERATIONS
 
The following table is derived from Tweeter's Consolidated Financial Statements
and sets forth, for the periods indicated, the actual amounts, in thousands, of
certain income and expense items and their percentages, relative to total
revenue:
FISCAL YEARS ENDED SEPTEMBER 30,
                                           ----------------------------------------------------------
                                                 1996                1997                 1998
                                           ----------------    -----------------    -----------------
STATEMENT OF OPERATIONS:
  Total revenue..........................  $80,607    100.0%   $132,525    100.0%   $232,289    100.0%
  Gross profit...........................   28,791     35.7%     46,210     34.9%     81,024     34.9%
  Selling expenses.......................   21,993     27.3%     35,568     26.8%     56,907     24.5%
  Corporate, general and administrative
    expenses.............................    4,716      5.9%      8,102      6.1%     11,128      4.8%
  Amortization of goodwill...............      129      0.2%        487      0.4%        917      0.4%
                                           -------    -----    --------    -----    --------    -----
  Income from operations.................    1,953      2.4%      2,053      1.5%     12,072      5.2%
  Interest expense.......................      617      0.8%      1,808      1.4%      2,753      1.2%
                                           -------    -----    --------    -----    --------    -----
  Income before income taxes.............    1,336      1.7%        245      0.2%      9,319      4.0%
  Income tax expense (benefit)...........     (453)    -0.6%         99      0.1%      3,724      1.6%
                                           -------    -----    --------    -----    --------    -----
  Income before extraordinary item.......    1,789      2.2%        146      0.1%      5,595      2.4%
  Extraordinary item (less applicable
    income taxes)........................       --      0.0%         --      0.0%       (340)    -0.1%
                                           -------    -----    --------    -----    --------    -----
  Net income.............................    1,789      2.2%        146      0.1%      5,255      2.3%
                                           =======    =====    ========    =====    ========    =====
  Accretion of preferred stock...........    1,036      1.3%      2,156      1.6%      2,514      1.1%
                                           -------    -----    --------    -----    --------    -----
  Net income (loss) available to common
    stockholders.........................  $   753      0.9%   $ (2,010)    -1.5%   $  2,741      1.2%
                                           =======    =====    ========    =====    ========    =====
FISCAL YEAR ENDED SEPTEMBER 30, 1998 AS COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1997
 
Total Revenue.  Total revenue includes delivered sales, completed service center
work orders, insurance replacement and corporate sales. Total revenue increased
$99.8 million, or 75.3%, to $232.3 million in fiscal 1998 from $132.5 million in
fiscal 1997. The increase was primarily comprised of $59.8 million from a full
year of HiFi Buys revenues, $9.4 million from new stores, and $20.9 million from
comparable store sales growth. Comparable store sales increased by 12.5%, made
up of a 28.6% increase at Tweeter, etc., a 19.3% increase at Bryn Mawr, and 5.2%
decrease at HiFi Buys. The exit from the New England market of competing retail
chains has had a favorable impact on comparable store sales at Tweeter, etc.,
while the increase at Bryn Mawr resulted from the conversion to Tweeter's
operating model. The decrease in HiFi Buys comparable store sales was primarily
due to the planned elimination of entry level products and a decrease in
associated promotional advertising.
 
Gross Profit.  Cost of sales includes merchandise, net delivery costs,
distribution costs, purchase discounts, and vendor volume rebates. Cost of sales
increased $65.0 million, or 75.3%, to $151.3 million in fiscal 1998 from $86.3
million in fiscal 1997. Gross profit increased $34.8 million, or 75.3% to $81.0
million in fiscal 1998 from $46.2 million in fiscal 1997. The gross margin
remained the same for both periods at 34.9%.
 
Selling Expenses.  Selling expenses include the compensation of store personnel,
occupancy, store level depreciation, advertising, preopening expenses and credit
card fees and excludes corporate overhead. Selling expenses increased $21.3
million, or 59.8%, to $56.9 million in fiscal 1998 from $35.6 million in fiscal
1997. The increase, on an absolute basis, was principally associated with
advertising, commissions related to increased sales, fees related to private
label credit card promotions, and rent and related staff positions for the
additional stores acquired as part of the HiFi Buys acquisition. As a percentage
of total revenue, selling expenses declined to 24.5% in fiscal 1998 from 26.8%
in the prior year period. This decline was primarily the result of the inclusion
of the
 
                                       23
26
 
HiFi Buys stores, which have lower advertising expenses as a percentage of
revenue than our other stores due to their concentration in a single market.
 
Corporate, General and Administrative Expenses.  Corporate, general and
administrative expenses include the costs of purchasing, accounting, information
systems, human resources, training, executive officers and related support
functions. Corporate, general and administrative expenses increased 37.0% in
fiscal 1998 to $11.1 million from $8.1 million in fiscal 1997. As a percentage
of total revenue, corporate, general and administrative expenses decreased to
4.8% for fiscal 1998 from 6.1% for the prior year period as we benefited from a
larger sales base.
 
Amortization of Goodwill.  Amortization of goodwill increased to $917,000 in
fiscal 1998 from $487,000 in fiscal 1997. This increase is attributable to
goodwill recorded for a full year in connection with the HiFi Buys acquisition.
 
Interest Expense.  Interest expense increased to $2.8 million in fiscal 1998
from $1.8 million in fiscal 1997 due primarily to the increased debt incurred to
fund the HiFi Buys acquisition. The funds from the initial public offering were
used to pay off existing debt. Accordingly, management anticipates that cash
outflows for interest will be reduced in 1999.
 
Income Taxes.  The effective tax rates in fiscal 1998 and fiscal 1997 were 40.0%
and 40.3%, respectively. For an analysis of changes in our effective tax rate,
see Note 10 to Consolidated Financial Statements.
 
Accretion of Preferred Stock.  In periods prior to its initial public offering,
Tweeter had preferred stock outstanding. Tweeter accreted the preferred stock to
its redemption value. Upon completion of the initial public offering, all
preferred stock was converted to common stock and Tweeter eliminated all
balances related to the preferred stock.
 
FISCAL YEAR ENDED SEPTEMBER 30, 1997 AS COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1996
 
Total Revenue.  Total revenue increased $51.9 million, or 64.4%, to $132.5
million in fiscal 1997 from $80.6 million in fiscal 1996. The increase was due
to $23.0 million from stores acquired in the HiFi Buys acquisition as well as a
full year of revenue from stores acquired in May 1996 in the Bryn Mawr
acquisition. Total revenue increased 8.0% at the Tweeter, etc. stores, all of
which came from new stores as comparable store sales decreased 4.5% during
fiscal 1997 versus the prior year. We believe that the decline in comparable
store sales was due to general weakness in the consumer electronics industry and
an ineffective marketing campaign for the first half of the fiscal year.
Comparable store sales increased 4.7% at the Bryn Mawr stores.
 
Gross Profit.  Cost of sales increased $34.5 million, or 66.6%, to $86.3 million
in fiscal 1997 from $51.8 million in fiscal 1996. Gross profit increased $17.4
million, or 60.5%, to $46.2 million in fiscal 1997 from $28.8 million in fiscal
1996. Gross margin declined to 34.9% in fiscal 1997 from 35.7% in fiscal 1996.
The decline was due to the impact on the gross margin at HiFi Buys, which was
lower than the gross margin at the Tweeter, etc. and Bryn Mawr stores. We
incurred lower gross margin at Tweeter, etc. stores due to a reduction in vendor
rebates resulting from lower than expected sales volume and an increase in the
percentage of lower margin video products sold. Gross margin increased at Bryn
Mawr as Tweeter converted the stores to its operating model.
 
Selling Expenses.  Selling expenses increased $13.6 million, or 61.7%, to $35.6
million in fiscal 1997 from $22.0 million in fiscal 1996. As a percentage of
total revenue, selling expenses decreased to 26.8% in fiscal 1997 from 27.3% in
fiscal 1996. The improvement in selling expenses as a percentage of revenue is a
result of having the Bryn Mawr stores for the full year including the peak
holiday selling season.
 
Corporate, General and Administrative Expenses.  Corporate, general and
administrative expenses increased $3.4 million, or 71.8%, to $8.1 million in
fiscal 1997 from $4.7 million in fiscal 1996. The increase was the result of
investment in corporate infrastructure including the addition of
 
                                       24
27
 
purchasing, accounting and information systems staff in conjunction with the
Bryn Mawr and HiFi Buys acquisitions and Tweeter's accelerated growth strategy.
As a percentage of total revenue, corporate general and administrative expenses
increased to 6.1% in fiscal 1997 from 5.9% in fiscal 1996 due to lower than
anticipated sales and the timing of the HiFi Buys acquisition.
 
Amortization of Goodwill.  Amortization of goodwill increased to $487,084, for
fiscal 1997 from $129,273 for fiscal 1996. This increase is attributable to the
additional goodwill recorded in connection with the HiFi Buys acquisition, as
well as a full year of goodwill amortization from the Bryn Mawr acquisition.
 
Interest Expense.  Interest expense for fiscal 1997 increased $1.2 million to
$1.8 million in fiscal 1997 from $616,879 in fiscal 1996. This increase was due
to the issuance of the $15.0 million senior subordinated notes, the proceeds of
which were used for the HiFi Buys acquisition, as well as increased borrowings
on our revolving line of credit. As a percentage of total revenue, interest
expense increased to 1.4% in fiscal 1997 from 0.8% in fiscal 1996.
 
Income Taxes.  For an analysis of changes in our effective tax rate, see Note 10
to Consolidated Financial Statements.
 
Accretion of Preferred Stock.  In periods prior to its initial public offering,
Tweeter had preferred stock outstanding. Tweeter accreted the preferred stock to
its redemption value. Upon completion of the initial public offering, all
preferred stock was converted to common stock and Tweeter eliminated all
balances related to the preferred stock.
 
SEASONALITY AND QUARTERLY RESULTS
 
Tweeter's business is subject to seasonal variations. Historically, Tweeter has
realized a significant portion of its total revenue and net income for the year
during the first and fourth fiscal quarters, with a majority of net income for
such quarters realized in the first fiscal quarter. Due to the importance of the
holiday shopping season, any factors negatively impacting the holiday selling
season could have a material adverse effect on Tweeter's financial condition and
results of operations. Tweeter's quarterly results of operations may also
fluctuate significantly due to a number of factors, including the timing of new
store openings and acquisitions and unexpected changes in volume-related rebates
from manufacturers. In addition, operating results may be negatively affected by
increases in merchandise costs, price changes in response to competitive factors
and unfavorable local, regional or national economic developments that result in
reduced consumer spending.
 
The following tables set forth certain quarterly financial data in thousands and
percentages of total revenue for the eight quarters ended September 30, 1998.
The quarterly information is unaudited but has been prepared on the same basis
as the audited financial statements included elsewhere in this prospectus. In
the opinion of management, all necessary adjustments (consisting only of normal
recurring adjustments) have been included to present fairly the unaudited
quarterly results when read in conjunction with Tweeter's Consolidated Financial
Statements and Notes thereto included elsewhere in this prospectus. The results
of operations for any quarter are not necessarily indicative of the results for
any future period. See "Risk Factors -- Seasonality and Quarterly Fluctuations."
 
                                       25
28
THREE MONTHS ENDED
                              ---------------------------------------------------------------------
                               DECEMBER 31,        MARCH 31,         JUNE 30,        SEPTEMBER 30,
                                   1997              1998              1998              1998
                              ---------------   ---------------   ---------------   ---------------
Total revenue...............  $74,617   100.0%  $54,512   100.0%  $49,676   100.0%  $53,483   100.0%
Cost of sales...............   49,236    66.0%   35,044    64.3%   32,257    64.9%   34,729    64.9%
                              -------   -----   -------   -----   -------   -----   -------   -----
Gross profit................   25,381    34.0%   19,468    35.7%   17,419    35.1%   18,754    35.1%
Selling expenses............   16,390    22.0%   13,818    25.3%   13,379    26.9%   13,320    25.0%
Corporate, general and
  administrative expenses...    2,617     3.5%    2,771     5.1%    2,734     5.6%    3,006     5.6%
Amortization of goodwill....      221     0.3%      235     0.4%      221     0.4%      240     0.4%
                              -------   -----   -------   -----   -------   -----   -------   -----
Income from operations......    6,153     8.2%    2,644     4.9%    1,085     2.2%    2,188     4.1%
Interest expense............      865     1.2%      745     1.4%      745     1.5%      397     0.7%
                              -------   -----   -------   -----   -------   -----   -------   -----
Income before income taxes..    5,288     7.0%    1,899     3.5%      340     0.7%    1,791     3.4%
Income tax expense..........    2,115     2.8%      760     1.4%      136     0.3%      713     1.3%
                              -------   -----   -------   -----   -------   -----   -------   -----
Net income..................  $ 3,173     4.2%  $ 1,139     2.1%  $   204     0.4%  $ 1,078     2.1%
                              =======   =====   =======   =====   =======   =====   =======   =====
Stores open at beginning of
  period....................       47                50                50                51
New stores..................        3                 0                 1                 1
Relocated stores............        2                 0                 0                 0
Closed stores...............        0                 0                 0                 0
Stores acquired.............        0                 0                 0                 0
Stores open at end of
  period....................       50                50                51                52
THREE MONTHS ENDED
                              ---------------------------------------------------------------------
                               DECEMBER 31,        MARCH 31,         JUNE 30,        SEPTEMBER 30,
                                   1996              1997             1997(1)           1997(1)
                              ---------------   ---------------   ---------------   ---------------
Total revenue...............  $34,988   100.0%  $25,595   100.0%  $28,211   100.0%  $43,731   100.0%
Cost of sales...............   22,688    64.8%   16,493    64.4%   18,552    65.8%   28,582    65.4%
                              -------   -----   -------   -----   -------   -----   -------   -----
Gross profit................   12,300    35.2%    9,102    35.6%    9,659    34.2%   15,149    34.6%
Selling expenses............    7,927    22.7%    6,870    26.8%    8,160    28.9%   12,611    28.8%
Corporate, general and
  administrative expenses...    1,775     5.0%    2,018     8.0%    2,069     7.4%    2,240     5.1%
Amortization of goodwill....       60     0.2%       60     0.2%      122     0.4%      245     0.6%
                              -------   -----   -------   -----   -------   -----   -------   -----
Income (loss) from
  operations................    2,538     7.3%      154     0.6%     (692)   -2.5%       53     0.1%
Interest expense............      274     0.8%      239     0.9%      473     1.7%      822     1.9%
                              -------   -----   -------   -----   -------   -----   -------   -----
Income (loss) before income
  taxes.....................    2,264     6.5%      (85)   -0.3%   (1,165)   -4.2%     (769)   -1.8%
Income tax expense
  (benefit).................      914     2.6%      (38)   -0.1%     (467)   -1.7%     (310)   -0.7%
                              -------   -----   -------   -----   -------   -----   -------   -----
Net income (loss)...........  $ 1,350     3.9%  $   (47)   -0.2%  $  (698)   -2.5%  $  (459)   -1.1%
                              =======   =====   =======   =====   =======   =====   =======   =====
Stores open at beginning of
  period....................       33                35                35                47
New stores..................        2                 0                 2                 0
Relocated stores............        0                 1                 0                 0
Closed stores...............        0                 0                 0                 0
Stores acquired.............        0                 0                10                 0
Stores open at end of
  period....................       35                35                47                47
---------------
 
(1) Includes results of the HiFi Buys acquisition from May 30, 1997, which was
    accounted for using the purchase method.
 
                                       26
29
 
LIQUIDITY AND CAPITAL RESOURCES
 
As of September 30, 1998, Tweeter had $18.3 million in working capital compared
to $11.9 million on September 30, 1997. In addition, as of September 30, 1998,
$24.8 million was available for borrowing on our credit facility.
 
Net cash provided by operations was $4.4 million for fiscal 1998, comprised
primarily of $5.3 million in net income, an increase in accounts payable and
accrued expenses of $2.3 million and depreciation and amortization of $3.9
million. This was offset by increases in inventory of $7.2 million and accounts
receivable of $0.7 million and a decrease in deferred warranty of $1.5 million,
as well as minor changes in other operating accounts. Net cash used in investing
activities during fiscal 1998 was approximately $9.0 million used primarily to
open five new stores, relocate two stores and purchase a facility a facility in
Canton, Massachusetts to serve as a corporate headquarters, service center and
distribution center. Net cash provided by financing activities was $4.2 million
in fiscal 1998 consisting of net proceeds of $32.2 million from our initial
public offering, primarily offset by repayment of $26.4 million of debt
outstanding.
 
Net cash used in operations was approximately $6.2 million in fiscal 1997,
comprised primarily of an increase in inventory of $6.5 million related to new
stores, including the acquired HiFi Buys stores. Net cash used in investing
activities during fiscal 1997 was approximately $23.5 million, including $19.5
million for the HiFi Buys acquisition and $4.0 million for new stores. Net cash
provided by financing activities was $30.5 million in fiscal 1997, consisting of
$20.7 million of long term debt, $6.8 million from issuance of preferred stock,
and $3.1 million of miscellaneous borrowings.
 
Tweeter primarily needs cash for working capital to support its inventory
requirements, selling and administrative expenses and capital expenditures,
pre-opening expenses and beginning inventory for new or relocated stores.
Additionally, Tweeter pursues an active acquisition strategy, and capital needs
arise as acquisition opportunities become available.
 
Prior to its initial public offering, Tweeter financed its operations through
cash flow from operations and its revolving credit facility with BankBoston,
N.A. It funded its acquisitions primarily through private placements of equity
and debt securities. These private placements generated gross proceeds of
approximately $18.0 million from the issuance of preferred stock and
approximately $17.2 million in senior subordinated notes.
 
Tweeter's completed its initial public offering in July 1998, which yielded
approximately $32.2 million, net of offering expenses. Tweeter used these net
proceeds to repay:
 
        - Approximately $14.5 million in outstanding indebtedness under its
          Credit Facility;
 
        - Approximately $15.0 million in outstanding indebtedness under certain
          subordinated promissory notes issued in connection with the HiFi Buys
          acquisition;
 
        - Approximately $1.9 million in outstanding indebtedness under the terms
          of a certain promissory note dated November 28, 1995, incurred in
          connection with a recapitalization pursuant to which Tweeter
          repurchased common stock from certain of its stockholders; and
 
        - Approximately $771,000 in outstanding indebtedness under a certain
          subordinated note dated May 30, 1997 issued in connection with the
          HiFi Buys acquisition.
 
Tweeter's credit facility currently has a maximum availability of $30.0 million
and a maturity date of July 31, 2001. Any borrowed funds will be secured by our
inventory and certain other assets (including pledges of stock in certain
affiliates). At our election, interest accrues on borrowings at either (i) the
higher of BankBoston's Base Rate or the Federal Funds rate plus 0.50% or (ii)
LIBOR plus an applicable margin varying from 100 to 175 basis points. The credit
agreement contains various financial covenants, including a maximum ratio of
debt to EBITDA, cash flow and interest coverage tests, and a minimum net worth
test, and provides for limitations on other indebtedness, liens, capital
expenditures, mergers, payment of dividends and certain other matters.
 
                                       27
30
 
We believe that the net proceeds from this offering, together with cash
generated by operations and available borrowings under our credit facility will
be at least sufficient to finance our working capital and capital expenditure
requirements for at least the next twelve months and our acquisition of Home
Entertainment. If we pursue additional acquisitions within this period, however,
such acquisitions could strain our capital resources. Furthermore, due to the
seasonality of our business, our working capital needs are significantly higher
the fiscal third and fourth quarters and there is the possibility that this
could cause unforeseen capital constraints in the future.
 
YEAR 2000 COMPLIANCE
 
PRODUCTS
 
Tweeter purchases and sells new mid to high-end consumer electronic products,
which suppliers recently manufactured. Tweeter believes that it is unlikely that
these products have Year 2000 problems or that, even if some products were not
Year 2000 compliant, the warranty expenses to Tweeter would be material. As
such, we do not intend to evaluate individual products. If a large quantity of
these products, however, are non-compliant and consumers learn of this non-
compliance, we could suffer a loss of sales.
 
SUPPLIERS
 
Tweeter has begun contacting its suppliers to ensure that Year 2000 issues will
not materially adversely affect its supply chain and inventory levels. We expect
this process to be completed by August 1999. When we have compiled adequate
information regarding the Year 2000 status of our major suppliers we will
formulate contingency plans based upon these assessments. Any failure of
suppliers to provide inventory to Tweeter could have a material adverse effect
on its results of operations and financial condition.
 
INTERNAL OPERATIONS
 
Tweeter is currently evaluating its internal business systems, as well as its
stores and storage facilities for Year 2000 problems. We have substantially
completed our assessment of our internal systems and software, and believe that
Year 2000 issues will not materially affect our business. We have already
completed the majority of the required coding conversions on our information
technology, including our patented Automatic Price Protection software. All of
our other internal software, including our accounting software, are recently
released, off-the-shelf applications, which are certified as compliant by their
licensors. Tweeter anticipates identifying and completing all known remaining
coding conversions during the current fiscal year.
 
Although we anticipate minimal business disruption as a result of Year 2000
issues, possible consequences of non-compliance include, but are not limited to,
loss of communications links with certain store locations, loss of electric
power, loss of security systems, and inability to process transactions, send
purchase orders or engage in similar normal business activities.
 
COSTS OF COMPLIANCE
 
We estimate the total cost of Tweeter's Year 2000 compliance will not be
material in amount. Tweeter has not hired any outside personnel to assess the
scope of or provide solutions to Year 2000 problems. We have not diverted
material resources, including employee resources, and any costs expended are an
immaterial part of our information technology budget.
 
The Year 2000 expenses incurred to date and the completion dates are based on
management's best estimates and may be updated as additional information becomes
available.
 
                                       28
31
 
IMPACT OF INFLATION
 
We do not believe that inflation has had a material adverse effect on Tweeter's
results of operations. However, we cannot predict accurately the effect of
inflation on future operating results.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
The Financial Accounting Standards Board (FASB) recently issued Statement of
Financial Accounting Standards "SFAS" No. 130, "Reporting Comprehensive Income,"
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," SFAS No. 132, "Employer's Disclosures About Pensions and Other
Post Retirement Benefits" and SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities."
 
SFAS No. 130, 131 and 132 will be implemented during fiscal year 1999. We do not
expect that the adoption of these statements will have a material impact on the
consolidated financial statements.
 
SFAS No. 133 will be implemented during fiscal year 2000. We do not expect that
the adoption of this statement will have a material impact on the consolidated
financial statements.
 
RECENT DEVELOPMENTS
 
For the quarter ended December 31, 1998, our total revenue increased 16.3% to
$86.8 million from $74.6 million for the quarter ended December 31, 1997.
Comparable store sales increased 10.6% overall, consisting of an 11.9% increase
at the Tweeter, etc. stores, a 23.9% increase at the Bryn Mawr stores and no
change in comparable store sales at the HiFi Buys stores.
 
                                       29
32
 
                                    BUSINESS
 
OVERVIEW
 
Tweeter is a specialty retailer of mid to high-end audio and video consumer
electronics products. We operate 53 stores under the Tweeter, etc. name in the
New England market, the Bryn Mawr Stereo & Video name in the Mid-Atlantic market
and the HiFi Buys name in the Southeast market. Our stores feature an extensive
selection of home and car audio systems and components, portable audio equipment
and home video products, including large screen televisions, DVD players,
digital satellite systems, video cassette recorders and camcorders. We
differentiate our stores by focusing on consumers who seek audio and video
products with advanced features, functionality and performance. We do not offer
personal computers or home office equipment. The stores display products in an
inviting retail environment averaging 10,000 square feet and are staffed with
attentive, knowledgeable sales personnel. We seek to build name recognition and
customer loyalty by combining a high level of service with competitive prices
backed by our patented Automatic Price Protection program. Audio Video
International Magazine recognized us as the "Consumer Electronics Retailer of
the Year" in both 1996 and 1997. The TWICE Consumer Electronics Retail Registry
named us the fastest growing consumer electronics retailer in the United States
in 1997 and 1998.
 
INDUSTRY
 
According to Tweeter estimates, retail sales of audio and video products were
approximately $30 billion in 1997. Tweeter also estimates that between 1980 and
1997, the audio and video segment expanded at a compound annual growth rate of
4.3%, with faster growth of 5.6% from 1980 to 1990 due to new product
introductions, including compact disc players and video cassette recorders, and
more modest growth of 2.3% between 1990 and 1997 as product categories matured.
 
Tweeter believes that the following trends in the consumer electronics industry
create significant opportunities for a specialty retailer of audio and video
products such as Tweeter:
 
POSITIONING OF LARGE FORMAT, HIGH VOLUME RETAILERS
 
In the 1990s, consumer electronics retailing has become increasingly dominated
by large format stores, including superstores and mass merchandisers. These
stores typically rely on high sales volumes by marketing a wide variety of
products to a broad segment of consumers, with an emphasis on introductory level
products. Many of these retailers have sought to capitalize on the growth of
certain product categories within the overall consumer electronics industry,
including personal computers, software, home office equipment and
telecommunications equipment, which Tweeter believes has contributed to a
decrease in emphasis by those stores on audio and video products. According to
Tweeter estimates, audio and video products accounted for 31% of total sales of
consumer electronic products in 1997 versus 44% in 1990. Tweeter believes that
because of their emphasis on high volume across broad product categories, these
large format stores are unable to match the product knowledge, service and
shopping environment of a specialty audio and video retailer such as Tweeter.
 
CONSOLIDATION OF CONSUMER ELECTRONICS RETAILERS
 
The retail consumer electronics industry is highly fragmented, and Tweeter
estimates that the two largest superstore chains accounted for less than 22% of
the total sales attributable to the 100 largest retailers in 1997. Tweeter
believes that the expansion of large format chains has precipitated
consolidation of the industry during the 1990s by placing competitive pressure
on (i) regional broadline consumer electronics retailers with strategies
undifferentiated from consumer electronics superstores and mass merchandisers,
and (ii) smaller specialty retailers that may be successfully differentiated but
which operate at a disadvantage due to limited scale, media inefficiencies,
 
                                       30
33
 
reduced purchasing power and lack of management depth. Tweeter believes that
regional specialty retailers with strong consumer name recognition represent
attractive acquisition candidates and that the smaller or weaker specialty
retailers will continue to face significant competitive pressures, thereby
providing opportunities for retailers with scale advantages to increase market
share.
 
ADVENT OF NEW TECHNOLOGIES
 
Growth in the audio and video consumer electronics market has historically been
accelerated by the introduction of new products based on technological
innovations. For example, the proliferation of video cassette recorders and
compact disc players helped to accelerate growth in the 1980s. Tweeter believes
that a new generation of technology offers the prospect of increased industry
sales with the introduction of digital products such as DVD players and high
definition televisions, as well as direct broadcast satellite systems and
internet-ready televisions. According to statistics provided by the Consumer
Electronics Manufacturers' Association, approximately 858,800 DVD players were
shipped in the first eleven months of 1998, and sales of DVD players in November
1998 reached 1.4 million units on an annualized basis. The Company believes that
specialty retailers with sales personnel capable of understanding and
communicating the benefits of technologically advanced products to consumers are
well positioned to capture the increased sales that may result should such
products achieve market acceptance.
 
BUSINESS STRATEGY
 
Our goal is to become the leading specialty retailer of high-quality audio and
video products. The key elements of our business strategy are as follows:
 
EXTENSIVE SELECTION OF MID TO HIGH-END AUDIO AND VIDEO PRODUCTS
 
We concentrate on mid to high-end audio and video consumer electronics products.
This focus differentiates us from larger format superstores and mass
merchandisers, which offer a broad array of consumer electronics and
non-electronics products with a higher emphasis on products priced at
introductory price levels. Tweeter's emphasis on higher-end products positions
it attractively to manufacturers seeking to sell more advanced or limited
distribution products as part of their distribution strategy. Limited
distribution products accounted for approximately 41% of product sales in fiscal
1998. As a result of our higher-end product focus, a historical early adopter
customer base and our extensively trained sales force, we are often among the
earliest retailers to offer new product innovations on behalf of manufacturers.
In addition, we believe that our focused product offering allows for higher
gross margin opportunities, appeals to a more service-conscious consumer and
results in enhanced brand awareness of our regional names to our targeted
customer group.
 
EXCEPTIONAL CUSTOMER SERVICE
 
We believe that the quality and knowledge of our sales associates is critical to
our success and represents a significant competitive advantage. Our relationship
selling model encourages sales associates to promote a comfortable, trusting,
low pressure environment. We provide new sales associates with five weeks of
intensive classroom training, and all sales associates receive five to fifteen
days of ongoing training per year, both at the store and at Tweeter's regional
training centers. Our sales force receives technical product and sales training
prior to our introduction of significant new products. We believe that the
success of our operating model has enabled us to engender long-term customer
loyalty.
 
DYNAMIC, INVITING STORES
 
Our stores display products in a dynamic and inviting setting intended to
encourage the customer to view and hear products in sound rooms architecturally
and acoustically designed to simulate the customer's home or car environment.
The store prototype is brightly painted, often in pastel colors,
 
                                       31
34
 
with many stores exhibiting hand-painted murals and other decorative artwork.
Innovative and interactive product displays enable customers to sample and
compare a variety of products. Each store contains a television wall displaying
an extensive selection of televisions and related products, and many stores
contain a movie theater room, complete with theater-style seats, which showcases
our home theater products.
 
EVERYDAY COMPETITIVE PRICING
 
We utilize an "everyday competitive pricing" strategy with fixed prices clearly
marked on our products. Store managers regularly visit local competitors to
ensure that our pricing remains competitive within the store's local market. In
addition, all product sales are backed by our patented Automatic Price
Protection program. Under this program, if a customer purchases a consumer
electronics product from one of our stores and a competitor within 25 miles of
the store advertises a lower price within 30 days of purchase, we automatically
send a check to the customer for the difference without requiring the customer
to request payment. The Automatic Price Protection program is designed to remove
pricing concerns from the purchase decision and, as a result, allows customers
and the sales staff to focus on product functionality, performance and quality.
 
GROWTH STRATEGY
 
We opened our first store in 1972 in Boston under the Tweeter, etc. name and
over the next two decades grew exclusively through new store openings in New
England, expanding to 18 stores by 1995. In 1995, Tweeter adopted its current
growth strategy to:
 
        - Open new stores in current regional markets and relocate certain
          stores to more favorable sites; and
 
        - Selectively pursue acquisitions in new regional markets and achieve
          operating improvements by converting each acquired company to its core
          operating model and leveraging distribution, marketing and corporate
          infrastructure.
 
NEW STORES
 
We intend to open new stores and relocate a limited number of stores within
existing markets in order to increase penetration and leverage regional
advertising, distribution, and operating efficiencies. During fiscal 1998, we
opened two Tweeter, etc. stores and three Bryn Mawr stores. We intend to open 11
new stores in fiscal 1999, one of which is now open. These stores do not include
the seven Home Entertainment stores which we intend to acquire in February 1999.
We believe that our acquisitions of Bryn Mawr in May 1996, HiFi Buys in May 1997
and our pending acquisition of Home Entertainment provide us with platforms from
which to open new stores within and around their markets.
 
STRATEGIC ACQUISITIONS
 
We believe that we have obtained, and can continue to obtain, significant
benefits from the consummation of strategic acquisitions of existing specialty
retailers with a similar product mix and strong consumer reputation in
geographic markets in which we do not currently operate. We believe that we can
leverage the performance of an acquisition candidate by:
 
        - Applying our sales management and sales incentive strategies;
 
        - Adjusting the product mix to be compatible with our emphasis on higher
          margin audio and video products;
 
        - Applying our advertising and marketing strategies and programs,
          including our Automatic Price Protection and everyday competitive
          pricing programs;
 
        - Implementing our relationship selling and customer service
          philosophies; and
 
        - Utilizing our purchasing and distribution capabilities and
          administrative infrastructure.
 
                                       32
35
 
We believe that acquisition opportunities are created by the fragmented nature
of the consumer electronics industry, the limited exit strategies available to
owners of local and regional specialty retailers, the competitive pressures
imposed by larger format retailers, and the insufficiency of capital necessary
to support inventory, advertising or expansion. We believe that we are a well
positioned consolidator because Tweeter:
 
        - Is known within the industry as a leading specialty retailer;
 
        - Utilizes a store size and concept which can be readily adapted to the
          acquired stores;
 
        - Has successfully consummated two strategic acquisitions;
 
        - Has developed an operational, administrative and marketing
          infrastructure with the proven capability to successfully integrate
          acquisitions;
 
        - Enjoys experienced and proven senior management, having an average of
          13 years of tenure with Tweeter (or its acquired companies); and
 
        - Would seek to offer potential employment and managerial opportunities
          within the consolidated enterprise to employees of the targeted
          retailer.
 
RECENT ACQUISITIONS
 
ACQUISITION OF BRYN MAWR
 
In May 1996, we completed the Bryn Mawr acquisition. Like the Tweeter, etc.
stores, the Bryn Mawr stores enjoyed considerable name recognition and targeted
similar service-oriented customers. Since the Bryn Mawr stores offered a product
mix similar to the Tweeter, etc. stores, we consummated the Bryn Mawr
acquisition with the goal of realizing increased revenues and store contribution
through the application of our established operational strategies to the
acquired stores. Towards that goal, we:
 
        - Increased advertising expenditures and refocused advertising to
          emphasize radio, television and direct marketing rather than print;
 
        - Implemented Tweeter's everyday competitive pricing and Automatic Price
          Protection programs;
 
        - Initiated a substantial sales associate training program to improve
          product knowledge and enhance relationship selling skills; and
 
        - Focused the sales staff on higher margin products, particularly audio
          products.
 
ACQUISITION OF HIFI BUYS
 
In May 1997, we completed the HiFi Buys acquisition. Like Tweeter, etc. and Bryn
Mawr, HiFi Buys had created a strong reputation among consumers as a specialty
retailer of high quality audio and video products. The HiFi Buys stores, at an
average size of 15,000 square feet, are larger than the average Tweeter, etc. or
Bryn Mawr stores. The HiFi Buys stores carried a broader product mix, however,
including more entry level product offerings and marketed heavily through
promotional newspaper advertising. Our integration strategy in the HiFi Buys
acquisition has been to increase store contribution by converting the HiFi Buys
product mix to one compatible with the Tweeter, etc. stores and to manage a
planned decrease in sales while increasing gross margins and reducing operating
expenses. Specifically, following the HiFi Buys acquisition we:
 
        - Adjusted the merchandise mix to increase the proportion of mid and
          high-end products and reduce the number of lower margin introductory
          products;
 
        - Altered store employee compensation to reduce the emphasis on
          promotional sales and focus incentives on gross margin and store
          contribution;
 
        - Reduced marketing expenditures and shifted marketing emphasis from
          promotional advertising toward Tweeter's traditional relationship
          selling and everyday competitive price message;
 
                                       33
36
 
        - Converted the advertising program to emphasize electronic advertising
          and direct mail marketing as opposed to print media;
 
        - Implemented the Automatic Price Protection program; and
 
        - Eliminated $2.4 million of overhead by centralizing accounting,
          purchasing and other support infrastructure.
 
PENDING ACQUISITION OF HOME ENTERTAINMENT
 
On December 9, 1998, Tweeter agreed in principle to acquire the retail
operations of Home Entertainment, a seven store chain located in the Dallas and
Houston markets, for $8.2 million in cash, excluding acquisition costs. Home
Entertainment is a focused retailer of high quality audio and video products
with a 42-year operating history. We believe that there is a significant
opportunity to increase sales at the store level. In addition, Home
Entertainment operates a successful custom installation business, which we
believe can be applied in our other stores. We intend to open, over time, new
Home Entertainment stores in Dallas and Houston, as well as elsewhere in Texas.
We expect to continue the operation of the retail stores as well as the service
and distribution facilities. We expect to close this acquisition in February
1999. The closing is subject to various conditions, however, including
satisfactory completion of our due diligence investigation of Home
Entertainment, which currently is underway, and negotiation and execution of a
definitive asset purchase agreement. It is possible, therefore, that we will not
complete the planned acquisition.
 
STORE FORMAT AND OPERATIONS
 
STORE FORMAT
 
We currently operate 53 stores, comprised of 24 Tweeter, etc. stores in the New
England market, 18 Bryn Mawr stores in the Mid-Atlantic market, and 11 HiFi Buys
stores in the Southeast market. While our stores vary in size, the current
prototype is 10,000 square feet, with approximately 70% of square footage
devoted to selling space. Many stores utilize mezzanine level storage space to
reduce overall occupancy expense.
 
Tweeter's store concept combines the comfort of the home environment with
practical displays enabling consumers to sample and compare the features and
functions of products in various combinations. The store prototype is brightly
painted, often in pastel colors, with many stores exhibiting hand painted murals
and other decorative artwork. Unlike many of the competitors' stores, which
contain large, open spaces in which many different audio and video products are
tested and sampled, our stores feature individual sound rooms. The sound rooms
architecturally and acoustically resemble a home environment to enable the
customer to see and hear how products will perform at home. These sound rooms
allow the customer to listen to and to compare various combinations of
receivers, CD players, tape decks and speakers. In addition, each store contains
a traditional television wall displaying an extensive selection of televisions
and related products, and many stores contain a movie theater room, complete
with theater-style seats, which showcases Tweeter's home theater products. Other
displays, such as the "big red button," allow the customer to change, by pushing
a button, mono television sound into a five speaker or surround sound
experience. Each store also features a camcorder gallery which allows customers
to sample different camcorders, and to shoot videos of their children within the
adjacent children's play area. Some stores display a car on the selling floor
which features a state-of-the-art car stereo system and serves to exhibit our
installation capabilities. Most stores provide car stereo installation through
on-premises installation bays.
 
                                       34
37
 
STORE OPERATIONS
 
Stores are typically staffed with a store manager, an assistant manager, 12
sales associates and two mobile electronics installers. We provide new sales
associates with five weeks of intensive classroom training, and all sales
associates receive five to fifteen days of ongoing training per year, both at
the store and at the regional training centers. The sales force receives
technical product and sales training prior to the introduction of significant
new products. Most stores are open seven days a week.
 
STORE ECONOMICS
 
Tweeter believes that it benefits from attractive store level economics. The
average investment by Tweeter for the eight new stores opened in the 27 months
ended September 30, 1998, including leasehold improvements, equipment, the cost
of inventory (net of payables), and preopening expenses was approximately
$860,000. The average net sales and store level cash flow, which excludes any
preopening expenses, allocated corporate overhead, depreciation and interest,
but includes occupancy expense and advertising, for fiscal 1998 was
approximately $3,672,000 and $379,000, respectively, for stores owned by Tweeter
throughout the period.
 
SITE SELECTION
 
Tweeter's stores average approximately 10,000 square feet and are typically
located in free-standing buildings or strip shopping centers within high traffic
shopping areas. New store sites are selected on the basis of several factors,
including physical location, demographic characteristics of the local market,
proximity to superstore competitors, access to highways or other major roadways,
and available lease terms. We look for co-tenants, such as bookstores, that are
likely to draw customers whom we would otherwise target within the site's
relevant market and believe that the proximity of superstore competitors is, on
balance, a positive factor due to increased customer traffic. We lease all of
our stores.
 
Set forth below is a table summarizing the locations, opening years, and years
of relocation where specified, of Tweeter's stores as of December 31, 1998:
TWEETER, ETC.                       BRYN MAWR                        HIFI BUYS
----------------------------   ---------------------------------   ----------------------------
                YEAR OPENED/                        YEAR OPENED/                   YEAR OPENED/
   LOCATION      RELOCATED          LOCATION         RELOCATED        LOCATION      RELOCATED
   --------     ------------        --------        ------------      --------     ------------
Boston, MA         1972        Bryn Mawr, PA           1946        Norcross          1990
Cambridge, MA   1974/1998      Maple Shade, NJ         1978        Alpharetta, GA    1991
Newton, MA      1976/1995      Abington, PA            1981        Athens, GA        1991
Burlington, MA  1978/1996      Allentown, PA           1982        Buckhead, GA      1993
Dedham, MA         1980        Montgomeryville, PA     1984        Southlake, GA     1993
Framingham, MA     1983        Wilmington, DE       1985/1992      Tucker, GA        1993
Hyannis, MA     1983/1994      Harrisburg, PA       1986/1994      Marietta, GA      1994
New London, CT  1985/1998      Wilmington,DE           1987        Kennesaw, GA      1995
Hanover, MA        1986        Allentown, PA           1987        Smyrna, GA        1995
Danbury, CT     1986/1997      Baltimore, MD           1990        Gwinnet, GA       1996
Seekonk, MA        1988        Timonium, MD            1990        Birmingham, AL    1998
Warwick, RI        1989        King of Prussia, PA     1995
Newington, CT      1990        Glen Burnie, MD         1995
Avon, CT           1993        Princeton, NJ           1997
Peabody, MA        1993        Lancaster, PA           1997
Manchester, CT  1994/1998      Reading, PA             1997
Salem, NH          1994        York, PA                1997
Boston, MA         1995        Deptford, NJ            1998
Milford, CT        1995
Holyoke, MA        1996
Portsmouth, NH     1996
Nashua, NH         1996
Attleboro, MA      1997
Manchester, NH     1998
35
38
 
MERCHANDISE
 
Our stores feature home and car audio systems and components, video products
such as large screen televisions, digital satellite systems, video cassette
recorders, camcorders, DVD players and other consumer electronics products such
as cellular phones and portable audio equipment. Tweeter offers custom home and
car stereo installation services and provides warranty and non-warranty repair
services through all of its stores. We also offer insurance replacement services
to insurance companies, providing replacement products to the policyholders of
those insurance companies. Additionally, Tweeter has a corporate sales division
which markets and sells to businesses, institutions and other organizations. Our
emphasis on mid to high-end products enables us to offer limited distribution
products and to be among the earliest retailers to offer new product innovations
on behalf of manufacturers. Limited distribution products accounted for
approximately 41% of our sales in fiscal 1998.
 
We stock products from over 50 vendors, including Adcom, Aiwa, Alpine, Bose,
Boston Acoustics, Denon, Eclipse, Kenwood, Klipsch, Mirage, Mission, Mitsubishi,
Monster Cable, Panasonic, Pioneer, ProScan, Rockford Fosgate, Sony and Yamaha.
Tweeter seeks to manage its product mix to maximize gross margin performance.
Historically, video products have yielded lower gross margin than audio
products. Total sales of video products have increased at rates faster than the
increases in audio product sales during the last several years as a result of
the increased customer interest in big screen televisions. Accordingly, we have
adopted a "Sell Audio with Video" strategy in order to enhance overall gross
margin through increased sales of higher margin audio products.
 
The table below sets forth the approximate percentages of revenues for each of
Tweeter's primary product categories for fiscal years 1996, 1997 and 1998. The
percentage of revenues represented by each product category may be affected by,
among other factors, competition, economic conditions, consumer trends, the
introduction into the market of new products, changes in our product mix, and
the timing of marketing events. The percentages are also impacted by
acquisitions of stores offering different mixes of products. In particular, the
increase in the percentage of revenue represented by video products in fiscal
1998 was primarily driven by inclusion of the acquired Hifi Buys stores. The
historical percentages set forth below may not be indicative of revenue
percentages for future periods:
 
                             PERCENTAGE OF REVENUES
YEAR ENDED SEPTEMBER 30,
                                                    ----------------------------
                 PRODUCT CATEGORY                   1996        1997        1998
                 ----------------                   ----        ----        ----
Audio Equipment(1)................................   35%         33%         33%
Video Equipment(2)................................   36%         36%         43%
Mobile Equipment and Other(3).....................   29%         31%         24%
---------------
(1) Includes speakers, cassette decks, receivers, turntables, compact disc
    players, mini disc players, amplifiers, preamplifiers, and portable audio
    equipment.
(2) Includes video cassette players, camcorders, televisions, projection
    televisions, DVD players, and satellite dishes.
(3) Includes car decks, amplifiers and speakers, car security products,
    navigation equipment, cellular phones, audio and video accessories, and
    extended performance guaranties.
 
PURCHASING AND INVENTORY
 
Tweeter's purchasing and inventory control functions are based at its executive
offices in Canton, Massachusetts. The purchasing decisions are made by our
buying team, which has primary responsibility for product selection, stocking
levels and pricing. Purchasing decisions are facilitated by our information
systems which analyze stocking levels and product sell-through. The purchasing
group continuously reviews new and existing products with a view towards
maintaining a wide range of high quality, brand-name consumer electronics
products within the product mix. In order to remain current with new and
developing products, we regularly host presentations by our major suppliers.
 
                                       36
39
 
In addition to making direct purchases, we are a member of Progressive Retailers
Organization, a volume-buying group of 14 specialty electronics retailers across
the country. This affiliation often provides us with opportunities to obtain
additional vendor rebates, product discounts and promotional products. Tweeter
is not obligated to make purchases through Progressive Retailers Organization.
Tweeter's President serves on the Board of Directors of Progressive Retailers
Organization.
 
Tweeter sources products from more than 50 vendors, the largest of whom, Sony,
accounted for 22% of fiscal 1998 purchases. Tweeter does not maintain long term
commitments or exclusive contracts with any particular vendor, but instead
considers numerous factors, including price, credit terms, distribution, quality
and compatibility with its existing product mix in making its purchasing
decisions. Tweeter utilizes a sophisticated automatic replenishment system for
store inventory, maintaining stock levels and minimizing total dollars invested
in inventory. We believe that our relationship with our large vendors is
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.
 
Tweeter distributes products to stores through three regional distribution and
service centers. In August, we relocated to a new, 80,000 square feet facility
in Canton, Massachusetts which serves as our corporate headquarters and
distribution and service center for the Tweeter, etc. stores. The King of
Prussia, Pennsylvania distribution center is 50,000 square feet and services the
Bryn Mawr stores. The Atlanta, Georgia facility is 80,000 square feet and
services the HiFi Buys stores. We believe that these facilities are sufficient
to handle our planned expansion in these markets through at least the year 2000.
 
ADVERTISING AND MARKETING
 
Tweeter targets consumers seeking informed advice concerning product selection
and system integration of audio and video consumer electronics products. Our
marketing strategy differs from our primary competitors in that we rely
substantially on electronic media, primarily radio and an extensive direct
marketing effort. We believe advertising on specific radio stations and at
specific times allows us the flexibility to tailor our marketing message. Our
radio advertising campaigns seek to generate name recognition and to reinforce
identification of Tweeter as a source of high quality products at competitive
prices, staffed with a knowledgeable, attentive sales force. We complement our
radio strategy from time to time with television and print advertisements. 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.
 
We also rely on a sophisticated direct marketing campaign to our customers. We
have developed a comprehensive database-marketing program to match past customer
purchasing history to the next logical purchase option for that customer. For
example, we have distributed direct mail regarding surround sound products to
customers who recently purchased large screen televisions. We also distribute an
award-winning 100 page Buyer's Guide once a year and a smaller 36 page catalog
nine times per year. We believe that our relatively inexpensive direct mail
activities leverage and complement our general media advertising campaigns.
 
We believe that our commitment to providing competitive pricing on our products
is a critical component of our marketing and advertising strategy. In 1993, we
abandoned our promotional marketing approach and adopted an everyday competitive
pricing strategy, with fixed prices clearly marked on our products. Store
managers regularly visit the local competition to ensure the store's pricing
remains competitive. At the same time, our competitive prices are backed by our
Automatic Price Protection program. Under the Automatic Price Protection
program, if a customer purchases a consumer electronics product from one of our
stores and a competitor within 25 miles of that store advertises a lower price
within 30 days of the customer's purchase, we automatically send a check to
 
                                       37
40
 
the customer for the difference. Unlike other price guarantee programs in place
within the industry, the refund process does not require the customer to call or
return to the store of purchase and request a price match refund. The Automatic
Price Protection program is intended to be hassle-free, customer friendly and
viewed as a reflection of Tweeter's commitment to customer service. Most
recently, in fiscal 1997, we implemented our "Wise Buys" program. Under this
program, Tweeter's buyers identify special, reduced-priced items, often
closeouts or last year's top-of-the-line models, which are purchased from the
manufacturer and offered to the consumer at a substantial discount from the
original retail price. We believe that the pricing of the Wise Buys items
represents substantial value to the consumer with little or no negative impact
to gross margin. Our advertisements frequently describe or refer to the
Automatic Price Protection and Wise Buys programs.
 
INFORMATION SYSTEMS
 
Tweeter utilizes a sophisticated, fully integrated mainframe based management
information system which updates after every transaction, and which is
accessible on a real time basis to management, sales associates and product
buyers. Extensive sales reporting and sales tracking is provided real time on
screen to store managers and individual sales associates which tracks category
sales and benchmarks key sales data for Tweeter. This system enables management
and store managers to review sales volume, gross margin and product mix on a per
store or per sales associate basis, allows for the viewing of open orders,
inventory value and mix, and tracks sales by product category, by sales
associate, and by store. We provide ongoing training and support in the use of
this system and compensate and benchmark the store managers based upon this
information.
 
Tweeter currently utilizes several software systems which require modification
or upgrading to accommodate the "Year 2000" changes needed for correct recording
of dates in the year 2000 and beyond. We believe that all such systems can be
changed by the end of 1999 and do not expect the cost of such changes to be
material to our financial condition or results of operations.
 
EMPLOYEES
 
As of December 31, 1998, Tweeter had 997 employees, comprised of 948 full-time
and 49 part-time employees. None of our employees are covered by collective
bargaining agreements, and we believe our relations with our employees are good.
 
INTELLECTUAL PROPERTY
 
The "Tweeter, etc.," "Bryn Mawr Stereo," "The Place for Bass," and "Wise Buys"
service marks have been registered with the United States Patent and Trademark
Office. Tweeter has not registered the "HiFi Buys" service mark. Tweeter has
submitted applications for registration of certain other of its service marks,
which applications are currently pending.
 
PROPERTIES
 
In addition to its stores, all of which are leased, Tweeter also leases two
distribution and office facilities in King of Prussia, Pennsylvania, and
Atlanta, Georgia, with lease terms expiring in 2011 and 2008, respectively. On
July 9, 1998, we purchased a facility in Canton, Massachusetts that serves as
our corporate headquarters and our New England service and distribution center.
The purchase price and related building improvements were approximately $5.3
million, which has been paid out of available cash or borrowings on our credit
facility.
 
LITIGATION
 
From time to time, Tweeter is involved in litigation in the ordinary course of
business. In the opinion of management, no such litigation is likely to have a
material adverse effect on our results of operations or financial condition.
 
                                       38
41
 
                                   MANAGEMENT
 
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
 
The following table sets forth certain information with respect to executive
officers, directors and certain other key employees of Tweeter as of the date of
the offering:
NAME                                        AGE                        POSITION
----                                        ---                        --------
EXECUTIVE OFFICERS AND DIRECTORS
Samuel Bloomberg..........................  46    Chairman, Chief Executive Officer and Director
Jeffrey Stone.............................  41    President, Chief Operating Officer, Treasurer and
                                                  Director
Joseph McGuire............................  38    Vice President, Chief Financial Officer and Chief
                                                  Information Officer
Jeffrey Bloomberg(1)......................  51    Director
Matthew Bronfman(2).......................  39    Director
Michael Cronin(1)(2)......................  44    Director
Steven Fischman...........................  56    Director
KEY EMPLOYEES
Roy Bertalotto............................  45    Vice President, New Store Development
Linda Christman...........................  43    Vice President, Human Resources
David Ginsburg............................  47    Vice President, Southeastern Region
Dori Ginsburg.............................  40    Vice President, Insurance Replacement
Albert Gordon.............................  39    Vice President, Operations and Corporate Finance
Noah Herschman............................  35    Vice President, Marketing
Bernard Sapienza..........................  35    Vice President, Purchasing
Paul Shindler.............................  42    Vice President, Training
---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
 
Samuel Bloomberg is a co-founder of Tweeter and has served as director and/or
officer since its inception. Mr. Bloomberg has been Chief Executive Officer of
Tweeter since September 1983 and Chairman of the Board since 1986. Mr. Bloomberg
is the brother of Jeffrey Bloomberg.
 
Jeffrey Stone has served as President and Chief Operating Officer, Treasurer and
director of Tweeter since October 1990. From 1987 to 1990 Mr. Stone served as
the Executive Vice President of Bread & Circus, a specialty natural foods
supermarket chain and from 1983 to 1987 served as Vice President of Human
Resources and Training for Scandinavian Design, a specialty furniture retailer.
Mr. Stone is a Director of the Progressive Retailers Organization, the buying
group of specialty consumer electronics retailers of which Tweeter is a member.
 
Joseph McGuire has been a Vice President, Chief Financial Officer and Chief
Information Officer of Tweeter since May 1996. Prior to joining Tweeter, Mr.
McGuire was the Chief Financial Officer of Bryn Mawr Radio & Television Centre,
Inc. from 1987 to 1996.
 
Jeffrey Bloomberg has served as director of Tweeter from 1989 to the present.
From 1994 to the present, Mr. Bloomberg has also served as President of
Bloomberg Associates, Inc., an investment banking company. Prior to that, from
1985 to 1993, Mr. Bloomberg served as Senior Managing Director at Bear, Stearns
& Co. Inc., specializing in corporate finance and mergers and acquisitions. Mr.
Bloomberg is the brother of Samuel Bloomberg.
 
Matthew Bronfman has served as director of Tweeter since 1989. In 1990 Mr.
Bronfman served as director, and from 1991 to 1994 Mr. Bronfman served as
Chairman and Chief Executive Officer of Sterling Cellular Holdings, L.P., a
private cellular telephone company. From 1994 to the present,
 
                                       39
42
 
Mr. Bronfman founded and has served as Chairman and Chief Executive Officer of
Perfumes Isabell, a fragrance and gift company.
 
Michael Cronin has served as director of Tweeter since November, 1995. From 1991
to the present Mr. Cronin has served as Managing Partner of Weston Presidio
Capital. Mr. Cronin also serves as director of Tekni-plex, Inc. and Casella
Waste Systems, Inc.
 
Steven Fischman has served as a director of Tweeter since the completion of
Tweeter's initial public offering. Since 1992, Mr. Fischman has been the
President of New England Development ("NED"), a regional mall developer based in
New England. Since 1996, Mr. Fischman has also served as Vice-Chairman of
WellsPark Group Limited Partnership, a mall management company formed by NED and
an unrelated partner. Prior to joining NED, Mr. Fischman was a director and
shareholder in the Boston law firm of Goulston & Storrs, P.C., which firm is
counsel to Tweeter. Mr. Fischman is also Chairman of the Board of Trustees of
Newton-Wellesley Hospital.
 
Roy Bertalotto has served as Vice President, New Store Development of Tweeter
since 1992. Prior to that, Mr. Bertalotto served as a District Sales Manager
from 1986 to 1988 and as Regional Vice President, Sales for eight southern New
England stores from 1988 to 1992.
 
Linda Christman has served as Vice President, Human Resources of Tweeter since
1997. Prior to that time, she served as the Director of Human Resources since
1987.
 
David Ginsburg has served as Vice President, Southeastern Region of Tweeter
since May 1997. Prior to joining Tweeter, Mr. Ginsburg served as a Vice
President of HiFi Buys Incorporated.
 
Dori Ginsburg has served as Vice President, Insurance Replacement of Tweeter
since May 1997. Prior to joining Tweeter, Ms. Ginsburg served as Vice President,
Insurance Replacement of HiFi Buys Incorporated.
 
Albert Gordon has served as Vice President, Operations and Corporate Finance of
Tweeter since 1995. From 1990 to 1994, Mr. Gordon served as Chief Financial
Officer of Boston Publishing Co., Inc. From 1987 to 1991, Mr. Gordon held
several management positions at The Westwood Group, a restaurant holding
company, most recently as Vice President of Marketing and as Chief Financial
Officer of its catalog business. From 1981 to 1983 Mr. Gordon served on the
audit staff at KPMG Peat Marwick and from 1985 to 1987 Mr. Gordon was a member
of brand management at Procter & Gamble.
 
Noah Herschman has served as Vice President, Marketing of Tweeter since 1994.
Prior to that, Mr. Herschman served as a Senior Product Buyer and Marketing
Director from 1990 to 1994 and served as a sales consultant for Tweeter from
1988 to 1990.
 
Bernard Sapienza has served as Vice President, Purchasing of Tweeter since 1994.
Prior to that, from 1989 to 1994, Mr. Sapienza served as a Senior Product Buyer
of Tweeter.
 
Paul Shindler has served as Vice President, Training of Tweeter since 1994.
Prior to that, Mr. Shindler served as Regional Vice President of Sales for the
northern region and Training Director of Tweeter from 1991 to 1994 and served in
various sales and training capacities for Tweeter from 1977 to 1987.
 
COMPOSITION OF THE BOARD OF DIRECTORS
 
Tweeter's Board of Directors currently consists of six members. The Board is
divided into three staggered classes, consisting of two Class I directors
(Messrs. Bronfman and Fischman), two Class II directors (Messrs. Samuel
Bloomberg and Cronin) and two Class III directors (Messrs. Stone and Jeffrey
Bloomberg). The initial terms of the three classes will expire in 1999, 2000 and
2001, respectively. Beginning in 1999, directors of each class will be chosen
for three-year terms upon the expiration of their current terms and each year
one class of directors will be elected by Tweeter stockholders. Tweeter believes
that classification of the Board of Directors facilitates continuity and
 
                                       40
43
 
stability of its business strategies and policies as determined by the Board of
Directors. Holders of common stock have no right to cumulative voting in the
election of directors. Consequently, at each annual meeting of stockholders, the
holders of a majority of the common stock will be able to elect all of the
successors of the class of directors whose terms expire at that meeting.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
The Audit Committee of the Board of Directors makes recommendations concerning
the engagement of independent public accountants, reviews the plans for and
results of the audit engagement with the independent public accountants,
approves professional services provided by the independent public accountants
and review the adequacy of the Company's internal accounting controls. The Audit
Committee consists of Jeffrey Bloomberg and Michael Cronin.
 
The Compensation Committee of the Board of Directors establishes and implements
compensation policies and programs for Tweeter's executive officers and
exercises all powers of the Board of Directors in connection with Tweeter's
incentive compensation and benefit plans. The Compensation Committee of the
Board consists of Matthew Bronfman and Michael Cronin. In January 1996, the
members of the Board of Directors who were not members of the Compensation
Committee approved the grant to Matthew Bronfman of non-qualified stock options
to purchase 107,584 shares of the common stock at an exercise price of $1.524
per share. Such options, by their terms, were fully vested on the date of grant.
 
COMPENSATION OF DIRECTORS
 
Tweeter currently pays each Director $1,875 per quarter, provided such Director
attends the meetings of the directors scheduled for such quarter. All Directors
are reimbursed for reasonable expenses incurred in attending meetings. Under
current Director compensation arrangements, upon each subsequent election or
re-election, each Director who is not also an employee or affiliate of Tweeter
is granted options under Tweeter's 1998 Stock Option and Incentive Plan
exercisable into 1,750 shares of common stock, with an exercise price equal to
the fair market value of the common stock at the date of grant. Such options
vest over a three-year period. Tweeter's policy with respect to the level and
timing of option grants to Directors is currently under review by the
Compensation Committee and the Board of Directors, and may be revised for years
subsequent to the fiscal year ended September 30, 1998.
 
EXECUTIVE COMPENSATION
 
The following table sets forth the compensation earned by Tweeter's Chief
Executive Officer and each of the other executive officers of Tweeter (the
"Named Executives") for services rendered in all capacities to Tweeter during
the fiscal 1996, 1997 and 1998:
 
                           SUMMARY COMPENSATION TABLE
LONG-TERM
                                                                COMPENSATION
                                                 ANNUAL         ------------
                                            COMPENSATION(1)      SECURITIES
                                           ------------------    UNDERLYING       ALL OTHER
NAME AND PRINCIPAL POSITION          YEAR   SALARY     BONUS      OPTIONS      COMPENSATION(2)
---------------------------          ----  --------   -------   ------------   ----------------
Samuel Bloomberg...................  1998  $258,769   $10,000       23,038         $    --
  CEO and Chairman                   1997  $204,876   $20,000       66,240         $65,818
  of the Board                       1996  $181,058   $43,100      125,226         $    --
Jeffrey Stone......................  1998  $249,106   $10,000       29,000         $    --
  President and Chief                1997  $204,037   $20,000       48,610         $ 5,288
  Operating Officer                  1996  $183,490   $41,042       66,366         $    --
Joseph McGuire.....................  1998  $164,635   $ 5,000        8,000         $    --
  Vice President,                    1997  $150,244   $ 5,300        2,624         $    --
  Chief Financial Officer            1996  $ 43,077   $    --           --         $    --
---------------
(1) The compensation described in this table does not include medical or other
    benefits received by the Named Executives which are generally available to
    all salaried employees of Tweeter.
(2) Represents amount distributed to cover personal tax liability from Tweeter's
    prior status as a Subchapter "S" corporation for federal income tax
    purposes. On November 25, 1995, as part of a recapitalization, Tweeter
    elected to be treated as a "C" corporation for federal income tax purposes.
 
                                       41
44
 
The following table sets forth information relating to grants of stock options
made during fiscal 1998 to each of the Named Executive Officers under Tweeter's
1998 Stock Option and Incentive Plan.
 
                          OPTION GRANTS IN FISCAL 1998
PERCENT OF
                                                    TOTAL
                                    NUMBER OF      OPTIONS
                                    SECURITIES    GRANTED TO    EXERCISE                   GRANT
                                    UNDERLYING    EMPLOYEES      PRICE                      DATE
                                     OPTIONS      IN FISCAL       PER       EXPIRATION    PRESENT
               NAME                  GRANTED         YEAR        SHARE         DATE       VALUE(1)
               ----                 ----------    ----------    --------    ----------    --------
Samuel Bloomberg..................    23,038         10.1%       $17.00        2004          $0
Jeffrey Stone.....................    29,000         12.7%       $17.00        2004          $0
Joseph McGuire....................     8,000          3.5%       $17.00        2004          $0
---------------
(1) The fair value of each stock option granted in fiscal 1998 under Tweeter's
    existing stock option plan was estimated using the Black-Scholes option
    pricing model assuming an expected volatility of 32%, a risk-free interest
    rate of 4%, an expected life of 3 years and no dividends.
 
The following table provides certain information with respect to options to
purchase common stock held by the Named Executives at September 30, 1998. No
options were exercised by Named Executives in fiscal 1998.
 
                   AGGREGATED OPTION EXERCISES IN FISCAL 1998
                       AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                                               UNDERLYING OPTIONS AT       IN-THE-MONEY OPTIONS AT
                                                  FISCAL YEAR END              FISCAL YEAR END
                   NAME                      EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE
                   ----                      -------------------------    -------------------------
Samuel Bloomberg...........................       208,916/23,038             $      2,031,560/0
Jeffrey Stone..............................       114,978/29,000             $      1,071,153/0
Joseph McGuire.............................        13,579/18,038                  $141,653/100,735
EMPLOYMENT AGREEMENTS
 
The summaries of the various employment agreements set forth below are qualified
in their entirety by reference to such agreements, which are exhibits to the
Registration Statement of which this prospectus is a part.
 
BLOOMBERG AND STONE AGREEMENTS
 
Upon the completion of our initial public offering, we entered into five-year
employment agreements with Samuel Bloomberg, to serve as Tweeter's Chairman of
the Board and Chief Executive Officer, and with Jeffrey Stone, to serve as
Tweeter's President and Chief Operating Officer. The employment agreements
provide that Messrs. Bloomberg and Stone will each receive a base salary of
$300,000 per year through September 30, 1998, $325,000 from October 1, 1998 to
September 30, 1999, and thereafter at the annual rate of at least $325,000, plus
such increases as may be determined by the Compensation Committee of the Board
of Directors. Each of Messrs. Bloomberg and Stone will have the opportunity to
earn incentive bonuses based upon certain performance criteria, to be determined
by the Compensation Committee, and the opportunity to receive stock options and
other incentive awards under Tweeter's 1998 Stock Option and Incentive Plan.
 
The employment agreements provide for continued employment until termination by
either party. Tweeter, however, may terminate either employment agreement with
or without cause at any time. If either executive's employment is terminated by
Tweeter without cause, Tweeter is obligated to pay the respective executive an
amount equal to such executive's unvested accrued benefits under any stock
option plan, incentive plan or retirement plan plus severance pay calculated as
follows:
 
                                       42
45
 
        - If the executive is terminated in during the first three years of the
          agreement, he will receive an amount equal his annual base salary in
          effect in the year of termination for three years following
          termination;
 
        - If the executive is terminated in the fourth year, he will receive an
          amount equal to his annual base salary in effect in the year of
          termination for two years following termination; and
 
        - If the executive is terminated in the fifth or any subsequent year of
          the agreement, he will receive an amount equal to his annual base
          salary in the year of termination.
 
The employment agreements also provide that if Tweeter and Messrs. Bloomberg and
Stone do not renew the agreements upon expiration, Tweeter may elect to pay such
executives two years severance in exchange for a two-year non-competition
arrangement.
 
MCGUIRE EMPLOYMENT AGREEMENT
 
Upon the completion of our initial public offering, we entered into an
employment agreement with Joseph McGuire to serve as Chief Financial Officer and
Chief Information Officer of the Company. Under the terms of this three-year
agreement, Mr. McGuire will earn a base annual salary of $185,000 and will have
the opportunity to earn yearly incentive bonuses based on performance criteria
(determined by the Compensation Committee). Mr. McGuire is also entitled to
receive stock options and other incentive awards under Tweeter's stock option
and incentive plans. Tweeter may elect, upon the expiration and non-renewal of
the agreements, to pay Mr. McGuire two years of severance pay in exchange for a
two-year non-competition agreement from Mr. McGuire. If Mr. McGuire's employment
is terminated by Tweeter without cause, Tweeter is obligated to pay Mr. McGuire
an amount equal to his base salary in the year of termination, and shall permit
his options and incentives to continue to vest for one year following
termination.
 
INSURANCE
 
Tweeter has obtained a directors' and officers' liability insurance policy in
the aggregate amount of $10 million. The directors' and officers' insurance
insures the directors and officers of Tweeter from any claim arising out of an
alleged wrongful act by the directors and officers in their respective
capacities as directors and officers and Tweeter to the extent that it has
indemnified a director or officer for such loss. Tweeter currently maintains
key-man life insurance on the life of Mr. Bloomberg in the amount of $1,000,000
and on the life of Mr. Stone in the amount of $5,000,000.
 
STOCK PLANS
 
1995 STOCK OPTION PLAN
 
On November 28, 1995, Tweeter adopted its 1995 Stock Option Plan. The 1995 Stock
Option Plan allowed Tweeter to issue (i) options to purchase common stock which
qualify as incentive stock options ("ISOs") under Section 422A(b) of the
Internal Revenue Code of 1986 to its employees and (ii) options to purchase
common stock which do not qualify as ISOs ("Non-Qualified Options") to
directors, officers, employees and consultants of Tweeter. Payment of the
exercise price may be made in cash, shares of common stock, a combination of
cash or stock or by any other method approved by the Board or the Compensation
Committee. Options are not assignable or transferable except by will or the laws
of descent and distribution. On June 1, 1998, Tweeter's Board of Directors voted
to terminate the 1995 Stock Option Plan effective on, and subject to, the
consummation of Tweeter's initial public offering. As of the date of this
prospectus, Tweeter had outstanding under the 1995 Stock Option Plan ISOs
exercisable into 737,475 shares of common stock and Non-Qualified Options
exercisable into 107,584 shares of common stock.
 
1998 STOCK OPTION AND INCENTIVE PLAN
 
Tweeter adopted the 1998 Stock Option and Incentive Plan on June 1, 1998 to
provide incentives to attract and retain executive officers, directors, key
employees and consultants. The summary of the
 
                                       43
46
 
1998 Plan set forth below is qualified in its entirety by reference to the 1998
Plan, which is included as an exhibit to the Registration Statement of which
this prospectus is a part.
 
The aggregate number of shares of common stock issuable under the 1998 Plan is
1,458,217 shares. In addition, the number of shares of common stock issuable
under the 1998 Plan will increase, on each anniversary date of the adoption of
the 1998 Plan, to that number of shares equal to the lesser of (i) 2% of the
total number of shares of common stock that are issued and outstanding on a
fully diluted basis on each such anniversary date or (ii) 150,000 shares of
common stock. As options granted under the 1998 Plan are exercised, the number
of shares represented by such previously outstanding options will again become
available for issuance under the 1998 Plan up to a maximum of 100,000 shares of
common stock annually.
 
The 1998 Plan will expire five years following its adoption. Awards made
thereunder and outstanding at the expiration of the 1998 Plans will survive in
accordance with their terms.
 
The 1998 Plan is administered by the Compensation Committee of the Board of
Directors, and will allow Tweeter to issue one or more of the following: stock
options (ISOs and non-qualified options), restricted stock awards, stock
appreciation rights, common stock in lieu of certain cash compensation, dividend
equivalent rights, performance shares and performance units (collectively, "Plan
Awards").
 
In any plan year, no more than 25% of the shares reserved for issuance under the
1998 Plan, may be used for Plan Awards consisting of restricted stock. All
grants of restricted stock under the 1998 Plan will be subject to vesting over
seven years, subject, however, at the compensation committee's discretion, to
acceleration of vesting upon the achievement of specified performance goals.
 
The 1998 Plan also provides for the grant or issuance of Plan Awards to
directors of Tweeter who are not employees of Tweeter. These options will vest
over a period of three years; provided such non-employee director is not removed
before the end of his or her term.
 
INCENTIVE BONUS PLAN
 
Tweeter maintains an Incentive Bonus Plan for its senior employees and
executives, pursuant to which cash bonuses may be paid to such employees and
executives based on achievement of pre-established performance criteria. The
Compensation Committee of the Board of Directors administers the Bonus Plan, and
determines the applicable performance criteria and amounts issuable under this
Plan on an annual basis.
 
EMPLOYEE STOCK PURCHASE PLAN
 
An Employee Stock Purchase Plan is on the agenda for approval by our
stockholders at this year's annual meeting of stockholders and will go into
effect immediately if it is approved. We designed the Stock Purchase Plan to
encourage and assist employees in acquiring an equity ownership interest in
Tweeter. The term of the Stock Purchase Plan is twenty years.
 
The aggregate number of shares of common stock which may be sold under the Stock
Purchase Plan is 500,000 shares, subject to adjustment pursuant to the plan.
Under the plan, employees who meet criteria for eligibility may elect to have up
to 10% of their compensation for each payroll period deducted and applied to the
purchase of shares of common stock. The maximum amount that may be deducted for
each employee in any one calendar year is $5,000. As long as the plan is in
effect, on the last business day of each calendar quarter Tweeter will apply the
amounts deducted from each participating employee's compensation to the purchase
of newly issued shares of common stock. The purchase price of the shares will be
85% of the market value of the shares on the date of the purchase.
 
The summary of the Stock Purchase Plan set forth above is qualified in its
entirety by reference to the Stock Purchase Plan, which is included as an
exhibit to the Registration Statement of which this prospectus is a part.
 
                                       44
47
 
                       PRINCIPAL AND SELLING STOCKHOLDERS
 
The following table sets forth certain information regarding the beneficial
ownership of Tweeter's common stock as of the date of this prospectus and as
adjusted to reflect the sale by Tweeter and the selling stockholders of the
shares of common stock offered hereby (assuming no exercise of the Underwriters'
over-allotment option), by (i) each person (or group of affiliated persons)
known by Tweeter to be the beneficial owner of more than 5% of the outstanding
common stock, (ii) each of Tweeter's Named Executives and directors, (iii) all
of Tweeter's executive officers and directors as a group and (iv) the selling
stockholders. Except as otherwise indicated in the footnotes to this table,
Tweeter believes that the persons named in this table have sole voting and
investment power with respect to all the shares of common stock indicated.
SHARES            NUMBER            SHARES
                                        BENEFICIALLY OWNED     OF SHARES    BENEFICIALLY OWNED
                                           PRIOR TO THE          BEING           AFTER THE
                                            OFFERING(1)         OFFERED         OFFERING(1)
                                        -------------------    ---------    -------------------
     NAME OF BENEFICIAL OWNER:(2)        NUMBER     PERCENT     NUMBER       NUMBER     PERCENT
     ----------------------------       ---------   -------    ---------    ---------   -------
DIRECTORS AND NAMED EXECUTIVES
  Samuel Bloomberg(3).................    822,243    12.7%       60,000       762,243    10.9%
  Jeffrey Stone(4)....................    305,145     4.8        30,000       275,145     4.0
  Joseph McGuire(5)...................     21,977       *         4,000        17,977       *
  Michael Cronin(6)...................    646,558    10.3       323,677       322,881     4.8
  Jeffrey Bloomberg(7)................    257,399     4.1        20,025       237,374     3.5
  Matthew Bronfman(8).................    112,443     1.8        25,000        87,443     1.3
  Steven Fischman.....................      4,000       *            --         4,000       *
Directors and Executive Officers as a
  Group (7 persons)(9)................  2,169,765    32.1       462,702     1,707,063    23.5
5% BENEFICIAL OWNERS
Advent International Group(10)........    883,872    14.0       442,480       441,392     6.5
Weston Presidio Offshore Capital
  C.V.(11)............................    646,558    10.3       323,677       322,881     4.8
PNC Capital Corp .....................    457,370     7.3       228,967       228,403     3.4
OTHER SELLING STOCKHOLDERS
BNP Venture Holding Corp.(12).........    286,401     4.6       143,377       143,024     2.1
Natio Vie Developement II, FCPR(13)...    182,968     2.9        89,903        93,065     1.4
Seacoast Capital Partners, L.P.(14)...    159,855     2.5        80,026        79,829     1.2
HFB Associates, LLC(15)...............    104,960     1.6        52,545        52,415       *
---------------
   * Represents less than 1% of class.
 
 (1) Includes the number of shares and percentage ownership represented by such
     shares determined to be beneficially owned by a person in accordance with
     the rules of the Securities and Exchange Commission. The number of
     shares beneficially owned by a person includes shares of common stock that
     are subject to options or warrants held by that person that are currently
     exercisable or exercisable within 60 days of the date of this prospectus.
     Such shares are deemed outstanding for the purpose of computing the
     percentage of outstanding shares owned by such person. Such shares are not
     deemed outstanding, however, for the purposes of computing the percentage
     ownership of any other person.
 (2) Unless otherwise specified, the address of all persons who are executive
     officers or directors of Tweeter is in care of Tweeter, 10 Pequot Way,
     Boston, Massachusetts 02021.
 (3) Includes 32,730 shares held, in the aggregate by the Samuel Bloomberg
     Family Trusts for the benefit of Mr. Bloomberg's children and 7,540 shares
     held by Carolina Bloomberg, the wife of Mr. Bloomberg. Carolina Bloomberg's
     7,540 shares include 313 shares issuable upon the exercise of outstanding
     warrants. Mr. Bloomberg expressly disclaims beneficial ownership of the
     shares held by the Samuel Bloomberg Family Trusts and Carolina Bloomberg.
     Also includes 208,916 shares subject to options granted by Tweeter to Mr.
     Bloomberg exercisable within 60 days of the date of this prospectus.
 (4) Includes 114,978 shares subject to options granted by Tweeter to Mr. Stone
     exercisable within 60 days of the date of this prospectus.
 (5) Consists of 21,977 shares subject to options granted by Tweeter exercisable
     within 60 days of the date of this prospectus.
 (6) Includes shares held by Weston Presidio Offshore Capital Management C.V.
     ("Weston Presidio"). See Note 11 below. Mr. Cronin is a general partner of
     WP Capital Management, L.P., the general partner of Weston Presidio and, as
     such, may be deemed to share voting and investment power with respect to
     all shares held by Weston Presidio. Mr. Cronin expressly disclaims
     beneficial ownership of these shares, except to the extent of his pecuniary
     interest therein.
 
                                       45
48
 
 (7) Includes 10,839 shares held, in the aggregate, by trusts for the benefit of
     Mr. Bloomberg's children. Mr. Bloomberg expressly disclaims beneficial
     ownership of these shares. Also includes 32,730 shares held, in the
     aggregate, by the Samuel Bloomberg Family Trusts, of which Mr. Bloomberg is
     a trustee. Mr. Bloomberg expressly disclaims beneficial ownership of these
     shares. Also includes 6,560 shares subject to options granted by Tweeter to
     Mr. Bloomberg exercisable within 60 days of the date of this prospectus and
     609 shares issuable upon exercise of outstanding warrants.
 (8) Includes 107,584 shares subject to options granted by Tweeter exercisable
     within 60 days of the date of this prospectus and 84 shares issuable upon
     the exercise of outstanding warrants.
 (9) See notes (3) through (8)
(10) Includes 642,041 shares held by Global Private Equity II Limited
     Partnership (including 12,281 shares issuable upon exercise of outstanding
     warrants) and 241,831 shares held by Advent Direct Investment Program
     Limited Partnership (including 4,627 shares issuable upon exercise of
     outstanding warrants). Its address is 101 Federal Street, Boston,
     Massachusetts 02110.
(11) Includes 11,832 shares issuable upon exercise of outstanding warrants. Its
     address is One Federal Street, Boston, Massachusetts 02110.
(12) Includes 3,383 shares issuable upon exercise of outstanding warrants. Its
     address is 12 Rue Chauchat 75009, Paris, France.
(13) Includes 158,213 shares held by Natio Vie Developpement II, FCPR (including
     3,383 shares issuable upon exercise of outstanding warrants)and 24,755
     shares held by Natio Nouveaux Marches Europe. The 89,903 shares being sold
     by Natio Vie Developpement II, FCPR includes 12,393 shares being sold by
     Natio Nouveaux Marches Europe. The address for both Natio Vie Developpement
     II, FCPR and Natio Nouveaux Marches Europe is 12 Rue Chauchat 75009 Paris,
     France.
(14) Consists of 159,855 shares issuable upon exercise of outstanding warrants.
     Its address is 55 Ferncroft Road, Danvers, Massachusetts 01923.
(15) Consists of 104,960 shares issuable upon exercise of outstanding warrants.
     Its address is 15 South Battery Place, Atlanta, Georgia 30342.
 
                                       46
49
 
                              CERTAIN TRANSACTIONS
 
CERTAIN FINANCING TRANSACTIONS
 
On May 13, 1996, in connection with the Bryn Mawr acquisition, Tweeter sold
788,349 shares of Series A Preferred Stock for net proceeds of $5.1 million to
Advent Direct Investment Program Limited Partnership and Global Private Equity
II Limited Partnership, each a 5% stockholder of Tweeter, and to Carolina
Bloomberg, the spouse of Samuel Bloomberg.
 
On March 7, 1997, and in connection with a $2.0 million bridge loan from a
predecessor of BankBoston, our existing lender we entered into a Warrant and
Debenture Commitment with certain of our stockholders including Global Private
Equity II Limited Partnership, Weston Presidio Offshore Capital, C.V., Advent
Direct Investment Program Limited Partnership, BNP Venture Holding Corp.,
Jeffrey Bloomberg, Matthew Bronfman, Carolina Bloomberg, Harriet Bloomberg and
Armin Biller. Pursuant to the terms of the Warrant and Debenture Commitment, the
participating stockholders agreed, upon a put by BankBoston or at the request of
the Company, to purchase 10% Convertible Debentures in an aggregate amount of
$2.0 million. In consideration for this obligation, we issued warrants to the
participating stockholders to purchase 37,138 shares of common stock at an
exercise price of $6.46 per share. The debentures were never issued because the
bridge loan was paid in full on May 30, 1997.
 
On May 30, 1997, in connection with the HiFi Buys acquisition, Tweeter sold an
aggregate of 866,425 shares of its Series B Preferred Stock to additional and
existing investors at $8.08 per share. Among such investors were Weston Presidio
Offshore Capital, C.V., Advent Direct Investment Program Limited Partnership,
BNP Venture Holding Corp., PNC Capital Corp, Jeffrey Bloomberg, Matthew
Bronfman, Carolina Bloomberg and Harriet Bloomberg. At the same time, Tweeter
issued $15 million in senior subordinated notes and detachable warrants to
purchase an aggregate of up to 629,566 shares of common stock with an exercise
price of $.002 per share to PNC Capital Corp and Seacoast Capital Partners,
L.P., each a 5% stockholder of Tweeter. Each of PNC Capital Corp and Seacoast
Capital Partners, L.P. holds warrants to purchase 159,855 shares of common
stock. Seacoast Capital Partners, L.P. is selling 80,026 shares of common stock
issuable upon partial exercise of its warrants as a selling stockholder in the
offering.
 
OTHER TRANSACTIONS AND RELATIONSHIPS
 
In May 1996, in connection with the Bryn Mawr acquisition, Tweeter entered into
a consulting agreement with Fred Lokoff, the former owner of Bryn Mawr and a
former member of the Tweeter's Board of Directors. This consulting agreement was
amended as of April 23, 1997 and expires May 2000. Pursuant to the amended
agreement, we are obligated to pay Mr. Lokoff out-of-pocket expenses plus a
monthly payment of $20,833 for each month during the first year of the
Consulting Period, and $4,167 for each month during years three and four of the
Consulting Period. Tweeter also entered into two leases for facilities in
Pennsylvania and a lease for a facility in New Jersey with an affiliate of Mr.
Lokoff and agreed to sublease a portion of one of the facilities back to another
affiliate of Mr. Lokoff at no rental charge. During each of fiscal 1997 and
fiscal 1998, Tweeter paid approximately $670,000 in total rent under such
leases.
 
Tweeter leases space for its Crystal Mall store in Waterford, Connecticut from
an affiliate of New England Development. This mall is managed by WellsPark Group
Limited Partnership. Steven Fischman, a member of Tweeter's Board of Directors,
is the President of New England Development and the Vice Chairman of WellsPark
Group Limited Partnership. We paid such lessor $167,043 in rent and related
charges during fiscal 1997, and $204,594 in rent and related charges in fiscal
1998.
 
                                       47
50
 
                          DESCRIPTION OF CAPITAL STOCK
 
The authorized capital stock of Tweeter consists of 30,000,000 shares of common
stock and 10,000,000 shares of preferred stock.
 
The following summary description of Tweeter's capital stock is not intended to
be complete and is qualified in its entirety by reference to the provisions of
applicable law and to Tweeter's Amended and Restated Certificate of
Incorporation (the "Charter") and Amended and Restated By-laws (the "By-laws"),
filed as exhibits to the Registration Statement of which this prospectus is a
part.
 
COMMON STOCK
 
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock which Tweeter may designate and issue in the future.
Upon the liquidation, dissolution or winding up of Tweeter, the holders of
common stock are entitled to receive ratably the net assets of Tweeter available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered by Tweeter in the offering
will be, when issued and paid for, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which Tweeter may designate and issue in the future.
 
PREFERRED STOCK
 
Tweeter's Charter authorizes its Board of Directors, subject to any limitations
prescribed by law, without stockholder approval, to issue shares of preferred
stock in one or more series. Each such series of preferred stock shall have such
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by the Board of Directors. The purpose of
authorizing the Board of Directors to issue preferred stock and determine its
rights and preferences is to eliminate delays associated with a stockholder vote
on specific issuances. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of Tweeter's outstanding voting stock. We have no present plans to
issue any shares of preferred stock. We have, however, authorized and reserved
shares of Series A Junior Preferred Stock for issuance in connection with the
Rights Plan discussed below. See "Risk Factors -- Effect of Certain Charter and
By-law Provisions; Antitakeover Provisions."
 
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
 
Tweeter is subject to the provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the Board of Directors or the business combination is approved in a
prescribed manner, or certain other conditions are satisfied. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an
 
                                       48
51
 
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of Tweeter's voting
stock.
 
The By-laws provide that:
 
        - The number of directors shall be determined from time to time by
          resolution adopted by a majority of the Board of Directors;
 
        - Vacancies on the Board of Directors must be filled by the Board unless
          and until filled by the stockholders; and
 
        - Directors may be removed only for cause by the vote of the holders of
          at least 75% of the shares then entitled to vote at an election of
          directors.
 
The By-laws provide for a classified Board of Directors consisting of three
classes of directors having staggered terms of three years each, with each of
the classes being as nearly equal as possible. A single class of directors will
be elected each year at Tweeter's annual meeting of stockholders. Subject to
transition provisions, each director elected at each such meeting will serve for
a term ending on the date of the third annual meeting of stockholders after his
election and until his successor has been elected and duly qualified. See
"Management -- Composition of the Board of Directors."
 
The Charter empowers the Board of Directors, when considering a tender offer or
merger or acquisition proposal, to take into account any factors that the Board
of Directors determines to be relevant, including, without limitation:
 
        - The interests of Tweeter's stockholders, including the possibility
          that these interests might be best served by the continued
          independence of Tweeter;
 
        - Whether the proposed transaction might violate federal or state laws;
 
        - The consideration offered in the proposed transaction in relation to
          the then current market price for the outstanding capital stock of
          Tweeter, the market price for the capital stock of Tweeter over a
          period of years, the estimated price that might be achieved in a
          negotiated sale of Tweeter as a whole or in part or through orderly
          liquidation, the premiums over market price for the securities of
          other corporations in similar transactions, current political,
          economic and other factors bearing on securities prices and our
          financial condition and future prospects; and
 
        - The social, legal and economic effects upon employees, suppliers,
          customers, creditors and others having similar relationships with
          Tweeter, upon the communities in which it conduct its business and
          upon the economy of the state, region and nation.
 
Under the By-laws, special meetings of the stockholders may be called only by a
majority of the Board of Directors then in office, or by the Chairman of the
Board or the Chief Executive Officer, and only matters set forth in the notice
calling any such meeting may be considered at the meeting. The Charter provides
that stockholder actions must be taken at a meeting at which a quorum of
stockholders is present in person or by proxy and that stockholders will not be
entitled to take action by written consent in lieu of a meeting. The By-laws
provide that the Board of Directors may postpone a scheduled stockholders'
meeting, and the Chairman of the Board may adjourn a stockholders' meeting even
if a quorum is present. Nominations for election to the Board of Directors may
be made either by the Board or by holders of at least 1% of the issued and
outstanding voting shares of Tweeter who have held such stock for at least one
year. Stockholder nominations of director nominees who are not nominated by the
Board of Directors must be submitted to the Secretary of Tweeter not less than
120 days prior to the date when Tweeter first mailed to the stockholders its
proxy statement for the previous year's annual meeting.
 
The foregoing provisions could have the effect of delaying until the next annual
stockholders meeting stockholder actions which are favored by the holders of a
majority of Tweeter's then outstanding voting securities. These provisions may
also discourage another person or entity from
 
                                       49
52
 
making a tender offer for Tweeter's common stock, because such person or entity,
even if it acquired a majority of the outstanding voting securities of Tweeter,
would be able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders' meeting, and not by
written consent.
 
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. The
Charter requires the affirmative vote of the holders of at least 75% of the
outstanding voting stock of Tweeter to amend or repeal any of the foregoing
Charter provisions. A 75% vote of stockholders is required for the stockholders
to adopt, amend or repeal any By-law provisions. The By-laws may also be amended
or repealed by a majority vote of the Board of Directors subject to any
limitations set forth in the By-laws.
 
STOCKHOLDER RIGHTS PLAN
 
Tweeter's Board of Directors adopted a Stockholder Rights Plan (the "Rights
Plan"), effective upon the consummation of Tweeter's initial public offering.
The Rights Plan makes it more difficult for a third party to acquire Tweeter or
large portions of its common stock. Set forth below is a general summary of the
Rights Plan. Such summary is qualified in its entirety by reference to the
Rights Plan, a copy of which is included as an exhibit to the Registration
Statement of which this prospectus is a part.
 
One preferred stock purchase right (a "Right") is attached to each share of
common stock including the shares of common stock issued and sold in this
offering. Each Right entitles its holder to purchase one one-thousandth of one
share (each, a "Unit") of Tweeter's Series A Junior Participating Cumulative
Preferred Stock, (the "Junior Preferred Stock") at a cash purchase price per
Unit of $100, subject to adjustment. The Rights and their exercise price will be
adjusted to take into account certain dilutive events.
 
The Junior Preferred Stock ranks prior and senior to the common stock with
respect to dividends and distributions but junior to any series or class of
preferred stock that is designated as senior to the Junior Preferred Stock. The
holders of the Junior Preferred Stock are entitled to receive quarterly
dividends when, as and if declared by the Board of Directors, commencing on the
first day of March, June, September or December occurring after the first
issuance of a share or fraction of a share of the Junior Preferred Stock, in an
amount per share equal to the greater of $1.00, or 1,000 times the aggregate per
share amount of all dividends declared on the common stock. Dividends accrue and
are cumulative but do not accrue interest. Except as otherwise provided by law
or set forth below, the holders of shares of Junior Preferred Stock vote
together with the common stock, and any other capital stock of Tweeter having
general voting rights, as one class. Each share of Junior Preferred Stock
entitles the holder thereof to 1,000 votes on all matters submitted to a vote.
 
Whenever dividends payable on any shares of Junior Preferred Stock are in
arrears in an amount equal to two full quarterly dividends (whether or not
declared and whether or not consecutive), the holders of the Junior Preferred
Stock, voting separately as a single class, have the right to elect two
directors of Tweeter at a special meeting of the stockholders or at Tweeter's
next annual meeting of stockholders and at each subsequent annual meeting of
stockholders. In such event, the size of the Board shall be increased
accordingly and the vacancies created thereby shall be filled by the vote of the
holders of the Junior Preferred Stock. Such election right shall terminate at
such time as all arrears in dividends shall have been paid or declared and set
apart for payment, whereupon the terms of office of all such Directors shall
terminate.
 
Upon the earlier to occur of the tenth calendar day after the announcement that
an "Acquiring Person" has acquired beneficial ownership of more than 15% of the
outstanding shares of common stock, or the tenth business day following the
announcement of a tender offer or exchange offer that, upon consummation, would
result in a person or group becoming the beneficial owner of more
                                       50
53
 
than 15% of the outstanding shares of common stock, the rights separate from the
common stock and become exercisable. An "Acquiring Person" is defined as a
person or group of affiliated or associated persons that has acquired more than
15% of the outstanding shares of common stock, but is deemed to include any
underwriters in their capacities as such. No person who was a stockholder of
Tweeter immediately prior to the consummation of Tweeter's initial public
offering can become an Acquiring Person unless that person acquires beneficial
ownership of more than 20% of the outstanding common stock (other than common
stock issuable upon exercise of stock options granted under an incentive plan
approved by the Board of Directors).
 
At any time after a distribution date, the Board may, in its discretion,
exchange all or any part of the then outstanding and exercisable Rights for
shares of common stock or Units of Junior Preferred Stock. The exchange ratio is
one share of common stock or one Unit of Junior Preferred Stock for each Right.
However, the Board will not have the authority to effect such an exchange after
any person becomes the beneficial owner of 50% or more of Tweeter's common
stock. The Rights may be redeemed in whole but not in part, at a price of $0.001
per Right by the Board of Directors only until the earlier of the tenth calendar
year after a distribution date, or the expiration date of the Rights Plan. The
Board in its sole discretion may amend the Rights Plan until a distribution
date. After a distribution date, the Board may make certain amendments to the
Rights Agreement but none that will adversely affect the interests of Rights
holders.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
The Charter contains certain provisions permitted under the DGCL relating to the
liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty, except
in certain circumstances involving certain wrongful acts, such as:
 
     - For any breach of the director's duty of loyalty to Tweeter or its
       stockholders;
 
     - For acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;
 
     - Under Section 174 of the DGCL; or
 
     - For any transaction from which the director derives an improper personal
       benefit.
 
These provisions do not limit or eliminate Tweeter's or any stockholder's rights
to seek non-monetary relief, such as an injunction or rescission, in the event
of a breach of a director's fiduciary duty. These provisions will not alter a
director's liability under federal securities laws. The Charter also contains
provisions indemnifying the directors and officers of Tweeter to the fullest
extent permitted by the DGCL. We believe that these provisions will assist us in
attracting and retaining qualified individuals to serve as directors.
 
TRANSFER AGENT AND REGISTRAR
 
The transfer agent and registrar for Tweeter's common stock is Boston Equiserve,
150 Royall Street, Canton, MA 02021.
 
                                       51
54
 
                                  UNDERWRITING
 
Each underwriter named below has agreed to purchase from Tweeter and the selling
stockholders the number of shares of common stock set forth opposite its name.
NUMBER OF
                        UNDERWRITER                              SHARES
                        -----------                             ---------
BT Alex. Brown Incorporated.................................
PaineWebber Incorporated....................................
Dain Rauscher Incorporated..................................
 
                                                                ---------
          Total.............................................    2,000,000
                                                                =========
The underwriters will purchase the shares under an Underwriting Agreement with
Tweeter and the selling stockholders. The underwriters will pay Tweeter and the
selling stockholders the public offering price less the underwriting discount
specified on the cover page of this prospectus. Tweeter estimates that its
expenses for this offering will be $900,000. Certain conditions contained in the
Underwriting Agreement must be satisfied before the underwriters are required to
purchase the shares. The underwriters will either purchase all of the shares or
none of them.
 
The underwriters have advised Tweeter and the selling stockholders that they
will offer the shares directly to the public initially at the public offering
price and to certain dealers at the public offering price less a selling
concession not to exceed $          . The underwriters may allow and these
dealers may reallow a concession not to exceed $          to other dealers.
After the initial offering of the shares, the underwriters may change the public
offering price, the concession to selected dealers and the reallowance to other
dealers.
 
The underwriters will offer the shares subject to prior sale, withdrawal,
cancellation or modification of the offer of the shares without notice, and to
their receipt and acceptance of the shares. The underwriters may reject any
order to purchase shares.
 
Tweeter has granted the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to 300,000 additional
shares at the public offering price less the underwriting discount specified on
the cover page of this prospectus. To the extent that the underwriters exercise
such option, each of the underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by it shown in the above table bears to
2,000,000 shares, and Tweeter will be obligated to sell such shares to the
underwriters. The underwriters may exercise such option only to cover
over-allotments. If purchased, the underwriters will offer such additional
shares on the same terms as the other shares. If the underwriters exercise their
over-allotment option in full, the total public offering price will be
$          , the total underwriting discount will be $          , and the total
proceeds to Tweeter will be $          , before expenses.
 
Tweeter and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933 and to contribute to payments which the underwriters may be required to
make in respect thereof.
 
Tweeter, each of the officers and directors of Tweeter, and certain stockholders
of Tweeter, including all of the selling stockholders, have agreed, subject to
certain exceptions, not to offer, sell or otherwise dispose of any shares of
common stock for a period of 90 days after the date of this prospectus without
the prior written consent of the underwriters. Stockholders who have agreed to
this lock-up arrangement hold an aggregate of 3,167,422 shares of common stock
and warrants and options exercisable for 761,029 shares of common stock. The
underwriters may, in their sole discretion and at any time without notice,
release all or any portion of the shares subject to such lock-up agreements.
 
                                       52
55
 
In connection with this offering, the underwriters and other persons
participating in this offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the common stock. Specifically, the
underwriters may over-allot in connection with this offering, creating a short
position in common stock for their own account. To cover a short position or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. The underwriters may also
impose a penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing common stock in this offering, if the
underwriters repurchase previously distributed common stock in transactions to
cover their short position, in stabilization transactions or otherwise. Finally,
the underwriters may bid for, and purchase, shares of common stock in market
making transactions. These activities may stabilize or maintain the market price
of the common stock above market levels that may otherwise prevail. The
underwriters are not required to engage in these activities and may stop any of
these activities at any time without notice.
 
In connection with this offering, certain underwriters and other selling group
members or their affiliates may engage in passive market making transactions in
the common stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M under the Securities Exchange Act of 1934, as amended. Rule 103
permits passive market making during the period when Regulation M would
otherwise prohibit market making activity by the participants in this offering.
Passive market making consists of displaying bids on the Nasdaq National Market
limited by the bid prices of independent market makers and making purchases
limited by such prices and effected in response to order flow. Rule 103 limits
the net purchases by a passive market maker on each day to a specified
percentage of the passive market maker's average daily trading volume in the
common stock during a specified period. The passive market maker must stop its
passive market making transactions for the rest of that day when such limit is
reached.
 
Certain of the underwriters have, from time to time, provided investment banking
and other financial advisory services to Tweeter, for which they have received
customary fees.
 
                                 LEGAL MATTERS
 
Goulston & Storrs, P.C., Boston, Massachusetts, will deliver an opinion to the
effect that the shares of common stock being offered hereby are validly issued,
fully paid and non-assessable. Kitt Sawitsky serves as Tweeter's Secretary and
Daniel Avery serves as Tweeter's Assistant Secretary. Mr. Sawitsky and Mr. Avery
are both directors and shareholders of Goulston & Storrs, P.C., counsel to
Tweeter. Certain legal matters related to this offering will be passed upon for
the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
 
                                    EXPERTS
 
The consolidated financial statements of Tweeter as of September 30, 1997 and
1998 and for each of the three years in the period ended September 30, 1998,
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report thereon appearing elsewhere
herein, and have been so included in reliance upon such report of Deloitte &
Touche LLP given upon the authority of said firm as experts in accounting and
auditing.
 
                                       53
56
 
                             AVAILABLE INFORMATION
 
Tweeter files reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Investors may inspect and copy these
reports, proxy statements and other information at the SEC's Public Reference
Room the SEC maintains at 450 Fifth Street, N.W., Washington D.C. 20549 and at
the SEC's Regional Offices at Seven World Trade Center, New York, New York 10048
and 500 West Madison Street, Chicago, Illinois 60661. Investors may obtain
information on the operation of the SEC's Public Reference Room by calling the
SEC at 1(800)SEC-0330. This information also is available at the SEC's World
Wide Web site at http://www.sec.gov. This information also can be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
 
Tweeter filed a Registration Statement on Form S-1 under the Securities Act
relating to the common stock offered by this prospectus with the SEC in
Washington, D.C. This prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules to the
Registration Statement, certain portions having been omitted from this
prospectus in accordance with the rules and regulations of the SEC. Statements
contained in this prospectus concerning the contents of any contract or any
other document referred to are not necessarily complete; reference is made in
each instance to the copy of such contract or document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. For further information with respect to Tweeter and the
common stock offered hereby, we refer investors to the Registration Statement,
the exhibits thereto and the financial statements, notes and schedules filed as
a part thereof.
 
                                       54
57
 
                         INDEX TO FINANCIAL STATEMENTS
 
TWEETER HOME ENTERTAINMENT GROUP, INC.
Independent Auditors' Report................................   F-2
Consolidated Balance Sheets as of September 30, 1997 and
  1998......................................................   F-3
Consolidated Statements of Income for the Years Ended
  September 30, 1996, 1997 and 1998.........................   F-4
Consolidated Statements of Stockholders' Equity (Deficit)
  for the Years Ended September 30, 1996, 1997 and 1998.....   F-5
Consolidated Statements of Cash Flows for the Years Ended
  September 30, 1996, 1997 and 1998.........................   F-6
Notes to Consolidated Financial Statements..................   F-7
F-1
58
 
                          INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors and Stockholders of
Tweeter Home Entertainment Group, Inc.:
 
We have audited the accompanying consolidated balance sheets of Tweeter Home
Entertainment Group, Inc. as of September 30, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended September 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 1997 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles.
 
/s/ Deloitte & Touche LLP
 
Boston, Massachusetts
November 24, 1998 (December 9, 1998 as to Note 16)
 
                                       F-2
59
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                          CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
                                                              --------------------------
                                                                 1997           1998
                                                              -----------    -----------
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $ 1,156,837    $   776,709
  Accounts receivable, net of allowance for doubtful
    accounts of $631,000 at September 30, 1997 and $560,000
    at September 30, 1998...................................    5,472,779      6,207,837
  Inventory.................................................   31,160,043     38,362,311
  Deferred tax assets.......................................    1,220,481      1,598,352
  Prepaid expenses and other current assets.................      822,904        590,788
                                                              -----------    -----------
  Total current assets......................................   39,833,044     47,535,997
  Property and equipment, net...............................   17,967,504     23,978,118
  Deferred tax assets.......................................       59,397             --
  Other assets, net.........................................      331,870         35,789
  Goodwill, net.............................................   20,496,115     20,093,107
                                                              -----------    -----------
    TOTAL...................................................  $78,687,930    $91,643,011
                                                              ===========    ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current portion of long-term debt.........................  $   400,000    $        --
  Amount due to bank........................................    4,948,702      4,071,310
  Accounts payable..........................................   11,456,967     10,663,216
  Accrued expenses..........................................    8,392,505     12,006,824
  Customer deposits.........................................    1,255,024      1,422,557
  Deferred warranty.........................................    1,509,481      1,109,325
                                                              -----------    -----------
    Total current liabilities...............................   27,962,679     29,273,232
                                                              -----------    -----------
LONG-TERM DEBT:
  Note payable to bank......................................   14,500,000      5,250,000
  Subordinated debt.........................................   16,387,816             --
                                                              -----------    -----------
    Total long-term debt....................................   30,887,816      5,250,000
                                                              -----------    -----------
OTHER LONG-TERM LIABILITIES:
  Rent related accruals.....................................    2,421,082      2,821,202
  Deferred warranty.........................................    2,175,577      1,066,251
  Deferred tax liabilities..................................           --      1,423,283
  Other long-term liabilities...............................      318,780        198,660
                                                              -----------    -----------
    Total other long-term liabilities.......................    4,915,439      5,509,396
                                                              -----------    -----------
    Total liabilities.......................................   63,765,934     40,032,628
                                                              -----------    -----------
COMMITMENTS AND CONTINGENCIES (Note 9) REDEEMABLE
  CONVERTIBLE PREFERRED STOCK:
  Series A Convertible Preferred Stock, $.01 par value,
    authorized: 2,624,000 shares; 1,700,136 and 0 shares
    issued and outstanding in 1997 and 1998, respectively...   13,399,386             --
  Series B Convertible Preferred Stock, $.01 par value,
    authorized: 2,624,000 shares; 866,425 and 0 shares
    issued and outstanding in 1997 and 1998, respectively...    7,191,221             --
                                                              -----------    -----------
    Total...................................................   20,590,607             --
                                                              -----------    -----------
STOCKHOLDERS' EQUITY (DEFICIT)
  Preferred Stock, $.01 par value, 10,000,000 shares
    authorized; no shares issued and outstanding............           --             --
  Common stock, $.01 par value, 30,000,000 shares
    authorized; 2,755,202 shares issued in 1997; 7,521,763
    shares issued in 1998...................................       27,552         75,217
  Additional paid-in capital................................   (2,732,300)    46,840,737
  Retained earnings (deficit)...............................   (1,382,346)     6,701,244
  Note receivable from officer..............................      (31,500)            --
                                                              -----------    -----------
    Total...................................................   (4,118,594)    53,617,198
  Less treasury stock: 1,698,929 shares in 1997 and
    1,439,073 shares in 1998, at cost.......................   (1,550,017)    (2,006,815)
                                                              -----------    -----------
    Total stockholders' equity (deficit)....................   (5,668,611)    51,610,383
                                                              -----------    -----------
    TOTAL...................................................  $78,687,930    $91,643,011
                                                              ===========    ===========
See notes to consolidated financial statements.
                                       F-3
60
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                       CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30,
                                              ---------------------------------------------
                                                  1996            1997            1998
                                              ------------    ------------    -------------
Total revenue...............................  $ 80,606,727    $132,525,037    $ 232,288,571
Cost of sales...............................   (51,816,041)    (86,314,918)    (151,265,382)
                                              ------------    ------------    -------------
Gross profit................................    28,790,686      46,210,119       81,023,189
Selling expenses............................    21,993,070      35,567,940       56,906,541
Corporate, general and administrative
  expenses..................................     4,715,697       8,102,190       11,127,540
Amortization of goodwill....................       129,273         487,084          917,442
                                              ------------    ------------    -------------
Income from operations......................     1,952,646       2,052,905       12,071,666
Interest expense............................       616,879       1,807,660        2,752,810
                                              ------------    ------------    -------------
Income before income taxes..................     1,335,767         245,245        9,318,856
Income tax expense (benefit)................      (453,448)         98,962        3,723,969
                                              ------------    ------------    -------------
Income before extraordinary item............     1,789,215         146,283        5,594,887
                                              ------------    ------------    -------------
Extraordinary item -- early extinguishment
  of debt (less applicable income taxes of
  $244,557).................................            --              --          339,687
                                              ------------    ------------    -------------
NET INCOME..................................  $  1,789,215    $    146,283    $   5,255,200
                                              ============    ============    =============
Accretion of preferred stock................     1,035,942       2,156,356        2,514,043
                                              ------------    ------------    -------------
Net income (loss) available to common
  stockholders..............................  $    753,273    $ (2,010,073)   $   2,741,157
                                              ============    ============    =============
Basic earnings per share:
  Income (loss) available to common
     stockholders before extraordinary
     item...................................  $       0.39    $      (1.20)   $        1.24
  Extraordinary item........................            --              --            (0.14)
                                              ------------    ------------    -------------
  Net income (loss).........................  $       0.39    $      (1.20)   $        1.10
                                              ============    ============    =============
Diluted earnings per share:
  Income (loss) before extraordinary item...  $       0.38    $      (1.20)   $        1.11
  Extraordinary item........................            --              --            (0.07)
                                              ------------    ------------    -------------
  Net income (loss).........................  $       0.38    $      (1.20)   $        1.04
                                              ============    ============    =============
Weighted-average shares outstanding:
  Basic.....................................     1,940,272       1,672,507        2,486,271
                                              ============    ============    =============
  Diluted...................................     1,983,137       1,672,507        5,033,803
                                              ============    ============    =============
See notes to consolidated financial statements.
                                       F-4
61
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
NOTE
                                     COMMON STOCK       ADDITIONAL     RETAINED     RECEIVABLE       TREASURY STOCK
                                  -------------------     PAID-IN      EARNINGS        FROM      -----------------------
                                   SHARES     AMOUNT      CAPITAL      (DEFICIT)     OFFICER      SHARES       AMOUNT
                                  ---------   -------   -----------   -----------   ----------   ---------   -----------
BALANCE, OCTOBER 1, 1995........  2,755,202   $27,552   $        --   $(2,453,479)   $(31,500)          --   $        --
  Treasury stock acquired.......                                                                 1,698,929    (1,550,017)
  Reclassification of
    undistributed losses upon
    Subchapter S revocation.....                         (3,057,683)    3,057,683
  Subchapter S distributions....                                         (729,750)
  Accretion of Series A
    Convertible Preferred
    Stock.......................                                       (1,035,942)
  Net income....................                                        1,789,215
                                  ---------   -------   -----------   -----------    --------    ---------   -----------
BALANCE, SEPTEMBER 30, 1996.....  2,755,202    27,552    (3,057,683)      627,727     (31,500)   1,698,929    (1,550,017)
  Issuance of warrants in
    connection with subordinated
    debt offering...............                            325,383
  Accretion of Series A
    Convertible Preferred
    Stock.......................                                       (1,802,520)
  Accretion of Series B
    Convertible Preferred
    Stock.......................                                         (353,836)
  Net income....................                                          146,283
                                  ---------   -------   -----------   -----------    --------    ---------   -----------
BALANCE, SEPTEMBER 30, 1997.....  2,755,202    27,552    (2,732,300)   (1,382,346)    (31,500)   1,698,929    (1,550,017)
  Accretion of Series A
    Convertible Preferred Stock
    through July 16, 1998.......                                       (1,640,863)
  Accretion of Series B
    Convertible Preferred Stock
    through July 16, 1998.......                                         (873,180)
  Conversion of warrants........                                         (363,908)                (259,856)      363,908
  Additional payment for
    treasury stock..............                                                                                (820,706)
  Conversion of Series A
    Convertible Preferred
    Stock.......................  1,700,136    17,001    10,543,922     4,479,325
  Conversion of Series B
    Convertible Preferred
    Stock.......................    866,425     8,664     6,828,721     1,227,016
  Issuance of common stock,
    net.........................  2,200,000    22,000    32,200,394
  Payment received on note
    receivable..................                                                       31,500
  Net income....................                                        5,255,200
                                  ---------   -------   -----------   -----------    --------    ---------   -----------
BALANCE, SEPTEMBER 30, 1998.....  7,521,763   $75,217   $46,840,737   $ 6,701,244    $     --    1,439,073   $(2,006,815)
                                  =========   =======   ===========   ===========    ========    =========   ===========
TOTAL
                                  STOCKHOLDERS'
                                     EQUITY
                                    (DEFICIT)
                                  -------------
BALANCE, OCTOBER 1, 1995........   $(2,457,427)
  Treasury stock acquired.......    (1,550,017)
  Reclassification of
    undistributed losses upon
    Subchapter S revocation.....            --
  Subchapter S distributions....      (729,750)
  Accretion of Series A
    Convertible Preferred
    Stock.......................    (1,035,942)
  Net income....................     1,789,215
                                   -----------
BALANCE, SEPTEMBER 30, 1996.....    (3,983,921)
  Issuance of warrants in
    connection with subordinated
    debt offering...............       325,383
  Accretion of Series A
    Convertible Preferred
    Stock.......................    (1,802,520)
  Accretion of Series B
    Convertible Preferred
    Stock.......................      (353,836)
  Net income....................       146,283
                                   -----------
BALANCE, SEPTEMBER 30, 1997.....    (5,668,611)
  Accretion of Series A
    Convertible Preferred Stock
    through July 16, 1998.......    (1,640,863)
  Accretion of Series B
    Convertible Preferred Stock
    through July 16, 1998.......      (873,180)
  Conversion of warrants........            --
  Additional payment for
    treasury stock..............      (820,706)
  Conversion of Series A
    Convertible Preferred
    Stock.......................    15,040,248
  Conversion of Series B
    Convertible Preferred
    Stock.......................     8,064,401
  Issuance of common stock,
    net.........................    32,222,394
  Payment received on note
    receivable..................        31,500
  Net income....................     5,255,200
                                   -----------
BALANCE, SEPTEMBER 30, 1998.....   $51,610,383
                                   ===========
See notes to consolidated financial statements.
                                       F-5
62
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
                                                              ------------------------------------------
                                                                  1996           1997           1998
                                                              ------------   ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................  $  1,789,215   $    146,283   $  5,255,200
Adjustments to reconcile net income to net cash provided by
  (used in) operating activities:
  Extraordinary item........................................            --             --        566,145
  Depreciation and amortization.............................     1,383,235      2,798,404      3,920,362
  Loss on disposal of equipment.............................            --         18,845         58,749
  Deferred income tax provision (benefit)...................    (1,177,420)        71,040      1,104,809
  Changes in operating assets and liabilities, net of
    effects from acquisition of business:
    Increase in accounts receivable.........................      (631,945)    (1,251,986)      (703,558)
    Increase in inventory...................................    (2,411,139)    (6,534,336)    (7,202,268)
    (Increase) decrease in prepaid expenses and other
       current assets.......................................      (250,391)      (277,537)       185,123
    Increase (decrease) in accounts payable and accrued
       expenses.............................................       848,630       (936,490)     2,306,134
    Increase (decrease) in customer deposits................      (329,713)      (242,565)       167,533
    Increase in deferred rent...............................     1,441,315        357,195        400,120
    Decrease in deferred warranty...........................      (157,113)      (710,610)    (1,509,482)
    Increase (decrease) in other liabilities................            --        318,780       (120,120)
                                                              ------------   ------------   ------------
       Net cash provided by (used in) operating
         activities.........................................       504,674     (6,242,977)     4,428,747
                                                              ------------   ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..........................    (2,865,784)    (3,972,465)    (8,996,521)
Proceeds from sale of property and equipment................            --             --         13,350
Acquisition of business.....................................    (8,368,208)   (19,539,800)            --
                                                              ------------   ------------   ------------
       Net cash used in investing activities................   (11,233,992)   (23,512,265)    (8,983,171)
                                                              ------------   ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Amount due to bank..........................................       390,000      3,067,959       (877,392)
Proceeds from long-term borrowings, net of debt issue
  costs.....................................................     1,994,594     20,668,128             --
Payments of long-term debt..................................            --       (100,000)   (26,350,000)
Subchapter S distributions..................................      (729,750)            --             --
Issuance of preferred stock.................................    10,560,926      6,837,385             --
Issuance of common stock....................................            --             --     32,222,394
Additional payment for treasury stock.......................            --             --       (820,706)
Treasury stock acquired.....................................    (1,550,017)            --             --
                                                              ------------   ------------   ------------
       Net cash provided by financing activities............    10,665,753     30,473,472      4,174,296
                                                              ------------   ------------   ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............       (63,565)       718,230       (380,128)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................       502,172        438,607      1,156,837
                                                              ------------   ------------   ------------
CASH AND CASH EQUIVALENTS, END OF YEAR......................  $    438,607   $  1,156,837   $    776,709
                                                              ============   ============   ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest..................................................  $    538,718   $  1,538,077   $  3,179,757
                                                              ============   ============   ============
  Taxes.....................................................  $    860,541   $    358,000   $  3,552,989
                                                              ============   ============   ============
See notes to consolidated financial statements.
                                       F-6
63
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
 
1.  BUSINESS OF THE COMPANY
 
New England Audio Co., Inc. ("NEA") was organized as a Massachusetts corporation
in 1972. On June 1, 1998 NEA effected a 1 for 1.524 reverse stock split. On June
5, 1998 NEA was reorganized as a Delaware holding company, whereby all of the
holders of capital stock, options and warrants of NEA exchanged their NEA
securities for identical securities of Tweeter Home Entertainment Group, Inc.
("TWEETER"), a Delaware corporation on a 1 for 1 basis. All share data in these
consolidated financial statements reflect the impact of the reverse stock split
and the reorganization. The consolidated financial statements include the
accounts of NEA, the wholly owned subsidiary of TWEETER, and NEA Delaware Inc.,
a Delaware corporation, the wholly owned subsidiary of NEA (collectively
referred to as the "Company"). On July 16, 1998, the Company completed an
initial public offering ("IPO"). As discussed in Notes 3 and 12, the Series A
Redeemable Convertible Preferred Stock and the Series B Redeemable Convertible
Preferred Stock (collectively the "Preferred Stock") automatically converted
into 2,566,561 shares of common stock upon the completion of the IPO. The
accompanying consolidated financial statements reflect this conversion as of
July 16, 1998.
 
The Company sells home audio, video, entertainment and electronic products
through a chain of fifty-two retail stores in New England, Mid-Atlantic and
Atlanta, Georgia markets. The Company operates under the names "Tweeter, Etc.,"
"Bryn Mawr Stereo & Video" and "HiFi Buys." The Company operates in a single
business segment of retailing audio and video consumer electronic products.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of Tweeter Home Entertainment Group, Inc. and its subsidiaries (the
"Company"). All material intercompany transactions have been eliminated in
consolidation.
 
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid instruments
purchased with maturities of three months or less to be cash equivalents for
balance sheet and cash flow statement purposes.
 
INVENTORIES -- Inventories, which consist primarily of goods for resale, are
stated at the lower of cost (average cost basis) or market.
 
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation and amortization are computed by the straight-line method over the
estimated useful lives of the respective assets. Amortization of improvements to
leased properties is based upon the remaining terms of the leases or the
estimated useful lives of such improvements, whichever is shorter. Furniture and
fixtures are depreciated between three and seven years. Automobiles and trucks
are depreciated over three years. Leasehold interests are amortized over the
remaining lives of the leases. The purchased building is depreciated over a
period of fifteen years.
 
GOODWILL -- Goodwill and other acquisition costs are being amortized on a
straight-line basis over periods from twelve to twenty-five years.
 
OTHER ASSETS -- Other assets include deferred financing costs that are being
amortized over the term of the financing, using the straight-line method, which
approximates the interest method. Some of the deferred financing costs were
written off during 1998 (see Note 14).
 
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the Company's
assets and liabilities which constitute financial instruments as defined in
Statement of Financial Accounting
                                       F-7
64
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Standards ("SFAS") No. 107, "Disclosure about Fair Value of Financial
Instruments," approximates their recorded value.
 
LONG-LIVED ASSETS -- On an ongoing basis, the Company evaluates the carrying
value of its long-lived assets based upon estimated future undiscounted cash
flows relying on a number of factors, including operating results, business
plans and certain economic projections. In addition, the Company's evaluation
considers nonfinancial data such as changes in the operating environment,
competitive information, market trends and business relationships.
 
ACCOUNTING FOR ESTIMATES -- In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value of
certain assets and liabilities that are not readily apparent from other sources.
The primary estimates underlying the Company's consolidated financial statements
include allowances for potential bad debts, obsolete inventory, goodwill, the
useful lives of its long-lived assets, the recoverability of deferred tax assets
and other matters. Management bases its estimates on certain assumptions, which
they believe are reasonable in the circumstances, and do not believe that any
change in those assumptions in the near term would have a significant effect on
the consolidated financial position or results of operations. Actual results
could differ from these estimates.
 
REVENUE RECOGNITION -- Revenue from merchandise sales is recognized upon
shipment or delivery of goods. Service revenue is recognized when the repair
service is completed.
 
AUTOMATIC PRICE PROTECTION -- Under this program, if a customer purchases a
consumer electronics product from one of the Company's stores and a competitor
within twenty-five miles of the store advertises a lower price within thirty
days, the Company automatically sends a check to the customer for the
difference. The Company records the cost of its Automatic Price Protection
policy to costs of sales, and carries a reserve based on management's estimate
of future liability under the program.
 
EXTENDED WARRANTY SERVICE CONTRACTS -- Except as noted in the following
paragraphs, the Company offers extended warranty service contracts on behalf of
an unrelated third party on most of its products. These contracts are on a
nonrecourse basis to the Company. The Company includes revenues from the sale of
extended warranty contracts in net sales and records as cost of sales the
amounts due to the third party for the cost for such contracts at the time of
sale as the earnings process has been completed.
 
DEFERRED WARRANTY REVENUE -- On May 13, 1996 the Company acquired substantially
all of the assets, and assumed some of the liabilities, of Bryn Mawr Radio and
Television, Inc. and affiliate ("Bryn Mawr"). Bryn Mawr sold extended warranty
contracts beyond the normal manufacturer's warranty period, usually with terms
of coverage (including the manufacturer's warranty period) between twelve and
sixty months. All revenue from the sale of extended warranty contracts sold
through July 31, 1996 was deferred and the revenue is being amortized on a
straight-line basis over the contract period. All costs related to the contracts
are charged to expense when incurred. On August 1, 1996, the Company changed
Bryn Mawr's warranty sales to a third-party provider, in conformance with the
Company's practice of selling extended warranties. As part of the purchase, the
Company assumed the liability for the deferred warranty on Bryn Mawr's books as
of the transaction date.
 
On May 30, 1997 the Company acquired certain assets and assumed certain
liabilities of HiFi Buys, Inc. ("HiFi Buys"). HiFi Buys sold extended warranty
contracts beyond the normal manufacturer's warranty period, usually with terms
of coverage (including the manufacturer's warranty period) between twelve and
sixty months. All revenue from the sale of extended warranty contracts sold
through August 7, 1997 was deferred and the revenue is being amortized on a
straight-line basis over
                                       F-8
65
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the contract period. Sales commission costs related to the contracts were also
deferred and the cost is being amortized on a straight-line basis over the
contract period. On August 8, 1997, the Company changed HiFi Buys' warranty
sales to a third-party provider, in conformance with the Company's practice of
selling extended warranties. As part of the purchase, the Company assumed the
liability for the deferred warranty on HiFi Buys' books as of the transaction
date, and the sales that continued through August 7, 1997.
 
INCOME TAXES -- Effective September 1, 1987, the stockholders elected to have
the Company taxed as an S Corporation for federal and certain state corporate
income tax purposes. As part of a recapitalization that occurred on November 28,
1995, the Company revoked the election made by it under Section 1362(a) of the
Internal Revenue Code. Upon revocation, the Corporation was changed from tax
treatment as an S Corporation to tax treatment as a C Corporation. As such, the
Company became responsible for federal and certain state income taxes, which
were formerly the responsibilities of its stockholders.
 
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax liabilities or
assets are recognized for the estimated tax effects of temporary differences
between financial reporting and taxable income and for loss carryforwards based
on enacted tax laws and rates.
 
STORE OPENING COSTS -- Costs of a noncapital nature incurred prior to store
openings are expensed as incurred.
 
STOCK-BASED COMPENSATION -- The Company, for the purposes of presentation in its
financial statements, follows the precepts set forth in Accounting Principles
Board Opinion No. 25 for computing compensatory aspects of stock-based
compensation. In compliance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has disclosed the required pro forma effect on net
income in Note 12.
 
DEFERRED RENT AND RENTAL EXPENSE -- Minimum rent expense is recorded using the
straight-line method over the related lease term. The difference between current
payments required and rent expense is reflected as deferred rent.
 
ADVERTISING -- Net costs for advertising, including electronic media, newspaper,
buyer's guides and catalogs, which are expensed as incurred, amounted to
$2,574,340, $3,561,573 and $3,957,746 for the years ended September 30, 1996,
1997 and 1998, respectively.
 
EARNINGS (LOSS) PER SHARE -- The Company computed earnings (loss) per share in
accordance with SFAS No. 128, "Earnings Per Share". Basic earnings (loss) per
share is calculated based on the weighted-average number of common shares
outstanding, adjusted for the nominal issuance of certain warrants. Diluted
earnings (loss) per share is based on the weighted average number of common
shares outstanding, adjusted for the nominal issuance of certain warrants,
shares of Preferred Stock outstanding, when dilutive, and dilutive potential
common shares (common stock options and warrants).
 
                                       F-9
66
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share:
YEARS ENDED SEPTEMBER 30,
                                            ---------------------------------------
                                               1996          1997           1998
                                            ----------    -----------    ----------
BASIC EARNINGS (LOSS) PER SHARE ("EPS"):
Numerator:
  Net income..............................  $1,789,215    $   146,283    $5,255,200
  Accretion of preferred stock
     dividends............................   1,035,942      2,156,356     2,514,043
                                            ----------    -----------    ----------
Net income (loss) available to common
  stockholder's...........................     753,273     (2,010,073)    2,741,157
Denominator:
  Weighted average common shares
     outstanding..........................   1,570,641      1,302,876     2,116,640
  Nominal issuance of warrants............     369,631        369,631       369,631
                                            ----------    -----------    ----------
Weighted average shares outstanding.......   1,940,272      1,672,507     2,486,271
                                            ----------    -----------    ----------
Basic EPS.................................  $     0.39    $     (1.20)   $     1.10
                                            ==========    ===========    ==========
DILUTED EARNINGS (LOSS) PER SHARE:
Numerator.................................  $  753,273    $(2,010,073)   $5,255,200
Denominator:
  Weighted average common shares
     outstanding..........................   1,940,272      1,672,507     2,486,271
  Potential common stock outstanding......      42,865             --     2,547,532
                                            ----------    -----------    ----------
Total.....................................   1,983,137      1,672,507     5,033,803
                                            ----------    -----------    ----------
Diluted EPS...............................  $     0.38    $     (1.20)   $     1.04
                                            ==========    ===========    ==========
RECENT ACCOUNTING PRONOUNCEMENTS -- The Financial Accounting Standards Board
recently issued SFAS No. 130, "Reporting Comprehensive Income," SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," SFAS No.
132, "Employees' Disclosures About Pensions and Other Post Retirement Benefits,"
and SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The effect of adopting these Statements is not expected to be
material to the Company's consolidated financial position or results of
operations.
 
RECLASSIFICATION -- Various financial statement amounts for 1996 and 1997 have
been reclassified to conform to the classifications used in the September 30,
1998 consolidated financial statements.
 
3.  CHANGES IN CAPITAL STRUCTURE
 
On July 16, 1998, the Company successfully completed an IPO of its common stock,
resulting in net proceeds to the Company of $32.2 million, which was used to
retire outstanding debt. The offering also required the mandatory conversion of
all of the outstanding preferred stock into common stock, thereby eliminating
significant rights enjoyed by the preferred stockholders, and significantly
changing the capital structure of the Company. Among other rights, the preferred
stock had redemption provisions that guaranteed the holders a minimum return on
investment of 15% if the shares were redeemed. Mandatory redemption was to begin
in 2001, if the Company had not successfully completed an IPO resulting in net
proceeds to the Company of at least $15.0 million. In periods prior to the IPO,
the Company accreted preferred stock to its redemption value with a charge to
retained earnings. Upon conversion of the preferred stock to common stock, the
Company eliminated all balances related to the preferred stock through retained
earnings and additional paid-in capital.
 
                                      F-10
67
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4.  PROPERTY AND EQUIPMENT
 
Major classifications of property and equipment are summarized below:
SEPTEMBER 30,
                                                 --------------------------
                                                    1997           1998
                                                 -----------    -----------
Leasehold improvements.........................  $17,050,196    $18,942,726
Furniture and equipment........................    8,380,734     10,185,549
Building.......................................           --      3,063,897
Land...........................................           --        940,000
Automobiles and trucks.........................      247,950        370,074
Construction in progress.......................      865,503        475,912
Leasehold interests............................      165,000        165,000
                                                 -----------    -----------
                                                  26,709,383     34,143,158
Less accumulated depreciation and
  amortization.................................    8,741,879     10,165,040
                                                 -----------    -----------
                                                 $17,967,504    $23,978,118
                                                 ===========    ===========
Depreciation and amortization (excluding amortization of goodwill) for the
fiscal years ended September 30, 1996, 1997 and 1998 aggregated $1,226,109,
$2,258,121 and $2,913,808, respectively.
 
5.  ACCRUED EXPENSES
 
Accrued expenses consist of the following:
SEPTEMBER 30,
                                                  -------------------------
                                                     1997          1998
                                                  ----------    -----------
Compensation....................................  $1,422,106    $ 2,465,064
Advertising.....................................     900,952      1,832,127
Merchandise received not invoiced...............   1,576,413      1,748,947
Fringe benefits.................................     660,790      1,446,030
Sales taxes payable.............................     616,764      1,069,249
Group insurance.................................     220,826        255,000
Federal Income Taxes Payable....................     605,031             --
Other...........................................   2,389,623      3,190,407
                                                  ----------    -----------
                                                  $8,392,505    $12,006,824
                                                  ==========    ===========
6.  DEFERRED WARRANTY REVENUE
 
As part of the acquisition of Bryn Mawr in May of 1996, the Company assumed the
deferred revenue on Bryn Mawr's books at that time. Amortization of the deferred
warranty revenue for the years ended September 30, 1996, 1997 and 1998 was
$253,529, $468,418 and $326,247, respectively, (see Note 2). Self-funded
extended warranty contract sales were $96,416 in the year ended September 30,
1996.
 
As part of the acquisition of HiFi Buys on May 30, 1997, the Company assumed the
deferred warranty revenue and expense related to the sale of self-funded
extended warranty contracts on HiFi Buys' books at the date of the acquisition.
Amortization of deferred warranty revenue was $478,145 and
 
                                      F-11
68
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
$1,183,234 for the years ended September 30, 1997 and 1998, respectively, (see
Note 2). Self-funded extended warranty contract sales were $276,720 in the year
ended September 30, 1997.
 
7.  DEBT
 
Long-term debt consists of the following:
SEPTEMBER 30,
                                                  -------------------------
                                                     1997           1998
                                                  -----------    ----------
Subordinated debt...............................  $16,787,816    $       --
Revolving term bank loan........................   14,500,000     5,250,000
                                                  -----------    ----------
Subtotal........................................   31,287,816     5,250,000
Less current portion............................      400,000            --
                                                  -----------    ----------
                                                  $30,887,816    $5,250,000
                                                  ===========    ==========
On November 28, 1995, as part of a recapitalization, the Company repurchased
approximately 1,698,929 shares equaling 60% of its common stock from the
Company's then principal stockholder for cash and subordinated debt of $550,017
and $1,000,000, respectively. The subordinated debt (the "Redemption Note")
carried interest at an effective rate of 10.8% and became due upon the
consummation of the Company's IPO. Interest was payable on a quarterly basis.
The terms of the repurchase arrangement also required that should an IPO by the
Company occur on or before June 30, 1999, an additional payment of $650,000 plus
an amount equal to 9% interest per annum accruing on such amount from November
28, 1995 to the date of such offering be made (approximately $821,000 at the
time of the effective date of the offering). This incremental payment would be
made on the occurrence of an IPO, regardless of whether the Redemption Note was
still outstanding. This additional payment was made upon completion of the
Company's IPO. Also on November 28, 1995, $363,590 of long-term debt due to
officers and related parties was converted to Series A Redeemable Convertible
Preferred Stock ("Series A Preferred Stock") as part of the recapitalization. On
May 13, 1996, the remaining balance of the long-term debt due to officers and
related parties was converted to Series A Preferred Stock as part of the
recapitalization.
 
On May 13, 1996, in order to partially finance the acquisition of Bryn Mawr, the
Company amended its loan agreement with the bank. Among other things, this
amendment changed (a) the maximum balance from $6,000,000 to $12,000,000, (b)
the maturity date from September 30, 1997 to April 30, 1998, and (c) certain
financial covenants, the most restrictive of which continued to be the
maintenance of certain debt coverage and leverage ratios.
 
On March 7, 1997, the Company amended its loan agreement with the bank, and
entered into a Warrant and Debenture Commitment with certain of its
stockholders. This financing enabled the Company to borrow from the bank an
additional "Bridge Loan" of up to $2,000,000 due July 7, 1997. The proceeds of
these borrowings were used to fund store expansions. As a condition of providing
the Bridge Loan, the bank required a commitment from a third party to purchase
the Bridge Loan prior to maturity. Certain participating stockholders of the
Company entered into a Bridge Note Purchase Agreement with the bank, agreeing to
purchase upon a put by the bank or upon the Company's request 10% Convertible
Subordinated Debentures due 2000 (the "Debentures"), in an aggregate amount of
$2,000,000. The Debentures were never issued because the related Bridge Loan was
paid in full on May 30, 1997.
 
To induce the participating stockholders to enter into the Warrant and Debenture
Commitment, the Company issued warrants to the participating stockholders for
each month that they remained obligated under the Warrant and Debenture
Commitment. During the time that this commitment
 
                                      F-12
69
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
was in effect, the Company issued warrants to purchase an aggregate of 37,138
shares of the Company's common stock, with an exercise price of $6.46 per share
and a term of five years. The Company repaid the Bridge Loan on May 30, 1997,
and the obligations of the participating stockholders terminated under the
Warrant and Debenture Commitment.
 
On May 30, 1997, in order to partially finance the acquisition of HiFi Buys, the
Company replaced its loan agreement with the bank with a new senior acquisition
and working capital financing agreement. Among other things, this new agreement
changed (a) the maximum balance from $14,000,000 to $20,000,000, (b) the
maturity date from April 30, 1998 to June 1, 2000, and (c) certain financial
covenants, the most restrictive of which continued to be the maintenance of
certain debt coverage and leverage ratios. The amount outstanding under the
agreement totaled $14,500,000 at September 30, 1997, and was collateralized by
the Company's inventory and certain other assets. The unpaid balances under this
agreement bore interest at the lender's base rate, or LIBOR plus 2% if the
Company committed the balances for a period of 30 days or more (8.16% at
September 30, 1997).
 
On May 30, 1997, as part of the acquisition of HiFi Buys, the Company entered
into a subordinated debt financing with a predecessor of HFB Associates, LLC
(the "Seller"), and issued a $1,200,000 subordinated term note to the Seller,
with principal payments made in thirty-six equal installments monthly. The
unpaid principal balance bears an annual interest rate of 9.5%. At September 30,
1997, the unpaid balance on this note was $1,100,000. The note was paid in full
in July 1998. In addition, the Company issued warrants to the Seller to purchase
104,960 shares of common stock with a ten-year term and an exercise price of
$8.08 per share.
 
On May 30, 1997, in order to partially finance the acquisition of HiFi Buys, the
Company entered into a senior subordinated debt financing with a group of
institutional investors, and issued $15,000,000 of Senior Subordinated
Promissory Notes (the "1997 Notes"), with warrants (see Note 12). The 1997 Notes
bore an annual interest rate of 12% on the unpaid principal balance. Principal
payments due under the 1997 Notes were $5,000,000 due on May 30 of 2002, 2003,
and 2004. The 1997 Notes were paid in full upon the completion of the Company's
IPO. The detachable warrants issued with the 1997 Notes are exercisable for up
to 629,566 shares of the Company's common stock, with an exercise price of $.002
per share. Because these warrants had a fair value of $325,383, such discount
was recorded on the debt. The discount accreted over the term of the debt. The
balance of the discount was charged to extraordinary items at the time of
repayment of these Notes (see Note 14).
 
As stated in Note 3, the Company completed an IPO of 2,710,000 shares of common
stock on July 16, 1998. The Company sold 2,200,000 shares and 510,000 shares
were sold by existing stockholders. Net proceeds received by the Company were
$32,200,000. The Company has used these net proceeds to repay (i) approximately
$14.5 million in outstanding indebtedness under its existing loan agreement with
BankBoston, N.A.; (ii) approximately $15.0 million in outstanding indebtedness
under the Senior Subordinated Promissory Notes dated May 30, 1997 issued in
connection with the HiFi Buys acquisition; (iii) approximately $1.9 million in
outstanding indebtedness under the Redemption Note dated November 28, 1995
issued in connection with a recapitalization pursuant to which the Company
repurchased common stock from certain of its stockholders which amount includes
a one-time payment of approximately $821,000 which became due to these
stockholders upon the consummation of the IPO; and (iv) approximately $771,000
to repay outstanding indebtedness under the Subordinated Note dated May 30, 1997
issued in connection with the HiFi Buys acquisition.
 
On July 20, 1998, the Company amended its loan agreement with the bank. Among
other things, this amendment changed (a) the maximum balance from $20,000,000 to
$30,000,000 (b) the maturity
                                      F-13
70
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
date from June 1, 2000 to July 31, 2001, and (c) certain financial covenants,
the most restrictive of which continue to be the maintenance of certain debt
coverage and leverage ratios. The amount outstanding under the agreement totaled
$5,250,000 at September 30, 1998, and is collateralized by the Company's
inventory, and certain other assets. The unpaid balances under this agreement
bear interest at the lender's base rate, or LIBOR plus 2% if the Company commits
the balances for a period of thirty days or more (base rate of 8.5% at September
30, 1998).
 
8.  EMPLOYEE SAVINGS PLAN
 
In October 1985, the Company established an employee savings plan covering all
employees. Under the terms of the plan, which was adopted under Section 401(k)
of the Internal Revenue Code, the Company can match employee contributions. Such
matching contributions cannot exceed the employer's established annual
percentage of compensation, which was a maximum of 6% for the years ended
September 30, 1996, 1997 and 1998. The Company's contribution expense was
$75,000, $100,000 and $290,000 for the years ended September 30, 1996, 1997 and
1998, respectively.
 
9.  COMMITMENTS AND CONTINGENCIES
 
The Company leases most of its stores, installation centers, warehouses and
administrative facilities under operating leases. The lives of these leases
range from five to twenty years with varying renewal options. The leases provide
for base rentals, real estate taxes, common area maintenance charges and, in
some instances, for the payment of percentage rents based on sales volume. Rent
expense for the years ended September 30, 1996, 1997 and 1998 was $3,163,095,
$5,978,819 and $8,637,505 respectively. Percentage rent expense was, $64,964,
$47,243 and $41,833 for the years ended September 30, 1996, 1997 and 1998,
respectively.
 
Future minimum rental commitments under non cancelable operating leases as of
September 30, 1998 are as follows:
Year ended September 30, 1999.................  $ 8,446,493
Year ended September 30, 2000.................    8,336,893
Year ended September 30, 2001.................    7,957,409
Year ended September 30, 2002.................    7,544,449
Year ended September 30, 2003.................    6,985,012
Thereafter....................................   38,053,030
                                                -----------
     Total....................................  $77,323,286
                                                ===========
On June 23, 1998 the Company completed the purchase of a facility in
Massachusetts to serve as the corporate headquarters, service center and
distribution center in Massachusetts. The purchase price for this facility was
$3.95 million, and the Company has spent an additional $1.40 million in related
building improvements. The Company expects to finance the purchase and related
improvements with a mortgage of $3.32 million.
 
Effective upon the consummation of the IPO, the Company has entered into
employment agreements with certain key employees. These agreements provide for
continued employment with termination by either party. Under certain
circumstances, the key employees could receive an amount up to three times their
annual base salary.
 
                                      F-14
71
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10.  INCOME TAXES
 
The Company accounts for income taxes in accordance with the provisions of SFAS
No. 109, "Accounting for Income Taxes." SFAS No. 109 requires an asset and
liability approach, and deferred taxes are determined based on the estimated
future tax effects of differences between the financial statement and tax basis
of assets and liabilities given the provisions of enacted tax laws.
 
The provision (benefit) for income taxes under SFAS No. 109 consisted of the
following:
YEARS ENDED SEPTEMBER 30,
                                               ------------------------------------
                                                  1996         1997         1998
                                               ------------------------------------
Current:
  Federal....................................  $   563,777    $21,821    $2,081,039
  State......................................      160,195      6,101       538,121
                                               -----------    -------    ----------
                                                   723,972     27,922     2,619,160
Deferred:
  Current deferral...........................     (176,615)    71,040     1,104,809
  Tax rate increase on temporary differences
     resulting from the revocation of the S
     Corporation election....................   (1,000,805)        --            --
                                               -----------    -------    ----------
                                               $  (453,448)   $98,962    $3,723,969
                                               ===========    =======    ==========
The tax effects of significant temporary differences comprising the Company's
current and long-term net deferred tax assets are as follows:
SEPTEMBER 30,
                                                         --------------------------
                                                            1997           1998
                                                         --------------------------
Accruals and reserves..................................  $   574,272    $ 1,129,773
Deferred revenue.......................................      646,209        468,579
                                                         -----------    -----------
Net deferred tax assets -- current.....................    1,220,481      1,598,352
                                                         -----------    -----------
Deferred rent..........................................    1,036,466      1,191,676
Depreciation...........................................      854,091        663,705
Deferred revenue.......................................      931,364        450,384
Amortization and other.................................   (2,762,524)    (3,729,048)
                                                         -----------    -----------
Net deferred tax assets (liabilities) -- long-term.....       59,397     (1,423,283)
                                                         -----------    -----------
Total net deferred tax assets..........................  $ 1,279,878    $   175,069
                                                         ===========    ===========
F-15
72
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
The Company has determined that it is more likely than not that it will fully
realize the deferred tax assets. Consequently, no valuation allowance was
established as of September 30, 1997 and September 30, 1998. A reconciliation
between the statutory and effective income tax rates is as follows:
YEARS ENDED SEPTEMBER 30,
                                                     --------------------------
                                                      1996      1997      1998
                                                     ------     -----     -----
Statutory income tax rate..........................   34.0%     34.0%     34.0%
State income taxes net of federal benefit..........    5.8%      5.8%      5.5%
Change in tax status...............................  (74.9)%      --%       --%
Other..............................................    1.2%      0.5%      0.5%
                                                     -----      ----      ----
Effective income tax rate..........................  (33.9)%    40.3%     40.0%
                                                     =====      ====      ====
11.  ACQUISITIONS
 
BRYN MAWR -- On May 13, 1996, the Company acquired the principal operating
assets and assumed certain liabilities of Bryn Mawr. This transaction has been
accounted for as a purchase and, accordingly, the results of operations of the
Company's business relating to Bryn Mawr have been included in the consolidated
statements of income since the acquisition date. The allocation of the purchase
price resulted in goodwill of $5,600,900, which is being amortized over
twenty-five years using the straight-line method. The net assets acquired at
fair market value on May 13, 1996 were allocated as follows:
Inventory...................................................  $ 5,043,100
Property and equipment......................................    6,860,400
Other assets................................................      837,800
Accounts payable and accrued expenses.......................   (9,689,300)
                                                              -----------
     Net assets acquired....................................    3,052,000
Total purchase price and related costs......................    8,652,900
                                                              -----------
     Goodwill...............................................  $ 5,600,900
                                                              ===========
HIFI BUYS -- On May 30, 1997, the Company acquired the principal operating
assets and assumed certain liabilities of HiFi Buys. This transaction has been
accounted for as a purchase and, accordingly, the results of operations of the
Company's business relating to HiFi Buys have been included in the consolidated
statements of income since the acquisition date. The allocation of the purchase
price resulted in goodwill of $15,826,949, which is being amortized over
twenty-five years using the straight-line method. The net assets acquired at
fair market value on May 30, 1997 were allocated as follows:
Inventory...................................................  $ 9,273,400
Property and equipment......................................    2,771,700
Accounts receivable.........................................    1,428,800
Other assets................................................      236,500
Accounts payable and accrued expenses.......................   (9,483,100)
                                                              -----------
     Net assets acquired....................................    4,227,300
Total purchase price and related costs......................   20,054,249
                                                              -----------
     Goodwill...............................................  $15,826,949
                                                              ===========
F-16
73
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
The following unaudited pro forma financial information reflects the
consolidated results of operations for the Company for the years ended September
30, 1996 and 1997 as though the acquisitions had occurred on the first day of
each fiscal year. The pro forma operating results are presented for comparative
purposes only and do not purport to present the Company's actual operating
results had the acquisitions been consummated on October 1, 1995 or results
which may occur in the future.
YEARS ENDED SEPTEMBER 30,
                                                       ----------------------------
                                                           1996            1997
                                                       ------------    ------------
Net sales............................................  $207,359,183    $196,462,686
Net income...........................................     1,441,943         625,748
Net income (loss) available to common stockholders...       406,001      (1,530,608)
Basic earnings (loss) per share......................          0.21           (0.92)
Diluted earnings (loss) per share....................          0.20           (0.92)
The Company had also previously recorded approximately $809,000 of goodwill in
connection with prior acquisitions.
 
Accumulated amortization of goodwill was approximately $1,227,000 and $2,144,000
for the years ended September 30, 1997 and 1998, respectively.
 
12.  STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
 
COMMON STOCK -- Holders of common stock are entitled to dividends if declared by
the Board of Directors, and each share carries one vote. The common stock has no
cumulative voting, redemption or preemptive rights.
 
SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK -- Series A and Series B
Convertible Preferred Stock were entitled to significant additional rights
beyond those granted to the common stock. These classes of stock were converted
to common stock upon the IPO of the Company's common stock on July 16, 1998 (see
Note 3). Some of the rights that previously existed on this class of stock are
as follows:
 
        Voting Rights -- Each preferred share was entitled to one vote for each
     common stock into which it is then convertible.
 
        Representative Directors -- Holders of a majority of the shares of
     Series A and Series B Convertible Preferred Stock and Investor Common
     Stock, voting separately as a single class, were entitled to elect two
     members of the Board of Directors. Holders of Series A and Series B
     Convertible Preferred Stock were also entitled to elect additional members
     of the Board of Directors under certain circumstances.
 
        Conversion Provisions -- All Convertible Preferred Stock was
     automatically convertible to common stock upon the completion of a public
     offering resulting in net proceeds to the Company of not less than
     $15,000,000. As of the date of the initial public offering (July 16, 1998),
     the conversion price under most circumstances of a Series A Preferred Share
     was $6.46. The conversion price of a Series B Preferred Share was $8.08. At
     the offering price of $17.00 per share, mandatory conversion was required
     under the terms of the Preferred Stock Agreement.
 
        Dividends -- No dividends shall were to be paid on the Common Stock
     unless the shares of Series A and Series B Convertible Preferred Stock
     received the same dividends that such shares
 
                                      F-17
74
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     would have received had they been converted into Common Stock prior to the
     record date for such dividend.
 
        Liquidation Preference -- In the event of involuntary liquidation,
     dissolution or winding up of the Company, each holder of Series A and
     Series B Convertible Preferred Stock was entitled to receive, prior and in
     preference to any distribution of any assets to holders of any other
     capital stock of the Company, the sum of (a) $6.46 or $8.08 per share for
     Series A and Series B, respectively, plus (b) an amount in the form of a
     dividend equal to a 15% rate of return compounded annually from the date of
     original issuance.
 
        Redemption Provisions -- Series A and Series B Convertible Preferred
     Stock were redeemable if (a) such redemption would not violate any of the
     existing subordination agreements between the Company and its Senior
     Lender, and (b) the Company had the consent of the Senior Subordinated
     Noteholders. Mandatory redemption of 6.5% of the total outstanding shares
     of both Series A and Series B, was required to occur on the last day of
     March, June, September and December commencing in 2001. The redemption
     price was equal to $6.46 per share for Series A and $8.08 per share for
     Series B, plus an amount in the form of a dividend equal to a 15% rate of
     return compounded annually and calculated from the original issue date.
     This Preferred Stock dividend was accreted using the interest method from
     the time of issuance, and this accretion was reversed upon the conversion
     to common stock.
 
        Reserved Shares -- As of September 30, 1997, there were 2,566,561 shares
     of common stock reserved for issuance upon conversion of the Preferred
     Stock. As of September 30, 1997 and 1998, there were 855,400 and 1,458,217
     shares, respectively, of common stock reserved for issuance upon the
     exercise of options granted under the Company's Stock Option Plans.
 
As of September 30, 1997 and 1998 there were 771,664 shares and 511,808 shares,
respectively, of common stock issuable upon the exercise of outstanding
warrants.
 
On November 28, 1995 the Company purchased 1,698,929 shares of common stock from
the former majority stockholder for $1,550,017 in cash and the Redemption Note.
The terms of the repurchase arrangement also required that should an IPO by the
Company occur on or before June 30, 1999, an additional payment of $650,000 plus
an amount equal to 9% interest per annum accruing on such amount from November
28, 1995 to the date of such offering (approximately $821,000 at the time of the
effective date of the Company's IPO). This incremental payment would be made on
the occurrence of the IPO, regardless of whether the Redemption Note was still
outstanding. Also on November 28, 1995, the Company authorized and issued
2,624,000 shares and 911,781 shares, respectively, of Series A Convertible
Preferred Stock. In exchange for the shares issued, the Company received net
cash proceeds of $5,469,110.
 
On January 16, 1996, the Board of Directors authorized a ten-for-one stock
split. All share data in these financial statements reflect the impact of the
split (see Note 1).
 
On May 13, 1996, the Company issued an additional 788,349 shares of Series A
Convertible Preferred Stock for net proceeds to the Company of $5,091,818 in
order to partially finance the acquisition of Bryn Mawr.
 
During the period from March 7, 1997 through May 30, 1997, the Company issued
warrants to purchase 37,138 shares of common stock to certain stockholders who
participated in a Warrant and Debenture Commitment relating to a Bridge Loan
financing (see Note 7). The warrants have a five-year term and an exercise price
of $6.46 per share. The Company hired an independent appraiser to determine the
fair value of the warrants as of the issue date. The warrants were issued at or
above the fair value of the underlying stock; consequently, the Company has not
assigned value to nor
 
                                      F-18
75
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
recorded an expense for this warrant issuance. All of the warrants issued as
part of this transaction were outstanding and exercisable at September 30, 1997
and September 30, 1998.
 
On May 30, 1997, the Company issued 866,425 shares of Series B Convertible
Preferred Stock for net proceeds to the Company of $6,837,385 in order to
partially finance the acquisition of HiFi Buys. Series B Convertible Preferred
Stock is subject to essentially the same terms and conditions as the Series A
Convertible Preferred Stock, except that the conversion price of Series B is
$8.08 per share.
 
On May 30, 1997, the Company issued warrants to purchase 629,566 shares of
common stock in connection with a subordinated debt offering in order to
partially finance the acquisition of HiFi Buys. The warrants have a ten-year
term, an exercise price of $.01, and are subject to certain transfer
restrictions. The Company hired an independent appraiser to determine the fair
value of the warrants as of the issue date. That value was appraised to be
$0.517 per share. Accordingly, the Company placed an aggregate value on the
warrants of $325,383. All of the warrants issued as part of this transaction
were outstanding as of September 30, 1997 and 369,710 are outstanding as of
September 30, 1998. These warrants became immediately exercisable upon the
consummation of the Company's IPO.
 
On May 30, 1997, the Company issued warrants to purchase 104,960 shares of
common stock in connection with the subordinated debt issued to the seller of
HiFi Buys. These warrants have a term of five years from the date of the IPO.
The Company hired an independent appraiser to determine the fair value of the
warrants as of the issue date. The warrants were issued at or above the fair
value of the underlying stock; consequently, the Company has not assigned value
to nor recorded an expense for these warrants. The warrants have an exercise
price of $8.08 per share and are outstanding and exercisable at September 30,
1998.
 
The weighted average exercise price for all warrants outstanding at September
30, 1997 and 1998, respectively, is $1.42 and $2.13. The following table
summarizes information regarding stock warrants outstanding at September 30,
1998:
NUMBER
             OUTSTANDING
                 AND           WEIGHTED-
AVERAGE      EXERCISABLE        AVERAGE
EXERCISE   AT SEPTEMBER 30,    REMAINING
 PRICES          1998         LIFE (YEARS)
--------   ----------------   ------------
$0.01         369,710            8.70
  6.46          37,138            8.40
  8.08         104,960            8.70
 -----         -------            ----
 $2.13         511,808            8.68
INITIAL PUBLIC OFFERING -- On July 16, 1998, the Company completed an IPO of
2,710,000 shares of common stock. The Company sold 2,200,000 shares and 510,000
shares were sold by existing stockholders. Net proceeds received by the Company
were $32.2 million. Net proceeds were used to repay indebtedness (see Note 7).
There were no payments made to directors or officers of the Company, or to
persons owning ten percent or more of any class of equity securities of the
Company or to any affiliate of the Company, except that the Company repaid
approximately $5.0 million on account of a promissory note, as described in Note
7, to one of the institutional investors. This investor beneficially owned 11.2%
of the Company's common stock, immediately prior to the Offering.
 
COMMON STOCK INCENTIVE PLANS -- In November of 1995, the Company implemented a
stock option plan, under which incentive and nonqualified stock options may be
granted to management, key
 
                                      F-19
76
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
employees and outside directors to purchase shares of the Company's common
stock. The exercise price for incentive stock options for employees and
nonqualified options for outside directors range from $.61 to $17.00 per share.
Options are generally exercisable over a period from one to ten years from the
date of the grant and are dependent on the vesting schedule associated with the
grant. Options for 388,779, 568,274 and 658,076 shares were exercisable under
the 1995 Stock Option Plan at September 30, 1996, 1997 and 1998, respectively.
There were 30,438 shares available for future grants at September 30, 1997.
 
On June 1, 1998, the Company terminated the 1995 Stock Option Plan, and adopted
the 1998 Stock Option and Incentive Plan (the "1998 Plan") to provide incentives
to attract and retain executive officers, directors, key employees and
consultants. The aggregate number of shares of common stock issuable under the
1998 Plan is equal to 1,458,217. In addition, the number of shares of common
stock issuable under the 1998 Plan will increase, on each anniversary date of
the adoption of the 1998 Plan, to that number of shares equal to the lesser of
(i) 2% of the total number of shares of common stock that are issued and
outstanding on a fully diluted basis on each such anniversary date or (ii)
150,000 shares of common stock. As options granted under the 1998 Plan are
exercised, the number of shares represented by such previously outstanding
options will again become available for issuance under the 1998 Plan up to a
maximum of 100,000 shares of common stock annually. There were no shares
exercisable under the 1998 Stock Option Plan at September 30, 1998. There were
1,458,217 shares available for future grants at September 30, 1998.
 
The 1998 Plan is administered by the Compensation Committee of the Board of
Directors, and will allow the Company to issue one or more of the following:
stock options (incentive stock option's and non-qualified options), restricted
stock awards, stock appreciation rights, common stock in lieu of certain cash
compensation, dividend equivalent rights, performance shares and performance
units (collectively, "Plan Awards"). The 1998 Plan will expire five years
following its adoption. Awards made thereunder and outstanding at the expiration
of the 1998 Plan will survive in accordance with their terms.
 
In any plan year no more than 25% of the shares reserved for issuance under the
1998 Plan may be used for Plan Awards consisting of restricted stock. All grants
of restricted stock under the 1998 Plan will be subject to vesting over seven
years, subject, however, at the Administrator's discretion, to acceleration of
vesting upon the achievement of specified performance goals.
 
The 1998 Plan also provides for the grant or issuance of Plan Awards to
directors of the Company who are not employees of the Company. These options
will vest over a period of three years; provided such non-employee director is
not removed before the end of his or her term. On June 1, 1998, the Board of
Directors authorized the grant of options ("June 1998 Options") under the 1998
Plan, exercisable for a total of 209,988 shares of common stock, to certain
officers, directors and employees of the Company. All such June 1998 Options
were granted upon the consummation of the IPO, and the exercise price for all
such June 1998 Options is $17.00 per share.
 
                                      F-20
77
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
The following summarizes transactions under the stock option plans:
WEIGHTED-
                                                                             AVERAGE
                                            NUMBER OF       PER SHARE       EXERCISE
                                             SHARES       OPTION PRICE        PRICE
                                            ---------    ---------------    ---------
October 1, 1995
  Granted.................................    604,424    $ 0.61 to $7.10     $ 2.31
  Exercised...............................         --                 --         --
  Canceled................................         --                 --         --
                                            ---------                        ------
September 30, 1996........................    604,424    $ 0.61 to $7.10     $ 2.31
  Granted.................................    232,602    $ 6.46 to $8.08     $ 7.59
  Exercised...............................         --                 --         --
  Canceled................................     11,289    $ 0.61 to $6.46     $ 1.77
                                            ---------                        ------
September 30, 1997........................    825,737    $ 0.61 to $8.08     $ 3.72
  Granted.................................    229,270    $7.24 to $17.00     $15.74
  Exercised...............................         --                 --         --
  Canceled................................     10,282    $ 0.61 to $7.24     $ 3.24
                                            ---------                        ------
September 30, 1998........................  1,044,725    $0.61 to $17.00     $ 6.48
                                            =========
The following summarizes information about all stock options outstanding at
September 30, 1998:
WEIGHTED-         NUMBER OF
                                   SHARES           AVERAGE           OPTIONS
                                OUTSTANDING        REMAINING        EXERCISABLE
EXERCISE                      AT SEPTEMBER 30,    CONTRACTUAL     AT SEPTEMBER 30,
PRICES                              1998          LIFE (YEARS)          1998
--------                      ----------------    ------------    ----------------
$ 0.61......................       215,676            7.3             172,146
  0.67......................       111,878            7.4             111,878
  1.52......................       107,584            7.2             107,584
  6.46......................       133,023            7.6              98,142
  7.10......................        44,148            7.7              44,148
  7.24......................       179,860            8.8              71,288
  8.08......................        52,890            8.8              52,890
 14.21......................           328            9.4                  --
 17.00......................       199,338            3.3                  --
                                 ---------                            -------
Total.......................     1,044,725            6.9             658,076
                                 =========                            =======
The weighted-average exercise price of all options outstanding as of September
30, 1997 and 1998 is $3.72 and $6.48, respectively.
 
For purposes of determining the disclosure required by SFAS No. 123, the fair
value of each stock option granted in 1996, 1997 and 1998 under the Company's
stock option plan was estimated on
 
                                      F-21
78
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the date of grant using the Black-Scholes option-pricing model. Key assumptions
used to apply this pricing model were as follows:
SEPTEMBER 30,
                                                        --------------------
                                                        1996    1997    1998
                                                        ----    ----    ----
Risk free interest rate...............................  6.21%   5.69%   5.67%
Expected life of option grants (years)................   5.0     4.0     3.3
Expected volatility of underlying stock...............  54.5%   54.5%   54.5%
Had compensation cost for stock option grants during the years ended September
30, 1996, 1997 and 1998 been determined under the provisions of SFAS No. 123,
the Company's net income would have been approximately $1,742,600, $136,000 and
$5,033,000, respectively. Pro forma diluted earnings (loss) per share would have
been $0.36, $(1.21) and $1.00 for the years ended September 30, 1996, 1997 and
1998, respectively.
 
13.  RELATED PARTY TRANSACTIONS
 
In May 1996, in connection with the acquisition of Bryn Mawr, the Company
entered into a consulting agreement with Bryn Mawr's former owner and a former
director of the Company ("BMFO") for a term of four years (the "Consulting
Period"). This consulting agreement was amended as of April 23, 1997 and
currently the Company is obligated to pay BMFO a monthly salary of approximately
$21,000 for each month during the first year after the commencement date of the
agreement, and approximately $4,200 for each month during years three and four
of the Consulting Period plus out-of-pocket expenses. No compensation or
expenses were to be paid to BMFO for the second year of the Consulting Period.
The Company also entered into certain lease agreements for three facilities in
Pennsylvania with an affiliate of BMFO. Total yearly payments under these
agreements aggregates to approximately $670,000.
 
14.  EXTRAORDINARY ITEM
 
In connection with the IPO on July 16, 1998, the Company recorded an
extraordinary charge against current period income for the early extinguishment
of debt. The Company wrote off deferred financing costs of $286,009 related to
the 1997 Notes. The Company also wrote off $280,136 representing the unamortized
portion of the discount related to the warrants issued in conjunction with the
1997 Notes. The gross amount of the extraordinary item was $566,145. The net
effect of $339,687, after tax benefit of $226,458, was recorded in the
consolidated statement of income as an extraordinary item.
 
                                      F-22
79
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
15.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
 
The following is a tabulation of the quarterly results of operations for the
fiscal years ended September 30, 1997 and 1998, respectively.
THREE MONTHS ENDED
                                          ------------------------------------------------------
                                          DECEMBER 31,    MARCH 31,    JUNE 30,    SEPTEMBER 30,
                                              1996          1997         1997          1997
                                          ------------    ---------    --------    -------------
                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR 1997
Total revenue...........................    $34,988        $25,595     $28,211        $43,731
Gross profit............................     12,300          9,102       9,659         15,149
Net income (loss).......................      1,350            (47)       (698)          (459)
Net income (loss) available to common
  stockholders..........................        896           (495)     (1,234)        (1,178)
Basic earnings (loss) per share.........       0.54          (0.30)      (0.74)         (0.70)
Diluted earnings (loss) per share.......        0.4          (0.30)      (0.74)         (0.70)
THREE MONTHS ENDED
                                          ------------------------------------------------------
                                          DECEMBER 31,    MARCH 31,    JUNE 30,    SEPTEMBER 30,
                                              1997          1998         1998          1998
                                          ------------    ---------    --------    -------------
FISCAL YEAR 1998
Total revenue...........................    $74,617        $54,512     $49,676        $53,483
Gross profit............................     25,381         19,468      17,419         18,754
Net income..............................      3,173          1,139         204            599
Net income (loss) available to common
  stockholders..........................      2,381            347        (588)           738
Basic earnings (loss) per share.........       1.42           0.21       (0.35)          0.11
Diluted earnings (loss) per share.......       0.69           0.17       (0.35)          0.11
16.  SUBSEQUENT EVENTS
 
On December 9, 1998, the Company reached an agreement in principle to acquire
certain assets and liabilities of the retail operations of Home Entertainment,
Inc. for consideration of approximately $8,200,000. The source of cash for the
purchase price will be borrowings made under the Company's revolving line of
credit. Home Entertainment, Inc. operates seven consumer electronics retail
stores in the Dallas and Houston markets. The Company will continue the
operation of the retail stores as well as the service and distribution
facilities.
 
                                   **********
 
                                      F-23
80
 
------------------------------------------------------
------------------------------------------------------
 
INVESTORS MAY RELY ONLY ON THE INFORMATION IN THIS PROSPECTUS. TWEETER, THE
SELLING STOCKHOLDERS AND THE UNDERWRITERS HAVE NOT AUTHORIZED ANYONE TO PROVIDE
ANY DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY SHARES OF TWEETER'S COMMON STOCK TO ANY
PERSON IN ANY JURISDICTION WHERE IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE OF SHARES MEANS THAT INFORMATION IN THIS PROSPECTUS IS
CORRECT OR COMPLETE AFTER THE DATE OF THIS PROSPECTUS.
 
                                ---------------
 
                               TABLE OF CONTENTS
PAGE
                                        ----
Prospectus Summary....................    3
Risk Factors..........................    9
Price Range of Common Stock...........   15
Use of Proceeds.......................   15
Dividend Policy.......................   15
Capitalization........................   16
Selected Consolidated Financial and
  Operating Data......................   17
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.......................   20
Business..............................   30
Management............................   39
Principal and Selling Stockholders....   45
Certain Transactions..................   47
Description of Capital Stock..........   48
Underwriting..........................   52
Legal Matters.........................   53
Experts...............................   53
Available Information.................   54
Index to Financial Statements.........  F-1
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
 
                                2,000,000 Shares
 
                                  TWEETER HOME
                                 ENTERTAINMENT
                                  GROUP, INC.
 
                                  Common Stock
                         ------------------------------
 
                                   PROSPECTUS
                         ------------------------------
 
                                 BT ALEX. BROWN
 
                            PAINEWEBBER INCORPORATED
 
                             DAIN RAUSCHER WESSELS
                    A DIVISION OF DAIN RAUSCHER INCORPORATED
                                          , 1999
 
------------------------------------------------------
------------------------------------------------------
81
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
The following table sets forth the various expenses to be incurred in connection
with the sale and distribution of the securities being registered. Tweeter will
pay all of these expenses.
SEC registration fee........................................  $ 17,983
NASD filing fee.............................................     6,969
Nasdaq listing fee..........................................    17,500
Printing, engraving and mailing expenses....................   350,000
Legal fees and expenses.....................................   200,000
Accounting fees and expenses................................   250,000
Transfer agent fees and expenses............................     5,000
Miscellaneous...............................................    52,548
                                                              --------
          TOTAL.............................................  $900,000
                                                              ========
ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
Tweeter's Charter generally limits the liability of its Directors to Tweeter to
the fullest extent permitted from time to time by Delaware law. The DGCL
permits, but does not require, Tweeter to indemnify its directors, officers,
employees or agents, and expressly provides that the indemnification provided
for under the DGCL shall not be deemed exclusive of any indemnification right
under any By-law, vote of stockholders or disinterested directors, or otherwise.
The DGCL permits indemnification against expenses and certain other liabilities
arising out of legal actions brought or threatened against such persons for
their conduct on behalf of a corporation; provided, however, that each such
person acted in good faith and in a manner that he reasonably believed was in or
not opposed to Tweeter's best interests and, in the case of a criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The DGCL does not allow indemnification of directors in the case of an action by
or in the right of a corporation (including stockholder derivative suits) unless
the directors successfully defend the action or indemnification is ordered by
the court.
 
The Charter provides that Tweeter's Directors and executive officers shall be
and, in the discretion of the Board of Directors, other officers and non-officer
employees may be indemnified by Tweeter to the fullest extent authorized by
Delaware law, as it now exists or may in the future be amended, against all
expenses and liabilities actually and reasonably incurred in connection with
service for or on behalf of Tweeter. The By-laws also provide that the right of
directors and officers to indemnification shall be a contract right and shall
not be exclusive of any other right now possessed or hereafter acquired under
any By-law, agreement, vote of stockholders, or otherwise. The Charter contains
a provision permitted by Delaware law that generally eliminates the personal
liability of directors for monetary damages for breaches of their fiduciary
duty, including breaches involving negligence or gross negligence in business
combinations, unless the director has breached his or her duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or a knowing
violation of law, paid a dividend or approved a stock repurchase in violation of
the DGCL or obtained an improper personal benefit. The provision does not alter
a director's liability under the Federal securities laws. In addition, this
provision does not affect the availability of equitable remedies, such as an
injunction or rescission, for breach of fiduciary duty.
 
Reference is also made to the underwriting agreement, which is filed as Exhibit
1.1 to this Registration Statement.
 
                                      II-1
82
 
ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.
 
Set forth in chronological order is information regarding the number of shares
of capital stock sold, the number of options granted by Tweeter, and the amount
of debt securities issued by Tweeter since December 31, 1995, the consideration
received by Tweeter for such shares, options and debt instruments and
information relating to the section of the Securities Act, or rule of the
Securities and Exchange Commission under which exemption from registration is
claimed. None of these securities were registered under the Securities Act. No
sale of securities involved the use of an underwriter and no commissions were
paid in connection with the sales of securities, except that we paid a placement
fee of $500,000 to BankBoston, N.A., in connection with the subordinated loan
referred to in paragraph 4 below.
 
        1.  On May 13, 1996, we issued an aggregate of 788,349 shares of Series
     A Redeemable Convertible Preferred Stock to Advent Direct Investment
     Program Limited Partnership, Global Private Equity II Limited Partnership
     and Carolina Bloomberg at a purchase price of $6.46 per share. These shares
     were converted into 788,349 shares of common stock upon consummation of our
     initial public offering. The securities were sold pursuant to Section 4(2)
     and Regulation D under the Securities Act.
 
        2.  On March 7, 1997, in connection with a $2.0 million bridge loan from
     Tweeter's existing lender, the Company sold to Weston Presidio Offshore
     Capital, C.V., Natio Vie Developpement II, FCPR, BNP Venture Holding Corp.,
     Jeffrey Bloomberg, Harriet Bloomberg, Armin Biller, Matthew Bronfman,
     Advent Direct Investment Program Limited Partnership, Global Private Equity
     II Limited Partnership and Carolina Bloomberg, pursuant to the terms of a
     Warrant and Debenture Commitment dated as of March 7, 1997, warrants
     initially exercisable for an aggregate of 37,138 shares of common stock.
     The purchase price for each warrant was $0.15 multiplied by the number of
     shares of common stock which could initially be purchased upon exercise in
     full of each warrant. The exercise price for each such warrant is $6.46 per
     share. The securities were sold pursuant to Section 4(2) and Regulation D
     under the Securities Act.
 
        3.  On May 30, 1997, as part of the total purchase price for the HiFi
     Buys acquisition, we issued a Warrant to HiFi Buys Incorporated, now known
     as HFB Associates LLC, exercisable for 104,960 shares of common stock. The
     exercise price for such HFB Associates warrant is $8.08 per share. We also
     issued the HiFi Buys Note to HiFi Buys Incorporated at such time. The
     securities were sold pursuant to Section 4(2) and Regulation D under the
     Securities Act.
 
        4.  On June 2, 1997, we issued the 1997 Notes in the aggregate amount of
     $15,000,000 to PNC Capital Corp, Exeter Venture Lenders, L.P., Exeter
     Equity Partners and Seacoast Capital Partners, L.P. We also issued to these
     lenders warrants exercisable for an aggregate of 629,566 shares of common
     stock. The exercise price under each such warrant is $.002 per share. The
     securities were sold pursuant to Section 4(2) and Regulation D under the
     Securities Act.
 
        5.  On June 2, 1997, we issued an aggregate of 866,425 shares of Series
     B Redeemable Convertible Preferred Stock to Weston Presidio Offshore
     Capital C.V., Natio Vie Developpement II, FCPR, BNP Venture Holding Corp.,
     Jeffrey Bloomberg, Harriet Bloomberg, Matthew Bronfman, Advent Direct
     Investment Program Limited Partnership, Carolina Bloomberg, PNC Capital
     Corp, Exeter Venture Lenders, L.P. and BancBoston Investments Inc., at a
     purchase price of $8.08 per share. These shares were converted into 866,425
     shares of common stock upon consummation of our initial public offering.
     The securities were sold pursuant to Section 4(2) and Regulation D under
     the Securities Act.
 
        6.  During the past three years, the Company has granted options to
     purchase an aggregate number of 1,066,296 shares to purchase common stock
     to 326 individuals (some of which
 
                                      II-2
83
 
     have terminated their employment with the Company, all of whom were at the
     time of grant Tweeter's employees or directors, pursuant to its 1995 Stock
     Option Plan. These options have been granted under Section 4(2) of the
     Securities Act and/or Rule 701 under the Securities Act.
 
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENTS.
 
(a) See the Exhibit Index included immediately preceding the exhibits to this
Registration Statement.
 
(b) Schedule II is included in this Registration Statement. All other schedules
are not required under the instructions relating to the applicable accounting
regulations of the Securities and Exchange Commission or are inapplicable, and
therefore have been omitted.
 
ITEM 17.  UNDERTAKINGS.
 
(a) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
 
(b) The undersigned registrant hereby undertakes that:
 
        (1) For purposes of determining any liability under the Securities Act,
     the information omitted from the form of prospectus filed as part of this
     registration statement in reliance upon Rule 430A and contained in a form
     of prospectus filed by the registrant pursuant to under Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act shall be deemed to be part of this
     registration statement as of the time it was declared effective; and
 
        (2) For the purpose of determining any liability under the Securities
     Act, each post-effective amendment that contains a form of prospectus shall
     be deemed to be a new registration statement relating to the securities
     offered therein, and that offering of such securities at that time shall be
     deemed to be the initial bona fide offering thereof.
 
                                      II-3
84
 
                                   SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts on January 13, 1999.
 
                                          TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                                          By:       /s/ JEFFREY STONE
 
                                            ------------------------------------
                                            Jeffrey Stone
                                            President and Chief Operating
                                              Officer
 
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been duly signed below by the following persons in the capacities
and on the dates indicated.
SIGNATURE                                   TITLE                     DATE
                     ---------                                   -----                     ----
/s/ SAMUEL BLOOMBERG                  Director, Chairman of the       January 13, 1999
---------------------------------------------------    Board and Chief Executive
        Samuel Bloomberg, By Jeffrey Stone;            Officer
               His Attorney-in-Fact.
 
                 /s/ JEFFREY STONE                   Director and President          January 13, 1999
---------------------------------------------------    (Principal Executive
                   Jeffrey Stone                       Officer)
 
                /s/ JOSEPH MCGUIRE                   Vice President and Chief        January 13, 1999
---------------------------------------------------    Financial Officer
                  Joseph Mcguire                       (Principal Financial
                                                       Officer and Principal
                                                       Accounting Officer)
 
               /s/ JEFFREY BLOOMBERG                 Director                        January 13, 1999
---------------------------------------------------
       Jeffrey Bloomberg, By Jeffrey Stone,
               His Attorney-in-Fact.
 
               /s/ MATTHEW BRONFMAN                  Director                        January 13, 1999
---------------------------------------------------
        Matthew Bronfman, By Jeffrey Stone,
               His Attorney-in-Fact.
 
                /s/ MICHAEL CRONIN                   Director                        January 13, 1999
---------------------------------------------------
         Michael Cronin, By Jeffrey Stone,
               His Attorney-in-Fact.
II-4
85
 
                                                                     SCHEDULE II
 
                     TWEETER HOME ENTERTAINMENT GROUP, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
ADDITIONS
                                BALANCE AT   ---------------------------------   DEDUCTIONS   BALANCE AT
                                BEGINNING    CHARGED TO COSTS     CHARGED TO       NET OF       END OF
DESCRIPTION                     OF PERIOD      AND EXPENSES     OTHER ACCOUNTS   WRITE-OFFS     PERIOD
-----------                     ----------   ----------------   --------------   ----------   ----------
Years ended
  September 30, 1998..........     $631            $ 13              $ --           $84          $560
  September 30, 1997..........      440             191                --            --           631
  September 30, 1996..........       15             427                --             2           440
S-1
86
 
                                 EXHIBIT INDEX
 
(a) EXHIBITS:
EXHIBIT NO.                                DESCRIPTION
-----------                                -----------
**1.1      --   Form of Underwriting Agreement.
    *3.1      --   Amended and Restated Certificate of Incorporation of the
                   Company.
    *3.2      --   Amended and Restated By-Laws of the Company.
    *4.1      --   Specimen Certificate representing the common stock.
    *4.2      --   Shareholders' Rights Agreement.
   **5.1      --   Opinion of Goulston & Storrs, P.C. with respect to the
                   legality of the shares being offered.
   *10.1      --   Amended and Restated Registration Rights Agreement, dated as
                   of May 30, 1997, as amended, among the Company and the
                   shareholders and warrantholders listed therein, as amended.
   *10.2      --   Warrant Purchase Agreement among the Company, PNC Capital
                   Corp, Seacoast Capital Partners, L.P. and Exeter Venture
                   Lenders, L.P., dated as of May 30, 1997, as amended.
   *10.3      --   Stock Purchase Warrant issued to PNC Capital Corp dated June
                   5, 1998 for 209,855 shares of common stock of the Company.
   *10.4      --   Stock Purchase Warrant issued to Seacoast Capital Partners,
                   L.P. dated June 5, 1998 for 209,855 shares of common stock
                   of the Company.
   *10.7      --   Common Stock Warrant issued to HiFi Buys Incorporated dated
                   June 5, 1998 for 104,960 shares of common stock of the
                   Company.
   *10.8      --   Form of common stock Purchase Warrant dated June 5, 1998
                   issued by the Company pursuant to the Warrant and Debenture
                   Commitment.
   *10.9      --   1995 Stock Option Plan.
   *10.10     --   1998 Plan.
   *10.12     --   Employment Agreement between the Company and Samuel
                   Bloomberg to be effective upon the offering.
   *10.13     --   Employment Agreement between the Company and Jeffrey Stone
                   to be effective upon the offering.
   *10.14     --   Employment Agreement between the Company and Joseph McGuire
                   to be effective upon the offering.
   *10.15     --   Employment Agreement between the Company and Fred Lokoff,
                   dated as of May 13, 1996 and amended as of April 23, 1997.
   *10.17     --   Asset Purchase Agreement, dated as of May 30, 1997, between
                   the Company and HiFi Buys Incorporated.
   *10.18     --   Purchase and Sale Agreement between Chadwick-Miller Inc. and
                   New England Audio Co., Inc. for premises at 10 Pequot Way,
                   Canton, MA, dated March 31, 1998.
87
EXHIBIT NO.                                DESCRIPTION
-----------                                -----------
*10.19     --   Progressive Retailers Organization, Inc. Policy and
                   Procedures Manual.
  **10.20     --   Form of Employee Stock Purchase Plan submitted to vote of
                   stockholders.
  **11        --   Statement Re Computation of Per Share Earnings.
   *21.1      --   Subsidiaries of the Company.
  **23.1      --   Consent of Deloitte & Touche LLP
    23.2      --   Consent of Goulston & Storrs, P.C., counsel to the Company
                   (included in Exhibit 5.1).
  **24.1      --   Power of Attorney (included on Signature Page).
  **27.1      --   Financial Data Schedule.
---------------
 * Filed as an exhibit to the Registrant's Registration Statement on Form S-1
   (Registration Number 333-51015) or amendments thereto and incorporated herein
   by reference.
 
** Filed herewith.